What Is The Bonus Rule Under the FLSA?

The basic idea behind a bonus for an employee is that it can make an employee more productive and thus more valuable. However, such a bonus for an employee in the United States is governed by the Fair Labor Standards Act.

 

The Fair Labor Standards Act, more commonly known as the FLSA, requires that employers pay employees the full minimum wage, including overtime, for all hours worked over 40 in a workweek. It defines a workweek as a minimum of 40 hours, and an employee must receive pay for all hours worked in a workweek. 

 

The federal minimum wage is $7.25 an hour, but that only applies to employees who receive paid sick leave, vacation time, or sometimes overtime. If you get paid a bonus at the end of the year, that amount is not considered part of your hourly pay. It’s a great way to increase your income at the end of the year, but it’s still considered part of your annual base pay.

 

What Kinds Of Employees Qualify For FLSA Overtime?

 

Federal employees are entitled to overtime pay when they work more than 40 hours a week, but not all overtime qualifies for overtime pay. There are three types of non-overtime work: voluntary, dictated, and involuntary. Voluntary overtime is work that an employee chooses to do, such as cleaning the office on Saturday morning. Under the Fair Labor Standards Act, employees are entitled to overtime pay only if they have been asked to do the work voluntarily and they have been paid at least the minimum wage for all hours worked. Non-overtime work includes such tasks as security checks, clerical work, and any work that is not voluntary.

 

Under FLSA, there are three types of bonuses.

 

Discretionary Bonuses

 

The FLSA provides some of the most complex and nuanced rules regarding overtime compensation. Discretionary bonuses are excludable from the regular rate of pay, but it’s so confusing who can actually exclude them. An employee’s bonus is discretionary if it is not fixed in amount and is not a regularly scheduled part of the employee’s compensation. The SEC requires that the bonus is in addition to and not in substitution for any part of the employee’s regular compensation and that the bonus is paid periodically.

 

Non-discretionary Bonuses

 

Bonuses are a hot-button issue for many employees. And while many employers offer bonuses to their employees, many fail to offer them in a way that is in compliance with the Fair Labor Standards Act. However, the FLSA does allow for the inclusion of non-discretionary bonuses. Under the Fair Labor Standards Act, a nondiscretionary bonus is one that fails to fit in the sanctioned requirements of a discretionary bonus. These bonuses are incorporated in the regular rate of payment unless they qualify as excludable under another sanctioned provision.

 

Final Words

 

In the end, accurate overtime calculation depends on identifying whether the bonus is discretionary or non-discretionary.

 

To know more about the rules and regulations related to bonuses, attend the Compliance Prime webinar.

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