I know that for purposes
of calculating an employee’s overtime rate of pay, we need to first determine
the regular rate of pay. We sometimes award bonuses to our workers, but when
does the amount of the bonus enter into this calculation?
– Jim S. in
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
To arrive at the correct
overtime rate of pay, the employer must first figure the employee’s regular
rate of pay for a given workweek. Generally, this is done by dividing the
employee’s total remuneration in a workweek by the total hours worked in that
week. Circumstances determine which bonuses must be included in this calculation.
Whether you must include
a bonus generally depends on whether it is discretionary or nondiscretionary. Nondiscretionary
bonuses are included in an employee’s regular pay rate for purposes of
determining overtime; discretionary bonuses are not.
A bonus is discretionary
if: 1) both the fact that payment is to be made and the amount of the payment are
determined solely by the employer; and 2) the bonus isn’t paid under a prior
contract, agreement, or promise causing the employee to expect such payments
regularly. Also, bonuses that are awarded as gifts for past services, such as
holiday bonuses, aren’t included when figuring the regular rate of pay as long
as the bonus amount isn’t measured by or dependent on hours worked, production,
or efficiency.
Bonuses are
nondiscretionary if the employer promises, contracts, or agrees to pay a bonus
to the employee. Nondiscretionary bonuses include the following:
• bonuses promised to
employees on hiring
• bonuses that are the
result of collective bargaining
• bonuses announced to
employees to spur them to be more productive
• attendance bonuses
• individual or group
production bonuses
• bonuses based on quality/accuracy
• bonuses announced to
induce employees to stay with your firm
• bonuses contingent on
the employee’s remaining employed until a specified date