Posted on 12/21/2017 at 12:00 AM by Mike Staebell
It is the time of year when employers are rewarding their employees with holiday bonuses. If you are one of these employers, make sure that you are complying with the Department of Labor (DOL) rules on when to include bonuses in the overtime pay earned by non-exempt employees. During my career at DOL’s Wage and Hour Division, one of the most common complaints from employees was that their overtime pay was not computed correctly. Do not let your holiday cheer result in a New Year’s investigation by the Wage and Hour Division or an employee lawsuit seeking back pay.
Holiday bonuses to non-exempt employees are treated the same as all other types of bonuses under Section 7(e)((3) of the Fair Labor Standards Act (FLSA). A bonus need not be included in overtime pay calculations if it is discretionary. The fact that there will be any bonus at all, and the amount of the bonus are determined at the sole discretion of the employer at or near the end of the period covered. A discretionary bonus is determined by the employer without prior promise or agreement. A discretionary bonus is one for which the employer has not set up an expectation by employees that a bonus will be paid if certain standards or goals are met.
Your firm may have a history of paying holiday bonuses. This fact alone does not make the bonus non-discretionary and includable in overtime calculations. But if the firm implies or hints ahead of time that a bonus is coming, that could be enough to make the bonus non-discretionary and adding to overtime pay due. Consider how the payment is announced. A statement such as, “It’s time for our annual holiday bonus” can lead to problems. And the best response to an employee who asks, “Will we get a holiday bonus this year?” is, “We will see.”
Perhaps your firm gives holiday “gifts” instead of “bonuses”. Section 7(e)(1) of the FLSA references excluding “sums paid as gifts; payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service”. Unlike a bonus, to qualify as a gift, the amount of the gift cannot be dependent on hours worked, production, or efficiency. If everyone gets a Christmas turkey or ham, it is most likely a gift.
For detailed explanations of discretionary and non-discretionary bonuses, see previous Wage and Hour Watch blogs here as well as here. Those blogs also provide guidance on year-end profitability or production bonuses, which are generally non-discretionary bonuses that must be included in overtime pay.
The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.
- Mike Staebell