Regular Rate of Pay: Bonus & Commission in Different Pay Cycles Part 4

By November 4, 2017FLSA Rules

Calculating Overtime with Commissions is a Vital Step in Compliance

This fourth and final article on FLSA Violations: Regular Rate of Pay, covers various ways to apply a bonus when the time frame for the bonus exceeds a week.

According to the Department of Labor, overtime must be paid out as it is worked and bonus income must be included in the regular rate of pay that is used for calculating overtime.

When the time frame for a is more than a week, then overtime must be paid on the known rate of pay and then after the bonus is paid, the final regular rate of pay must be calculated and additional overtime paid in arrears. For more information on regular rate of pay and bonus payments please see article 3 of the series. Article 1 can be found here.

Things Get Complicated When Bonus or Commissions Follow a Different Cycle than a Week

As  mentioned above, when bonus or commission is paid for a period that is longer than a week, then estimated overtime must be paid for the period it is earned.

After the bonus is paid, overtime must be recalculated with the updated regular rate of pay and the different paid to the employee.

Bonuses can be broken into a weekly portions or hourly portions. As in the example above, let’s say that Rosa earned a 12 week bonus of $360.

Paying a Bonus Broken into Weekly Segments

If it could be assumed that Rosa earned an equal portion of the bonus for each week that she worked, then her bonus could be broken down into (12) $30 weekly bonuses. Rosa’s employer would then need to calculate her regular rate of pay for each week that she worked overtime.

In this scenario, let’s assume that Rosa worked 2 week with 45 hours, another week with 42 hours, 4 weeks with 46 hours. 

Rosa’s regular rate of pay would vary depending on how many hours she worked each week. After calculating her regular rate of pay for each week she had overtime,  Rosa’s employer would then need to calculate her total overtime wages due for each week in the 12 weeks that she worked overtime.

 

45 Hour Week 42 Hour Week 46 Hour Week
Straight compensation Straight compensation Straight compensation
$525 = 45 hours x $11 an hour + $30 bonus $492 = 42 hours x $11 an hour + $30 bonus $536 = 46 hours x $110 an hour + $30 bonus
New regular rate of of pay New regular rate of of pay New regular rate of of pay
$11.67 = $525 / 45 hours $11.72 = $492 / 42 hours $11.65 = $536 / 46 hours
Rosa’s Overtime Hourly Pay Rosa’s Overtime Hourly Pay Rosa’s Overtime Hourly Pay
$17.51 = $11.67 x 1.5 $17.58 = $11.72 x 1.5 $17.48 = $11.65 x 1.5
Total Earnings for the Week Total Earnings for the Week Total Earnings for the Week
40 hours x $11 straight hourly pay = $440

+ $30 bonus

+ 5 hours overtime x $17.51

(= $87.55)

= $557.55

40 hours x $11 straight hourly pay = $440

+ $30 bonus

+ 2 Hours overtime x $17.58 (= $35.16)

= $505.16

46 hours x $11 straight hourly pay = 440

+ $30 bonus

+ 6 hours overtime x $17.48 (= $104.88)

= $574.88

 

Paying a Bonus Broken into Hourly Segments

However, if Rosa worked weeks of differing hours and her employer breaks her bonus over her hours, then her regular rate of pay could be different than $11.67.

Say that for the 12 weeks Rosa worked 36 hours of overtime. Her total hours worked were 506 (She only worked 30 hours one week). In that case her straight time compensation must be calculated

506 Hours worked in a Quarter with a $360 Quarterly bonus (12 weeks)

 

506 Hours worked in a Quarter with a $360 Quarterly bonus (12 weeks)
Straight compensation
$5,926 = $5,566 ($11 per hour * 506 hours) + $30
New regular rate of of pay
$11.71 Regular Rate of Pay = $5,926 total pay / 506 hours
Rosa’s Overtime Hourly Pay
$11.71 an hour X 1.5 = $17.57 Overtime Hourly Wages
Total Earnings for the Quarter
470 hours (506 total hours – 36 overtime hours)  x $11 straight hourly pay = $5,170

+ $360 quarterly bonus

+ 36 hours overtime x $17.57 = $632.52

= $6,162.52

 

In this scenario you will notice two things:

1) Rosa’s regular rate of pay differs depending on if her bonus is evenly distributed among an hourly wage or calculated per each week’s wages. When Rosa worked varying hours from week to week, her regular rate of pay differs.

2) Rosa’s regular rate of pay will adjust if she has weeks when she works overtime and weeks when she works less than 40 hours a week.

Back Payment For Overtime Worked After a Bonus

During the quarter in which Rosa works overtime, her manager is required to pay her overtime hours even though the final regular rate of pay is not determined because her bonus has not been determined yet.

In this scenario, Rosa would be paid overtime based on her hourly pay of $11 an hour. She worked 36 hours of overtime during the quarter and would have been paid an overtime wage of $16.50 ($11 x 1.5).

Thus the total wages that Rosa earned and was already paid was:

506 Hours worked in a Quarter with a $360 Quarterly bonus (12 weeks)
Straight compensation
$5,926 = $5,566 ($11 per hour * 506 hours) + $30
Estimated overtime based on $11 an hour
$16.50
Total Paid Earnings thus paid in the Quarter
470 hours (506 total hours – 36 overtime hours)  x $11 straight hourly pay = $5,170

+ $360 quarterly bonus

+ 36 hours overtime x $16.50 = $594.00

= $6,124.00

 

However, once Rosa earned the $360 in a bonus, her employer would need to apply the $360 back to her overtime and pay apportioned overtime.

Using the hourly calculation as an example, Rosa’s total compensation should have been $6162.52, but she was paid $6124.00. Thus Rosa’s employer would need to pay her apportioned overtime wages of $38.52.

Unfortunately, many employers miss this step.

Let SwipeClock Help

Across the United States, many employers pay employees bonus income, shift differential, commission, signing bonuses and other forms of additional income. Calculating an accurate regular base of pay is impossible without accurate timecards, wage income, and bonus income recorded and retained.

Plus, many of these businesses also have to comply with local, and sometimes overlapping, ordinances defining Sick leave accrual, family leave & scheduling laws.

Additionally, these businesses have to also comply with Federal Overtime Laws, the Family Medical Leave Act and any other national or local laws that are enacted. SwipeClock provides a comprehensive array of workforce management and time tracking tools that can help businesses to more easily stay in compliance with local and national laws.

Records are effortlessly kept for years and accrual is automatically tracked and reported to employees according the state and city laws.

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SwipeClock is a leading provider of cloud-based integrated workforce management solutions that include automated time and attendance, advanced scheduling, and leave management capabilities.

The company’s products, including TimeWorksPlus, TimeSimplicity and Workforce Management Clock enable employers to manage their most important and expensive asset-employees-by transforming labor from a cost of doing business to a competitive advantage.

SwipeClock’s workforce management solutions are sold through over 850 partners that empower more than 26,000 businesses to lower labor costs, comply with regulatory mandates, and maximize their profits. For more information, please visit www.swipeclock.com.

Resources

Department of Labor Guidelines

Written by Annemaria Duran. Last updated November 2, 2017

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