The Fair Labor Standards Act (FLSA) requires non-discretionary bonuses to be included in the regular rate of pay when determining overtime pay. By definition, a non-discretionary bonus is a bonus that is “promised or expected and tends to be dependent on the quality, quantity or efficiency of production or hours worked,” according to SHRM. It is typically obligated to be paid based on a written or verbal agreement/contract, or is a bonus of a particular nature that is pre-determined based on qualifying factors.
Here are some examples of the types of bonuses that count as non-discretionary (sourced from SHRM):
- Bonuses promised in an agreement
- Bonuses tied to performance evaluations, incentive plan bonuses, or any bonuses based on a set criteria for an employee, a group or an entire company
- Service anniversary bonuses
- Attendance bonuses
- Bonuses tied to working undesirable shifts (sometimes in the form of shift differentials), production-oriented bonuses and retention bonuses
- Production-oriented bonuses
- Retention bonuses
An employer who provides non-discretionary bonuses to their employees is required to include those bonuses into the regular rate of pay for purposes of calculating overtime pay. To give an example of how the overtime calculation would be performed, let’s say an employee who works on a bi-weekly basis is given a $100 bonus for working all the hours they were scheduled to work in a pay period.
In computing an employee’s regular rate under the 40 hour overtime standard, the employer must add half of the bi-weekly bonus ($50) to the employee’s regular earnings for that week. The resulting total compensation would be divided by the total hours the employee worked during that week to determine the regular rate. By determining the regular rate, the overtime rate would be time-and-a-half of that rate.
If you have any employees who receive non-discretionary bonuses, you don’t have to manually perform these calculations each pay period. Fingercheck is able to calculate non-discretionary bonuses in order to ensure that overtime pay is correctly calculated in full compliance with federal law. This means that you’ll never have to expend the effort calculating overtime again and that your payroll is ready to process when it’s time to run payroll.
To learn more, you can reach our helpful team at 1-800-610-9501, who will be happy to assist you in setting this up. Fingercheck gives you the tools to work confidently knowing that your business is in fully compliant with the law.