Including Bonuses and Other Incentives in Overtime Calculations

May 17, 2023 HoganTaylor

bonuses and incentives

It’s fairly safe to say that most employers are well aware of their obligation to pay certain employees overtime under specified circumstances. What may be less clear is which bonuses and other incentives must be included in the calculation.

Recently, the Wage and Hour Division of the U.S. Department of Labor (DOL) recovered $259,474 in overtime pay for 939 employees of a manufacturer after an investigation found that the company had failed to include bonuses and other incentives in its overtime pay.

All bonuses not the same 

Under the Fair Labor Standards Act (FLSA), hourly “nonexempt” wage earners generally must receive overtime pay for hours worked beyond 40 hours per workweek. A workweek doesn’t need to be a calendar week — for example, a Wednesday to Tuesday workweek would qualify. The FLSA provides that overtime must be paid at one and a half times an employee’s regular rate of pay.

Discretionary bonuses aren’t included when determining regular rate of pay. These are bonuses that an employer chooses to grant, determines the amount, and for which there’s no contractual obligation nor eligibility guidelines. However, employers must include other types of bonuses or incentives when calculating regular rate of pay, such as:

  • Incentive bonuses, which may include production incentives for both individuals and groups,
  • Attendance incentives,
  • Longevity bonuses
  • Shift and “dirty work” differentials, and
  • Piecework incentives.  

Overtime calculations should also include on-call and cost-of-living bonuses, as well as “push money” distributed to employees of retailers that received the funds from distributors or manufacturers for promoting particular products.

The investigation’s findings

In the aforementioned DOL investigation, the agency concluded that the employer in question failed to include the following bonuses or incentives when calculating overtime pay:

  • Bonuses for reaching quarterly sales and safety goals,
  • Incentives paid for working night shifts and acting as trainers for other employers,
  • Bonuses for perfect attendance,
  • Additional pay for every hour worked during peak production seasons, and
  • Incentives for personal safety performance during peak production seasons.

As a result, the overtime rates paid by the company were lower than those required under the FLSA.

Consider all factors

Jamie Benefiel, a district director of the Wage and Hour Division, was quoted in the DOL’s news release about the investigation as saying: “Employers must understand all applicable rules when it comes to paying workers overtime. This includes adding bonuses and incentive pay when factoring overtime pay. Anything less robs workers of their hard-earned wages.” If your organization pays employees overtime, contact us for help complying with the latest rules and regulations.

HoganTaylor Human Capital Strategies Services

If you have any questions about this content, or if you would like more information about HoganTaylor’s Advisory practice, please contact Jeff Wilkie, Principal and lead of the HoganTaylor Human Capital Strategies (HCS) practice. More information is also available on the Human Capital Strategies page of this website.

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.

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