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Failure to Include Commissions or Bonuses in Employee’s Overtime Rate of Pay

According to federal law, employers must typically pay their employees overtime at a rate of 1.5 times an employee’s “regular rate” of pay for any time the employee works more than forty hours in a week. Employers often calculate the regular rate of pay incorrectly by failing to include commissions and bonuses paid to the employee. An employee’s “regular rate” of pay is determined by adding his or her total compensation—which includes the hourly pay plus commissions and certain bonuses—and dividing it by the total number of hours worked during the week for which that compensation was paid. A violation of federal overtime law can occur when an employer omits commissions and/or certain bonuses and pays its employees overtime based solely on their set hourly rate of pay. According to the U.S. Department of Labor, only certain types of bonuses, which are referred to as “non-discretionary” bonuses, must be included when determining an employee’s regular rate of pay:

Bonuses: For purposes of calculating overtime pay, section 7(e) of the FLSA provides that non-discretionary bonuses must be included in the regular rate of pay. Non-discretionary bonuses include those that are announced to employees to encourage them to work more steadily, rapidly or efficiently, and bonuses designed to encourage employees to remain with a facility. Few bonuses are discretionary under the FLSA, allowing exclusion from the regular rate. See 29 CFR §§ 778.200 and 778.208).

See http://www.dol.gov/whd/StateandLocalGovernment/media/OT%20Examples%20Final.htm for specific examples of bonuses that employers must include when calculating the employee’s regular rate of pay. 

If you worked as an hourly employee and were not paid 1.5 times the proper regular rate of pay for your overtime hours worked (over 40 per week), you may be entitled to reclaim unpaid wages.  Please contact us for a free consultation about whether your employer paid you correctly under the law.

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