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May 14, 2010
How Non-Discretionary Bonuses Figure Into Overtime Calculations

Anyone who deals with payroll has probably gotten a headache or two trying to understand how bonuses figure into overtime calculations, Laura P. Worsinger, Esq., said in a BLR webinar titled "Reducing Overtime Costs: What You Legally Can—and Can't—Do to Keep Workers at Their Straight-Time Rates." She offered the following guidance in regard to non-discretionary bonuses.

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What Is a Non-Discretionary Bonus?

A non-discretionary bonus is one that is promised to employees if they meet certain goals or if some other event occurs. This kind of bonus comes in one of two forms:

  • Incentive bonus. An incentive-based bonus is awarded to employees for reaching certain production or performance goals. Examples would be a bonus tied to the company's profits or to the employee meeting certain sales or production goals.
  • Set bonus. This type of bonus is tied to a specific event or date. Examples would be a year-end bonus, Christmas bonus, or a bonus given to employees for having no workplace injuries during a quarter.

Under state and federal law, non-discretionary bonuses must be included in an employee's "regular rate of pay" in order to calculate overtime pay. Worsinger explained that:

  • Employees who are paid time and a half under state labor law and the Fair Labor Standards Act (FLSA) effectively have their hourly pay for a given period increased when they receive a bonus, entitling them to additional overtime.
  • As with deferred commissions, overtime is recalculated by dividing the bonus amount by the number of hours, including overtime hours, required to earn the bonus to arrive at an hourly rate, and then multiplying half the number of overtime hours by that rate.

Laura P. Worsinger, Esq. is Of Counsel with the Los Angeles office of Dykema Gossett PLLC. She has broad counseling and litigation experience and specializes in the defense of employers in individual and class actions involving wage and hour violations, misclassification, discrimination, wrongful termination, and other employment-related proceedings. She can be contacted at

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