A recent Wage and Hour opinion letter reaffirms that employers must include performance-based bonuses awarded under predetermined criteria in the regular rate when calculating overtime. DOL concluded that bonus payments were nondiscretionary and therefore part of the regular rate because the employer had “abandoned” its discretion by automatically awarding the bonus to drivers who met objective performance and safety standards.
The opinion letter also reminds employers that the structure of the bonus matters as much as its purpose. Even if the program involves judgment calls, advance notice to employees, measurable criteria, and automated triggers strongly suggest that the bonus is nondiscretionary. When these bonuses fluctuate week to week, employers must ensure that payroll systems allocate the correct amount to each workweek and recalculate overtime accordingly.
The Center for Workplace Compliance (CWC), our affiliated nonprofit membership association, will hold a Fundamentals of Wage and Hour Compliance course that will review regular rate principles. CWC members can read more here.