As we wind down 2023, your company may be sharing with its employees either through business closing periods or end-of-the-year bonuses. Employers must be cognizant that these generous gestures may carry compliance obligations for the business.
Employers must be careful when paying out bonuses at the end of the year to non-exempt employees. As with other bonuses, a holiday bonus must be included in overtime calculations for nonexempt employees unless it is completely discretionary or is a gift. If a bonus is promised or expected or is dependent on the quality, quantity or efficiency of production or hours worked, it must be included in the regular rate used for determining overtime pay. This becomes even more complicated at the end of the year. For example, suppose on January 1, 2023 the company promised a bonus if the production department hit their production budget by December 15, 2023. If the production department achieved this goal and each non-exempt employee was paid a $100 bonus, that bonus would need to be allocated over the applicable period (50 weeks from 1/1 – 12/15). Then each non-exempt employee would become entitled to additional overtime for each week they worked overtime during that entire 50-week period, because the $100 bonus payment increased their regular rate and therefore the applicable overtime rate.
Non-discretionary bonuses can also impact sick leave or other paid leave if the state law requires it be paid at an employee’s “regular rate...
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