Is anything a bigger hassle than going back and recalculating overtime every time you give an employee a bonus? Fortunately for you, it’s Free Report Friday, and today’s free report is Paying Overtime on Bonuses: A Calculation Guide.
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Here’s an excerpt from today’s free report:
The Basic Rule
If you have a nondiscretionary bonus plan that is awarded to nonexempt employees at intervals greater than each week (for example, on a quarterly, semiannual, or annual basis), you need to retroactively recalculate pay, now including the bonus into the employee’s “regular rate” of pay, and pay additional overtime and double-time wages to include the bonus amount for each overtime and double-time hour worked.
Bonus Definitions
A nondiscretionary bonus is one promised to employees if they meet certain goals or if some other event occurs. A discretionary bonus is one not promised to employees in advance of receiving the bonus, and not tied to a specific goal or event, that is given on an individual basis solely at the discretion of the employer. Overtime and double-time is not owed on discretionary bonuses amounts.
Incentive-Based and Set Bonuses
The bonus overtime calculation differs if the bonus is incentive-based or a set bonus that is not incentive-based.
An incentive-based bonus is one given to employees for reaching certain production or performance goals. An example would be a bonus tied to the company’s profits, or for the employee meeting certain sales or production goals.
A nonincentive set bonus is one tied to a specific event or date. Examples of a set bonus are a year-end bonus, Christmas bonus, or, for example, a bonus given to employees for having no workplace injuries during a quarter.
Many employers may have both types of bonus plans, which will require separate calculations to be done. For example, if you pay both a quarterly profit incentive-based bonus and a holiday bonus, you will have to pay bonus overtime on both the quarterly bonuses (calculated at the end of each quarter) and on the holiday bonus (calculated at the end of the year). The method of calculating these bonuses differs.
Today’s free report, Paying Overtime on Bonuses: A Calculation Guide, provides separate examples of how to do the calculations for each type of bonus.