A: No joke. Under the federal Fair Labor Standards Act (FLSA), the general principle is that a bonus essentially raises an employee’s regular rate (similar to an hourly shift differential). Unless a specific exception applies, wage and hour law dictates that you need to ensure that if any nonexempt employees worked overtime during the bonus calculation period, they receive an additional one-half of whatever the bonus added to their regular rate, for all overtime hours worked. So, if a $500 bonus ends up increasing a worker’s regular rate by 50 cents per hour, then for all overtime hours worked, you’ll need to add an extra 25 cents per hour. Giving everybody the same flat bonus amount is fine as long as the employees didn’t work any overtime during the calculation period, or they’re exempt from overtime, or a specific exception applies. Otherwise, you’ll need to do an individualized calculation for each nonexempt employee.
Want an easy way to pay bonuses to nonexempt employees without ever worrying about doing a special overtime calculation? Pay a percentage of total wages. That way, you’re already taking overtime into account. For information on exceptions to this general requirement to pay overtime on a bonus, plus example calculations, see our Legal Guides, “Effect of Bonus Payment Plans on Overtime Pay for Hourly Employees” (1317) and Effect of Bonus Payment Plans on Overtime Pay for Nonexempt Salaried Employees” (2265). Want more help with this issue? Contact us to learn about the benefits of partnering with Vigilant.
This website presents general information in nontechnical language. This information is not legal advice. Before applying this information to a specific management decision, consult legal counsel.