Should You Include Bonuses With Your Overtime Pay?

Are you always conflicted on whether or not to include bonuses in your overtime pay calculations? It’s a common question among employers, and the answer may not be as clear-cut as you think. Including bonuses in overtime pay can seem like the fair choice, but it can also lead to confusion and complications. On the other hand, if bonuses are excluded in overtime calculations, it could be seen as unfair to certain employees. In this blog, we’ll explore the pros and cons of both approaches to help you make an informed decision that benefits both your business and your employees. So, let’s dive in and figure out if bonuses should be part of overtime pay calculations.

Understanding Overtime and Bonuses

Overtime is the additional time an employee works beyond their regular working hours. The FLSA mandates that employees eligible for overtime (non-exempt employees) must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay.

Bonuses are additional pay given to employees as incentives or rewards. Employers may offer bonuses to motivate employees, reward exceptional performance, or acknowledge significant achievements or milestones. Bonuses can be discretionary or non-discretionary:

• Discretionary bonuses are given without prior promise or expectation, often at the employer’s discretion.
• Non-discretionary bonuses are announced to employees to encourage them to work more steadily, rapidly, or efficiently, and are included in the calculation of the regular rate of pay if they are paid based on hours worked, production, or efficiency.

FLSA Regulations on Bonuses and Overtime

According to the FLSA, non-discretionary bonuses must be included in the calculation of the regular rate of pay for the purposes of determining overtime pay. Discretionary bonuses, however, are excluded from the regular rate of pay calculation and thus do not affect overtime calculations.

Practical Tips to Avoid Common Mistakes

1. Clearly Distinguish Between Discretionary and Non-discretionary Bonuses: Ensure you understand the difference and communicate it clearly to employees.
2. Accurately Calculate the Regular Rate of Pay: Include non-discretionary bonuses in the regular rate of pay calculation for accurate overtime compensation.
3. Keep Detailed Records: Maintain accurate records of hours worked, overtime, and bonuses paid to ensure compliance with FLSA requirements.
4. Review FLSA Guidelines Regularly: Stay informed about updates or changes to federal and state labor laws to ensure compliance.

Understanding how to correctly calculate overtime pay, including the role of bonuses, is crucial for HR professionals to ensure fair and legal compensation practices. By adhering to FLSA regulations and practical tips into your payroll processes, you can avoid common pitfalls and maintain a transparent, compliant payroll for your Company.

This article does not constitute legal advice. For more information please reference related articles in your APlus HR resource center or ask your friendly APlus CSS about how best to handle specific payroll processes within your Company.