Your Payroll is Wrong!

If you have a non-exempt, hourly employee and pay any kind of bonus within the pay period, it changes their hourly wage. If their hourly rate changes, so does their overtime rate. Overtime is based on 1.5 times the average rate per hour earned, not the normal rate per hour earned. You may be paying employees incorrectly, so I have listed the website below and its examples for you to follow.


http://www.dol.gov/whd/StateandLocalGovernment/media/OT%20Examples%20Final.htm


Example #1 – Bonus paid and earned during the pay period


Bonuses For purposes of calculating overtime pay, section 7(e) of the FLSA provides that non-discretionary bonuses must be included in the regular rate of pay. Non-discretionary bonuses include those that are announced to employees to encourage them to work more steadily, rapidly or efficiently, and bonuses designed to encourage employees to remain with a facility. Few bonuses are discretionary under the FLSA, allowing exclusion from the regular rate (see 29 CFR 778.200 and 778.208).Referral bonuses paid for recruitment of new employees are not included in the regular rate of pay if all of the following conditions are met: (1) participation is strictly voluntary; (2) recruitment efforts do not involve significant time; and (3) the activity is limited to after-hours solicitation done only among friends, relatives, neighbors and acquaintances as part of the employees’ social affairs.


An intermediate care facility for the disabled pays its employees on a bi-weekly basis. If employees work all the hours that they are scheduled to work in a pay period, they are given a $100 bonus. If an employee works overtime, must this bonus be included in their regular rate of pay for overtime purposes?


Yes. In computing an employee’s regular rate under the 40 hour overtime standard, the employer must add half of the bi-weekly bonus ($50) to the employee’s earnings (hourly rate times the total hours worked) for that week. The resulting total compensation would be divided by the total hours the employee worked during that week to determine the regular rate.


An employee paid biweekly at a rate of $12 per hour plus a $100 attendance bonus, working a schedule of 56 hours per week as shown in the chart below, would be due overtime pay as follows:


WEEK 1

Sunday

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

Hours Worked

8

8

8

8

8

8

8


WEEK 2

Sunday

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

Hours Worked

8

8

8

8

8

8

8


$100 (bi-weekly attendance bonus) ÷ 2 = $50 (weekly bonus equivalent)

56 hours worked x $12/hour + $50 (weekly bonus equivalent) = $722 (total ST compensation)

$722 (total ST compensation) ÷ 56 hours worked = $12.89 (regular rate)

$12.89 (regular rate) x ½ = $6.45 (half-time premium)

$12.89 (regular rate) + $6.45 (half-time premium) = $19.34 (overtime rate)


40 (straight time hours) x $12.89 (regular rate) = $515.60 (straight time earnings)

16 (overtime hours) x $19.34 (overtime rate) = $309.44 (overtime earnings)

Total earnings for week one $825.04

Total earnings for week two $825.04