Congress currently is
debating legislation to increase the federal minimum wage from $5.15 to $6.15
per hour in two annual increments. Â
Given that this is an election year and that President Clinton and both
parties in Congress have committed to raising the minimum wage, employers must
face the likelihood that the minimum wage will be going up soon. However, there
may be a silver lining for employers. Â
Legislation pending in the House of Representatives would eliminate a
subtle trap, which subjects employers to overtime liability for bonuses paid to
"non-exempt" employees, i.e., employees eligible for overtime
compensation under the Fair Labor Standards Act ("FLSA").
Currently, employers are
required to incorporate bonuses paid to non-exempt employees into their regular
rate of pay, then re-compute employees'' overtime pay to reflect the higher
"regular rate." An example is as follows:
Prior to receiving any
additional incentive bonuses, an employee with abase rate of $20/hr, who has
worked 300 hours of overtime, is entitled to receive $9,000 in overtime
pay. Â After receiving a $4,000 incentive
bonus, and assuming a 2,000-hour work year, the hourly rate for this employee
would be recalculated at $22/hr. Â This
new hourly rate would then be used to calculate the amount of overtime pay that
the employee should have been paid; in this example, $9,900. Â The payment of the bonus therefore creates
$900 in additional overtime liability.
In short, this provision of
FLSA not only creates burdensome administrative requirements for employers but
also creates potentially large liability for unpaid overtime premiums. Under
current law, employees may recover up to two years of back pay, plus liquidated
damages and attorneys'' fees for violations of the FLSA. Â A three year limitations period applies for
"willful violations" by the employer. Â For these reasons, many employers simply have stopped paying
bonuses to hourly employees.
The House bill attempts to
rectify this problem by excluding bonus payments from the calculation of
overtime. Â The bill provides that an
employee´s "regular rate" for purposes of calculating overtime
compensation will not be affected (i.e., increased) by certain additional
payments, including payments made to reward an employee or group of employees
for meeting or exceeding the productivity, quality, efficiency, or sales goals
as specified in a gain sharing, incentive bonus, commission, or performance
contingent bonus plan. Â However, the
bill''s chances of passage are uncertain at best, so employers are well advised
to audit their bonus plans and other compensation incentives to ensure that
they are not unwittingly creating retroactive overtime liability.
Disclaimer: "The above
information is for general informational purposes only and should not be
construed as legal advice."
By: Stephen J. Cabot
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