Exercise Caution When Granting Year-End Bonuses

Holiday-Bonus-982x735The 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.

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