INCLUDE BONUSES IN OT FIGURE?
pattyo
71 Posts
Can anyone give me info regarding the following? We give quarterly bonuses (up to 10% of quarterly earnings)- When paying overtime, should this 10% bonus be figured into their hourly OT? It is based on performance criteria. After reading the article below, I'm concerned. This is the first I have heard of this.
ARTICLE READS:
Under the federal FLSA, bonus payments must generally be included in the calculation of a worker's hourly rate when figuring the overtime premium. Bonuses that are required by an expressed or implied contract or promise must be included in the regular rate of pay. Examples of these so-called "nondiscretionary" payments include bonuses that are in any way connected to effort and output, such as attendance bonuses, production bonuses, and incentive pay.
ARTICLE READS:
Under the federal FLSA, bonus payments must generally be included in the calculation of a worker's hourly rate when figuring the overtime premium. Bonuses that are required by an expressed or implied contract or promise must be included in the regular rate of pay. Examples of these so-called "nondiscretionary" payments include bonuses that are in any way connected to effort and output, such as attendance bonuses, production bonuses, and incentive pay.
Comments
For example, it's Christmas and the owner of the company decides as a gesture of goodwill, to issue a 2% bonus to employees. There was no expectation of the emplyees to get that bonus and it wasn't promised or based on anything the emplyee did. That is a discretionary bonus which wouldn't be included in the hourly rate calculation.
FLSA regualtions address the bonus issue and how they are calculated for overtime purposes.
Take a look at the FLSA regulations in the Code of Federal Regulations, Volume 29, Section 778, specifically., 778.109 and .110 and 778.208 through .212.
[url]http://www.access.gpo.gov/nara/cfr/waisidx_02/29cfr778_02.html[/url]
Our company gives a Paid Day Off (PDO) for three months of perfect attendance. The day off can be taken at anytime at the employee's discretion. It can be accrued for as long as the employee is employed with our company, thus it can be taken at anytime over many years. Most employees take it when they are out sick or as an extra vacation day, but occasionally an employee will take it in a week when they have already worked over 40 hours. Since it's a day off, no work is performed, and it is taken at their discretion and with a supervisor's approval if coordinated in advance; I don't include it in overtime calculations.
Should I count their Paid Day Off as overtime if they also work over 40 hours in the week that they take their day off? Because of the discretionary nature of the day off, the employee could obviously always take their day off when they've already worked 40 hours, thus guaranteeing themselves overtime pay for work not accomplished. I read Sec 778 and it appears that the following (Sec 778-216) applies and indicates that we would not have to count this as overtime:
PART 778--OVERTIME COMPENSATION--Table of Contents
Subpart C--Payments That May Be Excluded From the ``Regular Rate''
Sec. 778.216 The provisions of section 7(e)(2) of the Act.
Section 7(e)(2) of the Act provides that the term ``regular rate''
shall not be deemed to include ``payments made for occasional periods
when no work is performed due to vacation, holiday, illness, failure of
the employer to provide sufficient work, or other similar cause;
reasonable payments for traveling expenses, or other expenses, incurred
by an employee in the furtherance of his employer's interests and
properly reimbursable by the employer; and other similar payments to an
employee which are not made as compensation for his hours of employment
* * *.'' However, since such payments are not made as compensation for
the employee's hours worked in any workweek, no part of such payments
can be credited toward overtime compensation due under the Act.
Thanks in advance for your opinions.
It clearly isn't work time. It is compensatory time off awarded as a "non-discretionary" bonus. The real issue is whether or not you would need to calculate the amount of the pay at the time they took it off as part of the regular rate of pay, in the first place. And I think you might, although I do have to say, it is not absolutely clear that you do.
The comp time is another mechanism for payng the non-discretionary bonus, replacing what is probably a more common practice of awarding "cash" when the bonus is earned. Thus, the fact that the company pays out the bonus as cash through an intermediary step of comp time doesn't really, it seems to me, change the nature of the bonus, when it is actually paid out.
The reasons I think it would be included is that DOL would probably see the intermediary step as a ruse to get around calculating the bonus as part of the regular rate of pay when the bonus is paid out even though the apparent reading of the provision you cited from 7(e)(2) may indicate that you are not required to. But I do not think that the wording of the particular provision does not include this situation. For those who work the 40 hours and then take the comp time as case, clearly the provision you cite is not contemplated since it is not a payment for a "period of when no work is performed."
Since I am not an employment lawyer, I think your best best as to the issue of considering the pay out in calculating the regular rate of pay at the time it is paid out is probably best discussed with your legal counsel or with a request for an opionn from the US Department of Labor.
Thanks for the input.
Rita M
As an aside, the issue came to their attention due to a complaint from an employee who was denied FMLA leave, and the resulting points negatively affected her bonus.
It cost us over $250K, including interest.
>if you pay a bonus as a percentage of gross wages, you account for
>overtime and thus it does not have to be included when calculating
>overtime. Am I wrong?
Okay, so if we include the OT in our percentage bonus we are in compliance? That would make sense, otherwise you are accounting for the OT twice. Thanks.
What about our bonus plan: each month one of our preschools reaches a pre-set enrollment goal, non-exempt employees receive bonuses of $12.50 to $50.00. (Exempt employees have a different bonus plan)
The payment is guaranteed only when the individual location reaches its goal for that month.
I have not included the bonus payments in the overtime calculations. Should I? Is there a way to continue the bonus program and "tweak" it so it doesn't affect overtime calcs?
From the wording in 29CFR778.21(b), which draws one type of distinction between a bonus which is discretionary, and therefore not part of the "regular pay" calculation, and an identified production-type bonus which is:
"Similarly, an employer who promises to sales employees that they will receive a monthly bonus computed on the basis of allocating 1 cent for each item sold whenever, is his discretion, the financial condition of the firm warrants such payments, has abandoned discretion with regard to the amount of the bonus though not with regard to the fact of payment. Such a bonus would not be excluded from the regular rate. On the other hand, if a bonus such as the one just described were paid without prior contract, promise or announcement and the decision as to the fact and amount of payment lay in the employer's sole discretion, the bonus would be properly excluded from the regular rate."
and from .21(c):
"Bonuses which are announced to employees to induce them to work more steadily or more rapidly or more efficiently or to remain with the firm are regarded as part of the regular rate of pay."
In your the case, the bonus is paid out when the pre-set and announced conditions are met. At that point there is no true discretion to pay or not pay/
I think the only way of "tweaking" the situation, is to cancel the bonus and not say anything about the bonus any further, except that it was cancelled. And make sure that employees aren't working to meet the goal on the expectation that you will pay it anyway.
Let a couple of years go by and then award bonuses to those individuals who met whatever criteria you set, without prior notice that such a bonus is in effect and with a clear indciation that the bonus may or may not be paid in the future. Employees may not have any expectation that a bonus will be paid if "x" is done.
Although Hatchet gives you a way to get out of not calculating the bonus in the regular rate of pay, I do not think it would be a good idea to cancel the bonus system out of the blue. That would hurt morale and they may lose focus on enrollment numbers. In my opinion, you need to have a sound business reason to cancel an employee benefit. To cancel the bonus so their regular rate of pay is not increased is not a sound business decision from their perspective and possibly not from anyone's perspective. Maybe instead of a bonus you could have a contest that the location with the highest enrollment increase gets to close for a day and have a party, or they get an extra vacation day. You could have the owner, BOD or whoever come to the party. Or each location that meets set enrollment goals gets to have a party, etc. Just some ideas.