OT Calculation When Paying Out Regular Bonuses

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September 05, 2014

Many employers overlook the fact that payment of certain types of bonuses affects a non-exempt employee’s overtime pay.

For example, if an employer awards a defined bonus to an employee, that payment must be included in the overtime calculation. The reason is that overtime pay is based upon the “regular rate of pay.” In turn, the regular rate of pay should include not only regular hourly wages but also commission, piece rates, certain bonuses, and other forms of compensation.

When it comes to bonuses, “defined bonuses” are included in the regular rate, while “discretionary bonuses” are excluded. Defined bonuses paid pursuant to a defined schedule, or paid as a reward for production, efficiency, quality or accuracy.  See 29 CFR 778.210. Discretionary bonuses are payment in recognition of services performed during a given period are excluded from the regular rate if both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly. See 29 CFR 778.211

Assume an employee works 45 hours during the workweek, earning $10.00/hr. Additionally, she earns a $45.00 defined bonus. The regular rate of pay is calculated by figuring total hourly wages for the week plus the bonus ($450 + $45.00  = $495) and then dividing that number by the hours worked ($495/45 = $11.00 per hour).  The additional overtime premium owed is ½ the regular rate times the number of overtime hours worked ($11 x 0.5  =  $5.50 OT premium x 5 =  $27.50) Therefore the total pay owed for the week in this case is $477.50 ($450 + $27.50).

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About the author:
Mr. Olmsted's employment law compliance and litigation experience includes: FEHA and Title VII claims regarding race, gender, age, religion, national origin, sexual orientation, disability, pregnancy and sexual harassment; California CFRA and federal FMLA; federal ADA and ADEA; False Claim and whistle blowing actions; public policy violations and other wrongful termination claims; ERISA; wage and hour claims; independent contractor misclassification claims; class actions; misappropriation of trade secrets; labor Commissioner claims (Department of Industrial Relations, Division of Labor Standards Enforcement claims), EDD and Unemployment Insurance claims. Mr. Olmsted regularly consults with clients regarding employment law compliance, and also provides training to management and staff, as well as other attorneys. Mr. Olmsted serves as an instructor at Cal State University San Marcos, teaching a course titled "Legal Issues for HR Professionals" as part of the Human Resource Management Certificate Program. Mr. Olmsted is available to serve as your employment practices liability insurance defense counsel ("EPLI" or "EPL"). Mr. Olmsted's business litigation experience includes commercial law/Uniform Commercial Code disputes, breach of contract, misappropriation of trade secret claims, unfair business practices/Business & Professions Code 17200 claims, real estate disputes, construction claims, insurance defense, and a variety of other business disputes. Mr. Olmsted has represented clients in state and federal jury and bench trials, judicial and contractual arbitrations, and administrative law hearings. Mr. Olmsted also has significant experience representing clients on appeals before California and federal courts of appeal

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