Thursday, September 9, 2021

Coronavirus Update 9-9-21: Don’t forget about overtime laws when paying employees pandemic-related bonuses

If you pass any restaurant these days you'll almost certainly see a sign like this one: 

"Now hiring: $________ sign-on bonus."

I've seen that blank filled in with numbers as high a $1,000 to work at a fast-food restaurant.

Employers are paying these bonuses because they continue to struggle to fill job vacancies in the tightest and toughest labor market I've ever witnessed.

If you find yourself in this position, do not forget about the wage and hour implications of these bonus payments, specifically their inclusion in the "regular rate" for purposes of calculating an employee's overtime premium.

For example, one grocery chain just agreed to pay $165,653 in back wages for Covid-related bonus payments. In that case, the employer undid a Covid-related hour raise and instead paid the "hazard pay" in a bonus. Per the DOL: "Shifting pay from the hourly rate to a bonus does not mean the employer can exclude it when calculating overtime."

In fact, the rules of overtime calculations for bonus payments are clear and well defined.

Section 7(e) of the Fair Labor Standards Act requires the inclusion in the regular rate of pay all remuneration for employment—except seven specified types of payments. Non-discretionary bonuses (which Covid-related hiring bonuses most definitely are) do not fall under one of those seven exempted categories. Thus, it must be accounted for in the calculation of an employee's regular rate of pay for overtime calculation purposes.

For purposes of calculating the regular rate of pay, the bonus does not have to be included in its entirety in the week it is paid. Instead, an employer can apportion the bonus amount back over the work weeks of the period during which it was earned. The employee must then receive an additional amount of compensation for each workweek that he worked overtime during the period equal to one-half of the hourly rate of pay allocated to the bonus for that week multiplied by the number of statutory overtime hours worked during the week. If it is impossible to allocate the bonus, an employer can select some other reasonable and equitable method of allocation.

If a bonus payment already accounts for the overtime premium, then no additional payment is required. For example, a bonus plan may pay, as a bonus, a 10% premium of an employee’s total compensation, including overtime premiums. In this instance, the payment already covers overtime, and no additional overtime is required.

Like most wage and hour issues, the handling of bonus payments to non-exempt employees presents a real trap for the unwary employer. If you are considering paying hiring bonuses to hourly and salaried non-exempt employees, you should run it past employment counsel before making the payments to ensure you are not committing an FLSA violation in the mechanics of the payment.

* Image via William Warby on Flickr (CC BY 2.0)