Know Ye the Regs When Awarding Bonuses or Lump Sums to Nonexempts

Cash incentive, bonus and lump sum merit awards are becoming increasingly prevalent for all employees, including those determined to be nonexempt from the requirements of the Fair Labor Standards Act (FLSA).  Many employers do not realize that there are regulations governing how these awards impact the compensation of nonexempt employees.

Bonuses paid to nonexempt employees are included in the determination of their regular wage rate, which impacts any overtime payments, unless the bonus falls into one of several exceptions.  To help us with the detailed ins and outs of these regulations and to shed light on the exceptions, Michael Moore of the Pennsylvania Labor and Employment Blog has a very helpful and informative post on the topic up today.

I learned a few things from Michael on this topic.  I was not aware of the first exception he mentions - the percent of total earnings bonus - and I take this as a piece of good news.  Many of us in the HR and rewards fields are most aware of the discretionary exception, but applying it means that you essentially abdicate tying the bonus to performance in any way, not an attractive choice for many employers.  I believe that this has prevented a number of organizations from offering a bonus or cash incentive plan to their nonexempt staff.  The percent total earnings exception, while laden with its own complications, provides a solid alternative worth considering.

Michael and I connected over his comment to my recent and related post on lump sum merit increases for "over max" employees - and decided that both of our readers would greatly benefit from more information on the regs surrounding nonexempt bonus/lump sum awards.  And for those who aren't already familiar with it, Michael's blog is a great source for keeping abreast of the legal angles of compensation and other HR topics - an excellent one to add to your reading list.

Comments

[R. Minor]

My concern is earning tne cash bonuses but never recieving them on my checkes. And, having to justify why i am asking for it. and, not to mention insurance that i should have recieved after 3 months of employment and have notafter 7 months. i this terms to quit and recieve umeployment. For wrongful employment. This is a Managemnet Training Position. With no real structure.

Please help!