Written by attorney Robert M Fortgang

How Do Bonuses and Incentives Affect a Nonexempt Employee’s Overtime Pay?

Bonuses and incentives that are dependent on hours worked, productivity, or efficiency must be included in determining an employee's "regular rate" of pay, since the "regular rate" is the basis for determining the overtime rate. For example, an hourly employee who earns $10.00 per hour in a 40-hour workweek has a "regular rate" of pay of $10.00 per hour and an overtime rate of $15.00 (one and one-half times $10.00). If that same employee received a $50 production bonus for that week, the employee's regular rate of pay would be $11.25 per hour ($50 plus the regular weekly rate of $400, divided by 40 hours) and the overtime rate is $16.88 per hour for that week. Under some bonus plans, the bonus is paid less than weekly. In this case, the employer may disregard the bonus until the time when the bonus may be determined and may pay compensation for overtime at one and one-half times the employee's hourly rate, exclusive of the bonus. When the amount of the bonus is known, it must be allocated over the period it covers, and a revised overtime rate must be applied to any hours in excess of 40 that were worked during that period. The employee then should receive additional compensation for each workweek that he worked overtime during the period equal to one-half of the hourly rate of pay allocable to the bonus for that week multiplied by the number of overtime hours worked during the week. Other examples of bonuses or incentives that must be included in an employee's regular rate of pay are nondiscretionary bonuses paid according to contract; efficiency bonuses for completing work in less than the allotted time; attendance bonuses; and bonuses paid to employees to work in undesirable locations. Bonuses that are not included in the regular rate of pay are those received on special occasions (such as Christmas) as a reward for service and which are not measured by, or dependent on, hours worked, productivity, or efficiency. In addition, premium pay for working on holidays, Saturdays, or Sundays does not have to be included in overtime calculations if it is at least one and one-half times the employee's regular rate of pay.

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