I was probably seven years into my practice before I knew that, under the Fair Labor Standards Act (FLSA), a non-discretionary bonus (one that is simply announced in advance, even if contingent) affects the regular rate of pay of a non-exempt employee and requires recalculation of the overtime for the period the bonus covers.
It came to my attention after a young Human Resources (HR) generalist, right out of college, told her employer, an international Fortune 500 company, which then called to ask me. How I never came across this issue in my first seven years of practice still amazes me. Incidentally, that young generalist has risen in the ranks over the years and is now an HR big shot with that company!
Well, the Department of Labor (DOL) issued an opinion letter on Jan. 7 regarding this very topic, and it occurred to me that there may be employers out there who are unaware of this, so I thought it best to inform them.
Let me explain the issue. A non-discretionary bonus is not what you think. It is not one etched in stone that the employer must pay. It is a bonus announced in advance that encourages employees to work harder, be more efficient and perform better. The employer can still retain discretion to pay it or not based on overall financials, for example.
Let’s look at an annual bonus. At year-end, once the bonus is paid to the nonexempt employee, the employer would need to divide the bonus by 52 to determine how much income is added to each week. This in turn affects the regular rate of pay of the nonexempt employee for each week, which then affects the calculations for any overtime worked each week. If the employee worked overtime during that year, the employer needs to pay the additional “half” time based on the new overtime calculations.
The new DOL opinion letter makes clear that the bonus can be spread between all of the weeks it covers when it can’t be attributed to any week in particular. I thought you might be interested, especially if you hadn’t heard of this before.
Incidentally, in case you missed it, minimum wage in Michigan jumped from $9.45 to $9.65 an hour effective on Jan 1. In addition, don’t forget that exempt employees must now be paid at the rate of not less than $684/week or $35,568/annually (and the highly compensated exempt employee not less than $107,432/annually). This is a great time to have your wage practices and job descriptions reviewed by an experienced employment attorney.
- Senior Attorney
An attorney in the firm’s Detroit office, Claudia D. Orr exclusively represents and advises employers and management in employment and labor law matters.
Ms. Orr's clients include Fortune 500 companies, local governments ...
Add a comment
SubscribeRSS Plunkett Cooney LinkedIn Page Plunkett Cooney Twitter Page Plunkett Cooney Facebook Page
- Employment Liability
- Labor Law
- Human Resources
- Wage & Hour
- Department of Labor (DOL)
- Fair Labor Standards Act (FLSA)
- Family Medical Leave Act (FMLA)
- Americans With Disabilities Act (ADA)
- National Labor Relations Act
- Equal Employment Opportunity Commission (EEOC)
- Sick Leave
- Employment Discrimination
- Minimum Wage
- Paid Medical Leave Act (PMLA)
- Retail Liability
- Title VII
- OSHA Issues
- Emergency Information
- Employment Agreement
- Workers' Compensation
- National Labor Relations Board
- Transgender Issues
- Business Risk Management
- Whistleblower Protection Act
- Uniformed Services Employment and Reemployment Rights Act (USERRA)
- Workplace Harassment
- Class Actions
- Hostile Work Environment
- Department of Education (DOE)
- Title IX
- Tax Law
- Medical Marijuana
- Right to Work
- Health Insurance Portability and Accountability Act (HIPAA)
- Union Organizing & Relations
- Michigan Issues New COVID-19 Return to Work Rules With Enforceable Workplace Standards
- Michigan’s Shelter in Place Continues Through May 15, With Modifications
- The Constantly Changing Coronavirus Landscape and its Effects on Michigan Employers
- Management May Face Claims Under RICO For Wage Violations
- Not the Employer? You May Still be Liable!
- Are you Handling Accommodations Correctly Under the ADA?
- Labor Department Issues Additional Guidance on Families First Cornavirus Response Act Implementation
- Labor Department Provides Families First Coronavirus Response Act Guidance
- Federal OSHA Guidelines for Employers Amid COVID-19 Pandemic
- Municipal Emergency Response Preparation for COVID-19