Could I get some clarification on whether we owe overtime on predetermined bonuses? We pay a production bonus to our assembly workers when they hit certain production levels. The bonus is not a great amount of money, but it does seem to keep production levels up. Now we’ve heard that we should somehow be paying overtime on these bonus payments. Do we owe it, and if so, how do we calculate it?
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First of all, we’re talking about nonexempt employees. Exempt employees are not entitled to overtime, so this situation does not apply to them. Your situation is a good example of a predetermined bonus—a system that says, if you produce so many things, you will be paid a certain amount of bonus. That is essentially compensation for hours worked, just in another form. So if during that period covered by the bonus there was overtime worked, some portion of that bonus was earned during overtime hours, and therefore you have to pay overtime on that portion of the bonus. Because the bonus also covered the straight-time hours, you only have to pay the extra half on the overtime portion of the bonus. Here’s the easiest way to calculate it: Divide the bonus amount by the number of hours worked. Say the result comes out to a bonus of 50 cents per hour. Then for each of the overtime hours worked during the bonus period, you would add half the hourly bonus amount, or 25 cents. — Lloyd W. Aubry, Jr.
Lloyd W. Aubry, Jr., is of counsel at the San Francisco office of law firm Morrison & Foerster.