Human Resource Blog

Rates for Quarterly Bonuses

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When it comes to establishing quarterly bonuses, how should we include our bonuses in with the regular rate for overtime?

There are a number of options that you have when you go about establishing those bonuses. You will have a different method to go by depending on whether or not the bonus is discretionary or nondiscretionary.

According to the Fair Labor Standards Act, employers are required to include the non-discretionary bonuses in the regular rates for the non-exempt employees. In terms of how those bonuses affect overtime pay, discretionary bonuses, gifts, and special occasion bonuses do not need to be included with the regular rate of pay for the employees when the overtime calculations are made. Those discretionary bonuses are totally up to the employer to make or to not make and are not associated with the overtime pay.

Nondiscretionary bonuses are those bonuses that are guaranteed for an employee. Employees should be able to expect when they will receive the nondiscretionary bonuses as well. These types of bonuses are added to the regular rate of pay for the employee. Other bonuses, such as a bonus that an employee may receive for good performance, should also be calculated into the regular rate of pay for an employee.

There are a couple of ways that you can include nondiscretionary bonuses with the regular rate of pay:

You can take the regular rate and recalculate it for each week included in a particular bonus period. You will have to pay additional overtime payments if you choose this method.

You can also calculate the bonus based on a percentage of the total pay given to the employee, which would include any overtime hours.

It is up to your company to determine which method your company can use when determining the rate of pay for the bonuses. If your company is established, you may want to have your accounting team review the hours that your employees work normally as compared to their overtime hours. This might help you determine which method would be more financial viable for your company.