Insight

Should my bonuses be included in my regular rate of pay?

Should my bonuses be included in my regular rate of pay?

Greg Mansell

Greg Mansell

October 29, 2019 10:54 AM

Do you receive commission, bonuses, or some other sum of money in addition to your regularly hourly pay? If so, is your employer correctly calculating your overtime pay?

Basic Overtime Calculation:

Employers are typically required to pay their employees one and one-half times their regular rates of pay for all hours worked in excess of 40 per workweek.

Example: Employee is paid $15 per hour and works 40 hours per week. If Employee ever works more than 40 hours per workweek, Employer is required to pay Employee one and one-half times Employee’s regular rate of pay for each hour over 40 worked during that week. Employee’s regular rate of pay is $15 per hour. Employee should be paid $15 x 1.5 = $22.5 hours for all hours worked in excess of 40 that week.

Commission:

Because commission payments are considered payment for hours worked, they must be included in an employees’ regular rate of pay when calculating overtime compensation owed. This is the case regardless of whether the employee is paid on a commission-only basis, paid a salary, or paid an hourly wage.

When an employee is paid commission on a weekly basis, the commission is added to the employee’s other hourly or salary earnings for that workweek. That total is divided by the total number of hours that the employee worked during that workweek in which the commission was paid to determine the employee’s regular rate of pay for purposes of calculating overtime.

Example: Employee is paid on an hourly basis at a rate of $15 per hour. During a single workweek, Employee worked 45 hours. In addition, Employee received commission pay in the amount of $150 for that workweek. Employee receives $15 per hour for the first 40 hours worked, then receives $24.99 per hour for the 5 hours worked in excess of 40. This is calculated by adding $600 ($15/hour for 40 hours) to $150 = $750. This figure is divided by the total number of hours Employee worked: $750 / 45 = $16.66 to get Employee’s regular rate of pay for computing overtime. One and one-half times $16.66 = $24.99 per hour for Employee’s 5 overtime hours.

If the calculation of commission cannot be completed at the end of the workweek in which the commission was earned, the employer can disregard the commission pay in determining the employee’s regular rate of pay until the commission figure is determined. Once the commission is determined, additional overtime pay is due and is apportioned over weeks during which the commission was earned.

Bonuses:

Whether bonus payments must be included in the calculation of an employee’s regular rate of pay depends on whether the bonus is a discretionary bonus or a nondiscretionary bonus.

Discretionary bonuses are bonuses paid by the employer in recognition of services performed when both the fact of the payment to be made and the amount of the payment are determined solely by the employer and not pursuant to any prior agreement or promise that would cause the employee to expect such payments. Discretionary bonuses do not need to be included in the calculation of the employee’s regular rate of pay for purposes of calculating overtime compensation.

Nondiscretionary bonuses are bonuses paid by the employer when the employer has created an expectation of payment and can no longer decide on the fact of payment or the amount to be paid. Typically, these benchmarks are agreed upon in advance by the employer and employee. For example, nondiscretionary bonuses can include a hiring bonus, an attendance bonus, or a production target bonus. Nondiscretionary bonuses must be included in determining the employee’s regular rate of pay for purposes of calculating overtime.

Calculating how bonus payments impact an employee’s regular rate of pay depends on when the bonus was earned. If a nondiscretionary bonus is earned over one workweek, then the bonus must be added to the employee’s regular earnings for that workweek for determining the rate of overtime pay. If the bonus is earned over a series of workweeks (e.g. quarterly), then the bonus must be included in the regular rate of pay for all weeks covered by the bonus period in which the employee worked overtime.

Shift Differential:

If an employee is paid a shift differential, this must be included in the calculation of the employee’s regular rate of pay used to compute overtime pay. This is done by adding up the employee’s total pay for the workweek, including base rate and shift differential pay, and dividing this by the total number of hours worked. The employer must pay the employee one and one-half times the employee’s regular rate of pay for all hours worked in excess of 40 during that workweek.

Other types of payments that are not required to be included in the overtime rate calculation include discretionary bonuses, gifts, payment for vacation or sick time, and contributions to a retirement fund, among other things. See 29 CFR § 778.200.

If you believe that you are not being paid overtime correctly or have other questions related to you wages or employment, please reach out for a free consultation.

Mansell Law LLC

Columbus Employment Attorneys

ohio-employmentlawyer.com

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