One area of wage-and-hour law where employers can easily run afoul of the Fair Labor Standards Act is overtime pay… or, more specifically, underpayment of overtime. If an employer does not correctly assess the forms of compensation that go into calculating a worker’s regular rate of pay, then that employer runs the risk of underpaying the worker when they earn overtime compensation. An experienced Atlanta wage and hour lawyer can help provide you with reliable answers to the overtime compensation questions you have.
A federal investigation of a North Georgia plastic fabrication company revealed one place where employers can go wrong: bonuses.
The U.S. Department of Labor’s Wage and Hour Division investigated a Gainesville-area employer whose records showed that more than 700 workers received overtime compensation sums that were less than what they were entitled to.
One of the errors the employer made that contributed to the overtime miscalculation related to specific non-discretionary bonuses the workers received. (Non-discretionary bonuses are those handed out for hitting particular goals or targets. The WHD has highlighted “those based on attendance or on quality and accuracy of work” as examples.) The plastics company did not factor in these bonuses when calculating the employees’ regular rate of pay, resulting in an undercalculation of their base rate. Consequently, their overtime pay was also too low.
Discretionary Versus Non-Discretionary Bonuses
The WHD provides employers and employees with some valuable tips regarding bonuses, regular rates of pay, and overtime compensation. To begin, employers must distinguish between discretionary bonuses and non-discretionary bonuses. As the names imply, the former are bonuses that fall within the employer’s judgment and discretion. These include bonuses for “going above and beyond” expectations, rewards for winning discretionary awards such as “Employee of the month,” and severance.
Non-discretionary bonuses are those outlined in pre-established criteria, such as production bonuses, bonuses for one’s “quality and accuracy of work,” attendance bonuses, and safety bonuses.
After the employer separates the discretionary from the non-discretionary bonuses, it must add the non-discretionary bonuses to the base rate and then divide by the number of hours worked to determine the “regular rate of pay.” The worker’s overtime rate, then, is 1.5 times the regular rate.
Take, for example, Employee A. A worked 45 hours during the final week of July at a base rate of $12 per hour. A received a $25 bonus for being named “Employee of the month” for July. A’s team received $45 each as a bonus for hitting a production target for July.
To calculate A’s overtime compensation, the employer must:
- Calculate A’s straight-time compensation, which in this example, is $12 per hour times 45 hours, or $540.
- Add A’s qualifying bonuses to determine his total compensation. In this example, that means adding $45 to $540, for a total of $585. (Note that the employer need not tack on the $25 employee-of-the-month sum because that is a discretionary bonus and not countable.)
- The employer must then divide $585 by 45, which is $13.00. $13.00, then, is A’s regular rate of pay.
- The employer then multiplies $13.00 by 0.5, which yields $6.50. That represents A’s overtime premium rate.
- The employer finally multiplies $6.50 by the five hours over 40 that A worked, yielding a total overtime pay of $32.50.
Whether you are an employer or an employee, if you have questions about the correct calculation of rates of pay (or about overtime compensation generally), the knowledgeable Atlanta wage and hour attorneys at Parks, Chesin & Walbert have the extensive experience necessary to provide you with the sound, reliable answers you need. Contact us through this website or at 404-873-8048 to schedule a consultation today.