Your Employer May Be Illegally Undercalculating Your Overtime Pay By Ignoring Your Bonus Payments

The Fair Labor Standards Act (FLSA) is a comprehensive federal labor law that covers most employers. The FLSA requires that all non-exempt employees (which largely includes most hourly employees, non-managers, and non-executives) are paid at least the federal minimum wage ($7.25) for all hours worked and overtime pay of one-and-one-half times the regular rate of pay for all hours worked over 40 hours in a workweek. 

One pitfall that employers often fall into when calculating overtime wages is improperly excluding certain kinds of bonuses from determining the proper overtime rate of pay. Generally, a bonus is an additional payment made on top of the employee’s regular earnings.  There are two types of bonuses – discretionary and non-discretionary – and they are treated differently as to their inclusion in calculating the rate of overtime pay for a particular workweek. 

A discretionary bonus is excluded from calculating the regular rate of pay and thus is not factored into determining the proper overtime rate of pay. To be considered discretionary, all of the below requirements must be met:

  • The employer has the sole discretion, until at or near the end of the period that corresponds to the bonus, to determine whether to pay the bonus;
  • The employer has the sole discretion, until at or near the end of the period that corresponds to the bonus, to determine the amount of the bonus; and
  • The bonus payment is not made according to any prior contract, agreement, or promise causing an employee to expect such payments regularly. 

A bonus that does not meet any of the requirements above is non-discretionary and must be included in calculating the overtime rate of pay. A non-discretionary bonus is typically one that an employee knows about and expects to receive in the event all criteria for earning the bonus are met.  Some examples of non-discretionary bonuses include attendance bonuses, those based on a predetermined formula, and those announced to induce more efficient work. 

If an employer has improperly calculated the overtime rate of pay for an employee, he or she may be eligible to receive the difference in pay, plus other types of damages. If you believe that your employer has failed to include your non-discretionary bonus pay when calculating your overtime pay, please contact our employment law attorneys, Ben Salvina and Faith Pensinger.

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