What Can Be Excluded from the ‘Regular Rate’?

Here are details about the five types:

Certain Types of Bonuses

DOL’s regulation lists the following bonuses that may be excluded from total compensation when determining the regular rate:

• Discretionary bonuses (bonuses paid to the employee under circumstances and conditions completely under the employer’s control—such as the amount of the bonus and whether to pay it at all.  The test for determining whether a bonus is discretionary hinges on whether the employer reveals the existence and amount of the bonus close in time or far in advance of the payment date.
• Christmas and gift bonuses—bonuses paid as a gift at Christmas or on other special occasions may be excluded fro the regular rate. (More about this below.)
• Bonuses that already include overtime—for example a bonus of 10 percent on straight-time earnings PLUS a 10 percent bonus on overtime earnings.

Gifts

Amounts that are paid at Christmas or on other special occasions as a reward for service may be excluded from the regular rate if:

• They are actually a gift or in the nature of a gift
• Their amount is not measured by or dependent on the employee’s hours worked, production, or efficiency

Payments that meet these criteria will qualify as gifts even if:

• They are paid with such regularity that employees are led to expect them, or
• The amount paid to specific employees is based on their salary, regular hourly rate, and/or length of service

However, a payment is not a gift if:

• It is so substantial that employees consider it a part of wages for which they work
• It is paid pursuant to a contract or agreement.

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Prizes and Awards

In general, prizes for doing something that is truly beyond the scope of the employee’s ordinary job duties do not have to  be included in compensation However, prizes must be included in compensation if they are paid as “remuneration for employment.” That would include any prize or award for quality, quantity, or efficiency of work during the employee’s customary working hours at his or her normal assigned tasks.

If the prize is in the form of merchandise, the amount allocated to total compensation would be its cost to the employer.

Paid Leave

Paid leave time does not count as hours worked and does not need to be included as compensation for the regular rate. That includes:

• Compensation for holiday pay, sick leave, vacation pay, and the like
• Compensation given in place of leave, such as when an employee cashes out unused leave
• Paid leave that is required by law or contract (such as jury duty pay)

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