Most bonuses count toward your overtime. Federal law requires your employer to add most production, attendance, safety, retention, shift, and other promised bonuses to your regular rate before it calculates overtime. Only truly discretionary bonuses stay out. When a bonus covers several weeks, the employer must spread it over those weeks and pay the extra overtime.
Do bonuses count toward my overtime rate?
Most bonuses do count toward your overtime rate. Federal law requires overtime at one and one-half times your regular rate for every hour over 40 in a workweek, under 29 U.S.C. § 207(a)(1). Section 207(e) defines the regular rate to include all pay for your work, with eight listed exceptions, such as gifts, reimbursed travel expenses, and certain retirement and insurance contributions. The Department of Labor's regulation, 29 C.F.R. § 778.208, states that a bonus that does not fit one of those exceptions must be added to your other earnings to find the regular rate.
The Supreme Court applied this rule to bonuses in Walling v. Harnischfeger Corp., 325 U.S. 427 (1945). Harnischfeger paid its production workers a guaranteed hourly rate plus an incentive bonus for finishing jobs quickly, and it paid overtime on the hourly rate alone. The union contract said the hourly rate was the regular rate. The Court held that the incentive bonuses were part of the regular rate anyway. In a companion case decided the same day, Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419 (1945), the Court said of the regular rate: "It is not an arbitrary label chosen by the parties; it is an actual fact."
Which bonuses have to be included in my regular rate?
A bonus your employer promised you in advance belongs in your regular rate unless another exception in 29 U.S.C. § 207(e) applies, such as a payment under a bona fide profit-sharing plan. The regulation, 29 C.F.R. § 778.211(c), says that bonuses announced to get employees to work more steadily, more rapidly, or more efficiently, or to stay with the company, are part of the regular rate. It names most attendance bonuses, individual and group production bonuses, bonuses for quality and accuracy of work, and bonuses paid only if you are still employed on the payment date, such as retention bonuses. It also covers any bonus promised when you were hired or set by a union contract.
A safety bonus paid under announced criteria, such as a set amount for each month without a recordable incident, is a promised bonus, and the regulation treats promised bonuses as part of the regular rate. Shift differentials and premiums for hazardous, arduous, or dirty work must also be included, under 29 C.F.R. § 778.207(b), as must extra pay given as an incentive for fast work.
The name on the pay stub does not decide the question. Under 29 C.F.R. § 778.211(d), the facts of how the bonus works control, whatever the employer calls it.
What is a discretionary bonus, and why are so few bonuses discretionary?
A discretionary bonus is one your employer had no obligation to pay. Under 29 U.S.C. § 207(e)(3)(a), a bonus is left out of the regular rate only if the employer decides both whether to pay it and how much to pay, at its sole discretion, at or near the end of the period the bonus covers, and not under any prior contract, agreement, or promise that led you to expect it regularly.
Each part of that test has to be met. The regulation, 29 C.F.R. § 778.211(b), explains that an employer who announces in January that it will pay a bonus in June has given up its discretion over whether to pay. An employer that promises a bonus based on a formula, but reserves the right to decide whether to pay it at all, has still given up its discretion over the amount, and that bonus belongs in the regular rate.
The regulation, at § 778.211(d), gives examples of bonuses that may be discretionary: a reward for unique or extraordinary effort that was not paid under set criteria, severance bonuses, referral bonuses for employees who do not work in recruiting, bonuses for getting through a difficult or stressful situation, and employee-of-the-month awards. A bonus announced ahead of time to get a certain kind of work or attendance does not qualify.
How is a bonus that covers several weeks or months added to my overtime?
Your employer can wait until the bonus amount is known, but then it has to go back and pay the extra overtime. Under 29 C.F.R. § 778.209(a), the employer may pay overtime on your hourly rate alone until the bonus can be calculated. Once it can, the bonus must be spread back over the workweeks in which it was earned. For each of those weeks in which you worked overtime, the employer owes an additional amount equal to half of the hourly increase the bonus adds to that week's pay, multiplied by the overtime hours you worked that week.
If the bonus cannot be tied to particular weeks, 29 C.F.R. § 778.209(b) requires some other reasonable and equitable method. One method assumes you earned an equal share of the bonus each week. Another assumes you earned an equal share for each hour you worked during the bonus period.
The Supreme Court addressed delayed bonuses in Harnischfeger. The company argued that its bonuses often were not figured until weeks or months after payday. The Court held that this did not excuse the company from making the overtime calculation and paying the premium as soon as it was practical to do so.
How much overtime am I owed if my bonus was left out?
The amount depends on the size of the bonus and how much overtime you worked. Take a hypothetical warehouse worker paid $20 an hour who earns a $400 safety bonus for a four-week month and works 40, 50, 40, and 50 hours in those four weeks. The employer paid overtime at $30 an hour, which is one and one-half times $20, and paid the bonus at the end of the month.
Spreading the bonus equally over the four weeks gives each week $100. In each 50-hour week, the worker earned $1,000 in hourly pay plus the $100 share of the bonus, for a total of $1,100. Dividing $1,100 by 50 hours gives a regular rate of $22, so the bonus added $2 an hour. Half of $2 is $1, and the worker had 10 overtime hours, so the employer owes $10 more for that week. The correct overtime rate for that week was $33 an hour, not $30. The 40-hour weeks had no overtime, so the bonus does not change what the employer owed for them.
The total for the month is $20. If the same pattern continued for twelve months, the employer would owe $240 for the year. A larger bonus increases the amount in direct proportion, and more overtime hours increase it as well. The shortfall repeats in every month the bonus is paid.
The same arithmetic applies to bonuses paid weekly. A weekly production bonus is added to that week's pay and divided by that week's hours, with no allocation needed. If your employer also splits your pay between an hourly rate and a per diem, I explain how that affects your overtime in Per Diem Pay That Hides Your Overtime.
What to do next
Keep your pay stubs and any document that describes your bonus, such as an offer letter, a bonus plan, a handbook page, or an announcement from your employer. Those documents show whether the bonus was promised in advance and what it was based on. Write down your typical weekly hours. Then call me at (512) 799-2048 or contact me online for a free consultation. I handle these cases on a contingency fee, and if there is no recovery you pay nothing, not even the costs.
This post describes federal law in general terms. It is not legal advice about your own situation.