Bonus pay
Bonus pay is an extra payment on top of an employee’s regular wages, awarded at your discretion or under a preset formula.
Sign-on, retention, referral, and spot bonuses are supplemental wagesSupplemental wages. Supplemental wages are wage payments to an employee that are not regular wages, such as bonuses, commissions, severance pay, and back pay.Click to open the term, but their overtime effect for non-exempt employees varies. A discretionary bonus, such as an unannounced spot bonus, stays your sole choice in fact and amount until at or near the end of the period it covers. A nondiscretionary bonus is promised in advance, such as a retention bonus or sales-quota bonus. You must prove a bonus is discretionary.
How does a nondiscretionary bonus change overtime?
A non-exempt employee’s nondiscretionary bonus must be included in the regular rate for the workweeksWorkweek (FLSA). A workweek under the Fair Labor Standards Act is a fixed, regularly recurring period of 168 consecutive hours used to compute overtime.Click to open the term it was earned in. A discretionary bonus can generally be excluded. A referral bonus may be discretionary for an employee not primarily engaged in recruiting. A sign-on bonus may be excluded as a gift or pay not for hours worked, unless paid under a bargaining agreement, ordinance, or policy with a clawback. A $400 production bonus earned over 13 weeks is spread across those weeks, even closed ones. Map bonus codes by behavior, not name.
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Spread the bonus back over the workweeks it was earned in. If it cannot be tied to particular weeks, spread it equally across the bonus period.
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Raise the regular rate for each of those workweeks.
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Pay the additional half-time on the increase in the regular rate as back pay in each week with overtime hours.
- 29 CFR §778.211, Discretionary bonuses
- U.S. Department of Labor, Fact Sheet #56C: Bonuses under the Fair Labor Standards Act (FLSA)
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.