Are nondiscretionary bonuses included in rate of pay calculation?

A little wage payment math fun

Posted July 3, 2019

Under a collective bargaining agreement, an employee was paid a quarterly bonus and an annual qualification bonus based on fixed percentages of his straight-time rate and the journey straight-time rate, respectively. The quarterly bonus consisted of the following:

  • 15% of the contractual straight-time hourly rate for each hour he earned a straight-time rate;
  • 22.5% (1.5 x 15%) of his contractual straight-time hourly rate for each hour he earned a tie-and-one-half rate; and
  • 18.75% (1.25 x 15%) of his contractual straight-time hourly rate for each hour he earned a double-time rate.

The employee’s annual bonus was 1% of the journey straight-time hourly rate for 2,080 hours.

The employer calculated the weekly regular rate of pay without including the quarterly or annual bonus earnings. When paying the quarterly or annual bonus, the employer retrospectively recalculated the weekly regular rates for the bonus period to include the bonus earnings and paid the employee the difference in overtime. In making the recalculation for the bonuses, the employer averages the bonus earnings across the workweeks of the bonus period, instead of using the actual bonus earnings in a given workweek.

The employee was curious as to whether his employer was calculating all this correctly, so he asked the Department of Labor (DOL). On July 1, 2019, the DOL answered that the annual bonus was not tied to straight-time or overtime hours actually worked, but instead was one percent of the journey straight-time hourly rate for 2,080 hours. The employer must, after paying the annual bonus, recalculate the regular rate for each workweek in the bonus period and pay the overtime compensation due on the annual bonus.

The employer, however, need not include the annual bonus in the regular rate calculation until it can ascertain the weekly amount of the bonus at the end of the bonus period. In making this recalculation, because the employer can readily ascertain the proportionate amount of the annual bonus that the employee earned in each workweek, the employer must retrospectively include those exact proportionate amounts in the regular rate for each workweek.

The annual bonus did not appear tied to straight-time or overtime hours actually worked, but instead was one percent of the journey straight-time hourly rate for 2,080 hours. Therefore, the employer must, after paying the annual bonus, recalculate the regular rate for each workweek in the bonus period and pay the overtime compensation due on the annual bonus.

The employer need not, however, include the annual bonus in the regular rate calculation until it can ascertain the weekly amount of the bonus at the end of the bonus period. In making this recalculation, because the employer can readily ascertain the proportionate amount of the annual bonus that the employee earned in each workweek, the employer must retrospectively include those exact proportionate amounts in the regular rate for each workweek.


Wage and Hour Compliance with FLSA Manual J. J. Keller's Wage and Hour Compliance with FLSA Manual provides critical info to help you comply with the Fair Labor Standards Act (FLSA) and state wage and hour laws.

 

J. J. Keller's FREE HR SafetyClicks™ email newsletter brings quick-read safety and compliance news right to your email box.

Sign up to receive HR SafetyClicks™.