Do I Have to Count My Employees’ Christmas Bonuses Towards Overtime? How the Fair Labor Standards Act Defines a Worker’s “Regular Rate” of Pay
Under the Fair Labor Standards Act (FLSA), a non-exempt employee is entitled to overtime compensation if they work more than 40 hours in a given workweek. Overtime pay must be at least 150 percent of the employee’s “regular rate” of pay. The regular rate of pay is calculated based on “all remuneration for employment paid to, or on behalf of, the employee.”
But there are certain items that a Florida employer may exclude from the regular rate of pay calculation. One such exclusion is for “payments in the nature of gifts made at Christmas time or on other special occasions.” In other words, if you chose to pay your employees a Christmas bonus, you do not have to include that amount when calculating the regular pay rate for purposes of overtime. Furthermore, you can still exclude a Christmas bonus even if you vary bonuses paid to different employees–or different groups of employees–based on their length of service. However, the bonus itself cannot be based on “hours worked, production, or efficiency.” If it is, then it may count as part of the regular rate.
Wage and Hour Division: Use of “Shall” Indicates Payments Are Part of Regular Pay
The administrator of the U.S. Department of Labor’s Wage and Hour Division recently issued an advisory opinion regarding the implementation of the rules described above. Employers often seek the Division’s guidance on certain matters. While these opinions are not the same as legally binding regulations, they do provide valuable insight into the Division’s thinking with respect to enforcement.
In the case of this advisory opinion, an unidentified city in Alabama asked for guidance on whether payments it makes to its full-time employees at Christmas time, based on length of service, should be included in those employees’ regular pay rate. As described in its letter to the Division, the city’s governing board adopted a resolution in 1981 that said eligible employees “shall be entitled to receive an incentive award in the form of a longevity award.” Essentially, a full-time employee receives this award after working for the City for at least 5 years. City officials have the discretion to decide the “form and time” of this payment, but it must be made each year.
According to Cheryl M. Stanton, the administrator of the Wage and Hour Division, under these circumstances, the city’s longevity award payments should be counted towards the employees’ regular rate of pay. The use of the word “shall” in the City’s original resolution authorizing the payments was critical, Stanton said. This indicated the bonus payments were “required,” and that managers had no discretion to allow or disallow such payments. Had the city given such discretion to its managers, then these payments would qualify as excludable “gifts.” But based on the city’s description, these bonuses were simply a form of “longevity pay,” which should be considered part of the employee’s regular compensation.
Always Seek Advice from a Florida Employment Lawyer
All employers need to exercise great care when calculating their employees’ regular pay for FLSA purposes. If you are uncertain as to whether you are complying with the law, it is best to seek legal advice from a qualified Florida employment law attorney.