FLSA Regular Rate Calculations Accounting for Bonuses: Part 2 of 3.

Excerpted from article by: Stephen Bruce, Ph.D., PHR

Example 1: Health care workers

An health care facility for the disabled pays its employees on a biweekly basis. If employees work all the hours that they are scheduled to work in a pay period, they are given a $100 bonus. The employees must work all  the hours in the pay period to receive the bonus.  Employees are paid $12 per hour and work 56 hours a week.  To compute this employee’s regular rate under the 40-hour FLSA overtime standard, the employer adds half of the biweekly bonus ($50) to the employee’s earnings for that week.  The employers earnings are the hourly rate times the total hours worked in this example.

The resulting total compensation would be divided by the total hours the employee worked during that week to determine the regular rate.  The steps are as follows.

1. Convert the biweekly attendance bonus to a weekly amount:
$100 (biweekly attendance bonus) ÷ 2 (weeks) = $50 (weekly bonus equivalent)

2. Calculate total weekly compensation:
$672 (56 hours @ $12) + $50 weekly bonus equivalent = $722

3. Calculate the regular rate:
$722 total weekly compensation ÷ 56 hours worked = $12.89 (regular rate)

Note: That the regular rate is higher than the person’s base rate in this pay period because of the additional non-discretionary bonus that they received during the pay period.

4. Calculate the overtime premium owed on the regular rate:
$12.89 (regular rate) x ½ = $6.45 (half-time premium)

Note: In this setting the overtime premium refers only to the .5 portion of the total 1.5x overtime.

5. Calculate the overtime rate based on the regular rate:
$12.89 (regular rate) + $6.45 (half-time premium) = $19.34 (overtime rate)

Note: The regular rate is used throughout the calculation and not the individual’s base rate.

6. Calculate total earnings:
40 (straight time hours) x $12.89 (regular rate) = $515.60 (straight time earnings)
16 (overtime hours) x $19.34 (overtime rate) = $309.44 (overtime earnings)
Total earnings for week one = $825.04 ($515.60 + $309.44)
Total earnings for week two = $825.04 ($515.60 + $309.44)
Total earnings for biweekly period = $1,650.08 ($825.04 + $825.04)