Unfortunately, A Bit of Ebenezer Is Needed When Giving Christmas Bonuses
Although they are not as common as they once
were, employees in many workplaces still expect a bonus at this time of the
year, and many employers, hoping to not disappoint, give their employees
something like a fixed-dollar amount or the equivalent of one week’s base pay
to celebrate the holiday season. While tradition can be a good thing, when it
comes to bonuses (holiday or otherwise), employers often fail to consider the
effect that regular bonuses may have on a non-exempt employee’s compensation if
the employee has worked any overtime during the year.
Consider the following example: A non-exempt employee with an
hourly rate of $25 worked 2,080 hours in the year for a total of $52,000. Consequently,
if our employee also worked 100 hours of overtime during the year, they would
have been paid an additional $3,750 (100 X $25.00 X 1.5) in overtime.
Now let’s complicate the example: Every year, our
hypothetical employer has given our hypothetical employee a bonus equal to one
week’s base pay, which in the year comes to $1,000.00. What our hypothetical
employer may have overlooked is that the employee’s total pay for purposes of calculating
the regular hourly rate for overtime calculations is now $53,000.00. The
employer will now have to recalculate the employee’s hourly rate to $25.48
(53,000 divided by 2080) and pay $72.12 in additional overtime compensation for
the 100 hours of overtime worked during that year. This is not much, but it can
add up if there are many other employees in the same situation. Also, making
these calculations can be a real headache for the payroll department.
Discretionary bonuses, however, can be
excluded from the regular hourly rate calculation. A bonus is discretionary if
the employer retains the right as to decide whether a bonus will be paid and
the amount of that bonus. The employer
that announces in advance that it will pay a bonus at the end of the year—or
some other time—without stating that that payment is subject to the discretion
of the employer may give up its discretion and not be able exclude the bonus
from the non-exempt employee’s regular pay rate.
employer that has a custom and practice of paying a bonus year after year
similarly risks creating an understanding that the bonuses are
non-discretionary. While this may sound a bit like “bah humbug,” employers who
want to retain a regular tradition of generosity should make it clear each year
that the bonuses are discretionary and based on the judgment of the employer.
With that message, at least your payroll department will say “Bless you,