The Fair Labor Standards Act requires that non-exempt employees be paid at least one and half times their regular rate of pay for all hours worked in a workweek in excess of forty. Whether or not bonuses are included when making the overtime calculation can be a complicated and costly issue. Generally, bonuses are excludable from the regular rate only if the bonus fits into a specific statutory exclusion. The FLSA requires that all of the following elements be met in order for a bonus to not be included in the employee’s regular rate:

1. The employer must retain discretion as to whether the payment will be made;
2. The employer must retain discretion as to the amount of the payment;
3. The employer must retain discretion as to the payment of the bonus until near the end of the period which it covers; and
4. The bonus must not be paid pursuant to any prior contract, agreement or promise causing the employee to expect such bonus payments.

Continue reading “Exercise Caution When Granting Year-End Bonuses” →