The FLSA provides for several narrow exemptions from the requirement that bonuses be included in an employee’s regular rate of pay. The onus is on the employer to prove that a payment meets one of the exemption requirements. The exemptions include:
- Gifts, or payments in the nature of gifts, made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent on hours worked, production, or efficiency
- Vacation, holiday, or sick leave pay; payment for failure of the employer to provide sufficient work, or other similar cause; reasonable payments for traveling expenses, and other similar payments to an employee that are not made as compensation for his or her hours of employment
- Sums paid in recognition of services performed during a given period if either (a) both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not under contract, agreement, or promise causing the employee to expect such payments regularly; or (b) the payments are made pursuant to a bona fide profit-sharing plan or trust or bona fide thrift or savings plan, if the amounts paid to the employee are determined without regard to hours of work, production, or efficiency; or (c) the payments are talent fees paid to performers, including announcers, on radio and television programs
- Contributions to a trustee for retirement, life, accident, or health insurance or similar benefits for employees
- Premium overtime pay
- Premium pay for working holidays or weekends
- Extra compensation provided by a premium rate paid to the employee under an employment contract or collective-bargaining agreement
- Certain stock option compensation that meets the requirements of 29 USC 207(e)(8)
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Gift Cards and de minimus Rules
If an employer gives its employees $35 gift cards–for example, to the grocery store or a shopping mall–the gift will be treated as income and is subject to payroll taxes and withholding, along with the rest of the employees’ income.
Many employers are in violation of this rule, especially around the holidays, because they assume the gift falls under the de minimis rule. De minimis fringe benefits are not taxable, because they are not considered cash. For example, if a company gives its employees a coupon specifically for a free turkey or a ham at a particular store during the holiday season, this falls under the de minimis rule and is not taxable.
Gift certificates that can be used like cash do not fall under the de minimis exception. If the employer gives its employees a $25 gift card to the same store, but not specifically for a turkey or ham, the gift card is taxable as income.
Compensation—especially age and hour—never as “simple” as people believe. Let’s face it, comp’s never a picnic, and complying with the Fair Labor Standards Act (FLSA) is one of the most confusing and challenging things comp managers have to do. Even the most savvy practitioners get tripped up, and the law’s complex requirements can easily land you and your company on the wrong side of a lawsuit or DOL investigation.
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Why are aggressive attorneys so eager to file claims on behalf of employees? Because there’s so much money to be made:
- $4.75 million: Hospital in Thousand Oaks, California settles wage and hour lawsuit over miscalculated overtime pay and failing to compensate workers for missed meal and rest periods.
- $1.15 million: Las Vegas construction company to pay in back wages to 1,060 current and former employees.
- $976,327: New Mexico aerospace company settles with 900 employees who were routinely required to work through lunch breaks without compensation.
- $340,400: New Jersey convenience store to pay back wages and damages for violations of overtime and recordkeeping.
- $84,541: New York physical therapist agrees to pay 22 employees for minimum wage violations
- $30,000: Texas chain of four gas stations to pay their six hourly employees, again for recordkeeping and overtime violations.
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