Atlanta Employment Attorneys Blog
Many non-exempt employees may receive total compensation that includes various forms of pay. An employee, for example, might earn, in addition to their base pay, bonuses. Depending on the nature of these bonuses, earning a bonus may impact an employee’s “regular rate of pay” and, therefore, their rate of overtime compensation required by the Fair Labor Standards Act. If you have questions about bonus pay and how a particular bonus should (or should not) impact regular rate of pay and overtime calculations, you should speak to a knowledgeable Atlanta overtime compensation lawyer.
The U.S. Department of Labor recently published an opinion letter that examines in depth the issue of bonuses, regular rates of pay, and overtime compensation.
The employer in the letter was a waste management company, and the employees in question were its drivers. The driver earned a base salary of $12 per hour. In addition to their base pay, drivers could earn up to $9.50 per hour under the employer’s “Safety, Job Duties, and Performance” bonus plan. The bonus rewarded behaviors such as “punctuality, attendance, consistency in completing daily safety tasks, driving safety, compliance with traffic laws, proper attire, and performance efficiency.” If a driver met their performance targets during a particular pay period, then the bonus applied to all hours the driver worked during that period.
The employer’s question to the Labor Department was whether it could exclude those bonuses from the drivers’ “regular rate of pay” and, if it could not, how it must include the bonuses in calculating the drivers’ overtime compensation.
As an initial matter, the department concluded that the employer could not exclude the performance bonuses from the calculation of the drivers’ regular rate of pay. While Section 7(e)(3) of the FLSA allows employers to exclude specific bonuses “paid in recognition of services performed during a given period” from the calculation of an employee’s regular rate of pay, the employer may only do so if those bonuses are discretionary ones. Specifically, Section 7(e)(3) requires that three things be true for a bonus to qualify as discretionary. Those elements are:
- The fact and amount of the payment must be “determined at the sole discretion of the employer.”
- The employer’s determination must occur “at or near the end of the period” when the employee’s work was performed.
- The payment must not be made “pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly.
The drivers’ incentive bonuses clearly were nondiscretionary. The employer and the employees had an agreement that set forth the terms of the bonus program, including the amount a qualifying driver would earn and the criteria the driver must satisfy to receive the bonus. If a driver satisfied the requirements, they automatically earned the bonus, meaning the employer had abandoned its discretion to decide whether to award a bonus (and how much to pay) to a qualifying driver.
The department then explained how the bonus would affect a driver’s rates of pay. A driver who did not qualify for any bonuses would make $12 per hour in regular compensation and $18 per hour in overtime pay. A driver who qualified for the full bonus was entitled to have their regular rate of pay calculated as the base rate of $12 plus the $9.50 bonus, for a total of $21.50 per hour. That meant the time rate of compensation for a driver who qualified for the full bonus was $21.50 x 1.5, or $32.25 per hour.
Whether you are an employee who has earned bonuses or an employer that pays them, it is in your interest to ensure that you are including or excluding those bonuses correctly when it comes to paying overtime compensation. If you have questions, the experienced Atlanta wage and hour attorneys at the law firm of Parks, Chesin & Walbert are here and ready to provide you with thoughtful advice and practical solutions. Contact us through this website or at 404-873-8048 to schedule a consultation today.