Unwary employers risk being caught in nondiscretionary bonus, regular pay rate trap

The regional director for the Wage and Hour Division (WHD) of the Department of Labor (DOL) has recently underscored the compliance obstacle that continues to confound employers: whether to include bonuses in the “regular rate” when calculating the overtime pay rate for nonexempt employees. Nondiscretionary bonuses must be considered when determining the regular pay rate, while purely discretionary bonuses are excludable. Most bonuses are nondiscretionary, and employers often forget to factor them into the regular pay rate when determining the correct overtime rate. So, what is a truly discretionary bonus under the Fair Labor Standards Act (FLSA)?

What does discretionary mean?

Put simply, a discretionary bonus is one paid at the sole discretion of the employer and is not expected by the employee. The DOL has issued fact sheet 56(c) to guide employers on treatment of bonuses under the FLSA. The fact sheet is clear that “a bonus is discretionary only if all of the statutory requirements are met”: