In our last post we reviewed some of the basic guidelines relating to wage and hour compliance, and how California law differs from Federal law. In this post we continue to review wage and hour laws, but move to bonuses.
Discretionary and Non-Discretionary Bonuses
Employers usually pay two types of bonuses: non-discretionary and discretionary.
Discretionary bonuses are usually paid as a gift for past services and are not measurable by an employee’s work performance, and/or hours worked. An example of a discretionary bonus is a holiday bonus or special occasion bonus.
Non-discretionary bonuses are bonuses that are intended to increase an employee’s performance and efforts. For example, bonuses paid on work performance efficiency and quality, attendance, years of service, and bonuses promised to employees at time of hire are considered non-discretionary.
When paying out non-discretionary bonuses, you must also pay the overtime “premium” on the bonus. According to the Department of Labor, since the bonus was earned during the regular hours as well as the overtime hours, the overtime “premium” on the bonus is paid on half-time or full-time (for double time hours) on the regular bonus rate (from DLSE Manual). Unfortunately, you cannot just pay an employee a $100 bonus, if they worked any overtime in the pay period for which the bonus was earned. You must reference the bonus on their pay stubs and note the workweek(s) that the bonus was earned.
Example On How to Calculate Overtime Premium When a Bonus is Paid:
Regular hourly rate of pay………………………………………………………………………………………..$10.00
Overtime rate of pay………………………………………………………………………………………………..$15.00
Total hours worked in workweek = 50
Total regular hours worked= 40 (8 hours x 5 days)
Total overtime hours at time and one-half = 10 (2 hours x 5 days)
Bonus………………………………………………………………………………………………………………………$100.00
Regular bonus rate:
$100.00 (bonus) ÷ 50 (total hours worked) =
$2 .00 ÷ 2 (for half of the regular rate) =
$1.00 x 10 (Overtime Hours) = $ 10.00
Total earnings due for the workweek:
Regular hours: 40 hours @ $10.00 ………………………………$400.00
Overtime: 10 hours @ $15.00 ……………………………………..$150.00
Bonus ……………………………………………………………………………$100.00
Overtime on bonus…………………………………………………………$ 10.00
Total ……………………………………………………………………………$660.00
Remember, wage and hour laws vary by state, it is important that you understand that as an employer you are mandated by law to pay your employees for all hours worked.
The Bottom Line
Confused yet?? There is a lot to know, and a lot to implement. If you are concerned about tackling wage and hour compliance alone, you may want to consider outsourcing some of these complicated laws to professionals who can guide you every step of the way. Please contact us for a free wage and hour consultation.
Contributed by: Thi Ha and Monique Stennis, CPEhr
Companies both large and small are finding themselves in legal battles against employees for not complying with overtime laws as outlined in the Fair Labor Standards Act of 1938 (FLSA). The complex regulations found in the FLSA code governing proper payment of wages is overseen by the Department of Labor and can result in hefty fines, or possibly prison time, for multiple violations. In this and subsequent posts, we will look at some of the potential pitfalls, guidelines and laws governing wages as outlined in the FLSA.
Effective July 24, 2009, the Federal Minimum Wage will increase from $6.55 to $7.25 per hour, representing more than a 10 percent increase. All employers, regardless of size, are required to post the most recent Minimum Wage poster (that went into effect on January 16, 2009) even if your state’s minimum wage differs.
