Example #2—Nurse Retention bonuses (Part 3 of 3)

 

A health care organization’s nursing department gives hourly paid LPNs and RNs a $2,000 bonus after being employed for 6 months to both retain and attract more nursing personnel.  In this instance, the bonus will be included in the regular rate calculation during weeks in the period in which overtime was worked.  The key is to know how the bonus was earned. That is, was it a one time bonus? Or was it for work that was performed over a series of months.  In this example is the latter.

 

The $2,000 retention bonus described above was earned over 6 months or 26 weeks. Equivalently, the weekly bonus can thought of as a weekly bonus of $76.92 ($2,000 ÷ 26 weeks). If an employee works overtime during the 26-week period, the increase in the regular rate is calculated by dividing $76.92 by the total hours worked during the overtime week.

 

The procedure for calculating OT is the same as described in Part 2 of this series.  If the employee worked 10 hours of overtime ( a total of 50 hours of work in the pay period)  in their 9th week of employment, the employee would be due an additional $7.70 in overtime earning in that time period.  The calculation is as follows:

 

1. Calculate the increase in regular rate due to the bonus

$76.92 ($2,000 ÷ 26 weeks) ÷ 50 hours = $1.54 (increase in the regular rate)

Note:  The daily bonus is spread equally of all the hours worked in the time period where there is OT.

2. Calculate the increase in the half time (.5) portion of the OT premium

$1.54 x ½ = $ .77 (increase in the additional half-time premium)

3. Calculate the addition OT premium due to the individual.

$ .77 x 10 hours of overtime worked =     $7.70 (increase in overtime earnings due to the bonus)

 

The calculation can also be performed as described in yesterday’s post.  The results will be the same.  The key is to recognize that the bonus is spread over the time period that the bonus was earned.

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)

 

Excerpted from: Stephen Bruce PhD, PHR

According to FLSA Overtime, at the rate of at least time and one half, must be paid on all hours worked over 40 in a workweek at the individual’s “regular rate,” not on the nominal hourly rate. FLSA requires that nondiscretionary 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.

The Department of Labor states that few bonuses are discretionary under the FLSA, and therefore few can be excluded from the regular rate.

So, to calculate the amount of the overtime premium, you must first adjust the pay to include the bonuses and then calculate the overtime premium. In practice, it’s often the case that you award bonuses after a paycheck has been issued, and in that situation, you must go back and recalculate the overtime and pay the difference. It’s usually a small amount, but it still must be paid.  Referral bonuses paid for recruitment of new employees are not included in the regular rate of pay if they meet certain conditions (voluntary, not time intensive, after hours among friends and family).

Excerpted from: Stephen Bruce PhD, PHR

According to FLSA Overtime, at the rate of at least time and one half, must be paid on all hours worked over 40 in a workweek at the individual’s “regular rate,” not on the nominal hourly rate. FLSA requires that nondiscretionary 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.

The Department of Labor states that few bonuses are discretionary under the FLSA, and therefore few can be excluded from the regular rate.

So, to calculate the amount of the overtime premium, you must first adjust the pay to include the bonuses and then calculate the overtime premium. In practice, it’s often the case that you award bonuses after a paycheck has been issued, and in that situation, you must go back and recalculate the overtime and pay the difference. It’s usually a small amount, but it still must be paid.  Referral bonuses paid for recruitment of new employees are not included in the regular rate of pay if they meet certain conditions (voluntary, not time intensive, after hours among friends and family).