Unpaid Bonus & Payroll Error
Bonuses or other financial incentives sound great. Whether provided at Christmastime or year-end, or given periodically in appreciation of positive performance, who isn’t excited to receive a bonus? The fact is, rather than using bonuses as a means for rewarding employees, many employers use bonuses as a way to avoid paying overtime. It is important to understand that bonuses are a form of wages that must be included when calculating overtime pay. Thus, when you receive a bonus, employers are generally required to increase the rate of pay upon which employees receive overtime. When companies shift compensation away from wages and into bonuses, they may be cheating you out of overtime compensation you are entitled to. Talk to an experienced Los Angeles unpaid bonus & payroll error lawyer at the Kawahito Law Group if you believe you are not being paid properly.
Bonuses may be discretionary or non-discretionary
Bonuses generally fall into one of two categories, and your entitlement to have bonus pay included in overtime calculations may differ depending upon the type of bonus. The two broad categories are discretionary and non-discretionary bonuses.
Discretionary Bonuses – These bonuses are typically given to everyone in the company or in the same department, usually in the same amount to employees who are similarly situated. The reason for the bonus may be to reward a department or the entire company for exceptional productivity and performance over the year or over a quarter, or to share a windfall profit with the employees. Sometimes a discretionary bonus is given to a single individual to recognize exceptional performance and encourage others to excel in their jobs. A discretionary bonus typically comes out of the blue with no expectation on the part of the employees. The hallmark of a discretionary bonus is that it is entirely within the control and decision of the employer whether to award it or not.
Non-Discretionary Bonuses – Non-discretionary bonuses are the kind that are usually based on individual performance and only given to employees who earn them or meet the criteria for the bonus. These types of bonuses are sometimes called incentive payments, as they are rewards for meeting certain goals related to productivity, attendance or other work habits. A retention bonus offered to incentivize an employee to stay with the company is another type of non-discretionary bonus. As the name implies, once an employee qualifies for a non-discretionary bonus, the worker is entitled to it as part of compensation, and the employer cannot decide not to award it.
Whereas discretionary bonuses do not have to be included in overtime calculations, non-discretionary bonuses must be. Whether awarded upon milestones, monthly, quarterly or only once a year, an employee’s hourly rate must be adjusted to include the amount of a non-discretionary bonus, and any overtime owed must be paid according to the adjusted (increased) rate. Employers regularly fail to do this, thus depriving employees of wages.
Further proof that bonuses count as compensation comes from the Department of Labor regulations, which allow bonuses to be used to satisfy up to ten percent of the salary basis test when exempting an employee from overtime. A bonus used for this purpose must meet certain additional requirements, such as being paid at least quarterly.
Seek Experienced Legal Representation Regarding Los Angeles Overtime & Bonus Pay
Including bonuses in compensation for the purpose of calculating overtime can range from a headache to a nightmare for accounting departments, so this is an area to watch out for clerical accounting errors, not to mention deliberate attempts to use bonuses as a way to avoid paying overtime on an employee’s full rate of pay. If you believe bonuses have not been paid properly or have caused you to lose overtime compensation, contact the Kawahito Law Group in Los Angeles at 310-746-5300 for a no-cost, confidential consultation with an effective and aggressive Los Angeles unpaid bonus & payroll lawyer.