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April 15, 2011
Bonus Issues that Affect Overtime

In a BLR webinar entitled "Overtime: Legal Strategies for Whittling Down Your Payouts Without Breaking the Law," Harold (Hal) M. Brody, Esq., partner, and Fredric C. Leffler, Esq., Senior Counsel in the Labor and Employment Law Department of Proskauer Rose LLP described the key factors impacting bonuses and overtime exemptions:

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  • There is a differentiation between discretionary and non-discretionary bonuses
  • Non-discretionary bonuses must be included in overtime calculations
  • Discretionary bonuses are based on non-objective criteria are not routine:
    • Employer retains discretion over both whether the bonus will be paid and the amount of the bonus
    • Not something automatically triggered based on a quantifiable metric such as meeting sales quotas or avoiding X number of safety violations
  • A non-discretionary bonus is everything else
  • Many employers get this wrong and call a bonus discretionary but then tie it to accomplishment of certain metrics
  • Also consider the impact of eliminating non-discretionary bonuses in an effort to keep down overtime costs:
    • May have certain metrics that the employer does not want to incent employees to reach and bonus tied to such metrics is among the most direct incentives that can be offered
  • Make sure to properly re-calculate regular rate of pay and promptly pay additional overtime that may be due as a result
  • Prizes and awards:
    • Included if paid for quality, quantity and efficiency of work during an employee's customary working hours at his normal tasks
    • Examples: prizes for cooperation, courtesy, efficiency, highest production, best attendance, highest sales, etc.
  • Gift/holiday bonuses:
    • May be excluded so long as the amount of the bonus is not dependent on hours worked, production or efficiency
    • An example would be holiday bonuses

Harold (Hal) M. Brody, Esq. is a partner in the Labor & Employment Law Department with Proskauer Rose LLP ( His practice is characterized by its diversity and he has represented employers in virtually every facet of labor and employment law. Fredric C. Leffler, Esq. is a Senior Counsel in the Labor & Employment Law Department and co-head of the Employment Law Counseling and Training Group. He represents major private and not-for-profit employers in all aspects of labor and employment law.

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