With the end of the year fast approaching, some employees are anticipating the receipt of an end-of-the-year bonus. If you’ve received a bonus – whether during the holidays or the rest of the year – you should make sure that your employer is paying you properly. In some cases, a bonus must be included in your compensation calculation to determine your proper overtime rate; in other cases, it need not be included.
Under the Fair Labor Standards Act, there are, generally, two types of bonuses: discretionary and non-discretionary. For a bonus to be discretionary, (1) the employer must retain discretion as to whether the payment will be made; (2) the employer must retain discretion as to the amount; (3) the employer must retain discretion as to the payment of the bonus until near the end of the period at which it covers; and (4) the bonus must not be paid pursuant to any prior contract, agreement, or promise. If a bonus doesn’t meet these requirements, it typically is non-discretionary.
This distinction is important. An employer must include a non-discretionary bonus in your total compensation when calculating your regular rate for the purposes of calculating overtime. This means that if you receive a non-discretionary bonus, then that amount must be added to your hourly compensation for the pay period. The employer must then divide this total by your hours worked to determine your regular rate of pay. Once it has determined your regular rate of pay, an employer must then pay you time-and-a-half of that new rate in overtime compensation for the hours you worked over forty in a workweek.
On the other hand, an employer need not include a discretionary bonus in your total compensation in calculating overtime. This means that if you receive a discretionary holiday bonus, it likely has no effect on your overtime pay.