discretionary bonus under section 7(e)(3)(a) the Employer must retain - - PowerPoint PPT Presentation

DISCRETIONARY BONUSES, NON-DISCRETIONARY BONUSES, SPECIAL OCCASION BONUSES: HOW ARE THEY DIFFERENT

AND HOW DO YOU HANDLE THESE IN PAYROLL?

February 2017 Harrisburg & Lancaster PA Chapter Meetings Tricia Richardson, CPP, SPHR, SHRM-SCP Partnership Coordinator

Disclaimers As part of our continued tradition and commitment to our Customer as well as the Community we serve, Paytime, Inc. is honored to provide this and many other educational resources. This presentation is being offered, and was developed, to provide timely and accurate information delivered by a subject matter expert to the audience in attendance. This material and presentation is offered with the understanding that the presenter(s), publisher(s), sponsor(s) and Paytime, Inc. are not engaged in rendering legal, accounting, or other professional services. This presentation is meant to provide general and summary information only. The subject matter is not specific to any company, individual or industry and none should be implied. No attorney-client relationship or consultant-client relationship has been created and no legal or other professional advice is implied nor

• inferred. If legal, accounting, consulting or other professional advice is needed, those services from a licensed professional in good-standing should be acquired. By attending this educational event, you agree to release

Paytime, Inc., its subsidiaries and affiliates and each of their respective shareholders, officers, directors and Employees from any and all losses, damages, liabilities, deficiencies, claims, actions, judgments, settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind arising from your use of this presentation and/or educational resource(s) and any and all information contained herein. The attendee and participant assumes all responsibilities for the use, contents, interpretations and any circumstances resulting from the aforementioned.

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AGENDA

• Define the Bonus Types
• How can you “accidentally” turn one into the
• ther
• How to calculate the overtime rate for hourly

Employees receiving Non-Discretionary Bonuses

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DEFINE THE BONUS TYPES DISCRETIONARY BONUSES

Code of Federal Regulations 778.210 to 778.212 §778.211

(a) Statutory provision. Section 7(e) (3)(a) of the Act provides that the regular rate shall not be deemed to include “sums paid in recognition of services performed during a given period if * * * (a) both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the Employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the Employee to expect such payments regularly * * *”. Such sums may not, however, be credited toward overtime compensation due under the Act. (b) Discretionary character of excluded bonus. In order for a bonus to qualify for exclusion as a discretionary bonus under section 7(e)(3)(a) the Employer must retain discretion both

as to the fact of payment and as to the amount until a time quite close to the end of the period for which the bonus is paid. The sum, if any, to be paid as a bonus is determined by the Employer without prior promise or agreement. The Employee has no contract right, express

• r implied, to any amount. (continued under Non-Discretionary

Bonuses)

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DEFINE THE BONUS TYPES NON-DISCRETIONARY BONUSES

§778.211

If the Employer promises in advance to pay a bonus, he has abandoned his discretion with regard to it. Thus, if an Employer announces to

his Employees in January that he intends to pay them a bonus in June, he has thereby abandoned his discretion regarding the fact of payment by promising a bonus to his Employees. Such a bonus would not be excluded from the regular rate under section 7(e)(3)(a). Similarly, an Employer who promises to sales Employees that they will receive a monthly bonus computed on the basis of allocating 1 cent for each item sold whenever, is his discretion, the financial condition of the firm warrants such payments, has abandoned discretion with regard to the amount of the bonus though not with regard to the fact of payment. Such a bonus would not be excluded from the regular rate. On the other hand, if a bonus such as the one just described were paid without prior contract, promise or announcement and the decision as to the fact and amount of payment lay in the Employer's sole discretion, the bonus would be properly excluded from the regular rate.

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DEFINE THE BONUS TYPES NON-DISCRETIONARY BONUSES

§778.211

(c) Promised bonuses not excluded. The bonus, to be excluded under section 7(e)(3)(a), must not be paid “pursuant to any prior contract, agreement, or promise.” For example, any bonus which is promised to Employees upon hiring or which is the result of collective bargaining would not be excluded from the regular rate under this provision of the Act. Bonuses which are announced to Employees to induce them to work more steadily or more rapidly or more efficiently or to remain with the firm are regarded as part of the regular rate of pay. Attendance bonuses, individual or group production

bonuses, bonuses for quality and accuracy of work, bonuses contingent upon the Employee's continuing in employment until the time the payment is to be made and the like are in this category. They must be included in the regular rate of pay.

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DEFINE THE BONUS TYPES SPECIAL OCCASION BONUSES

§778.212 GIFTS, CHRISTMAS AND SPECIAL OCCASION BONUSES Please note the exception to these special occasion bonuses, even if promised. Read the Regulations carefully to ensure your Businesses’ special bonuses would qualify under this exception. (a) Statutory provision. Section 7(e)(1) of the Act provides that the term “regular rate” shall not be deemed to include “sums paid as gifts; payments in the nature of gifts made at Christmas time or on other special

• ccasions, as a reward for service, the amounts of which are not measured by or dependent on hours worked,

production, or efficiency”. Such sums may not, however, be credited toward overtime compensation due under the Act. (b) Gift or similar payment. To qualify for exclusion under section 7(e)(1) the bonus must be actually a gift

• r in the nature of a gift. If it is measured by hours worked, production, or efficiency, the

payment is geared to wages and hours during the bonus period and is no longer to be considered as in the nature of a gift. If the payment is so substantial that it can be assumed that Employees consider it a part of the wages for which they work, the bonus cannot be considered to be in the nature of a gift. Obviously, if the bonus is paid pursuant to contract (so that the Employee has a legal right to the payment and could bring suit to enforce it), it is not in the nature of a gift.

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DEFINE THE BONUS TYPES SPECIAL OCCASION BONUSES

§778.212 GIFTS, CHRISTMAS AND SPECIAL OCCASION BONUSES Please note the exception to these special occasion bonuses, even if promised. Read the Regulations carefully to ensure your Businesses’ special bonuses would qualify under this exception. (c) Application of exclusion. If the bonus paid at Christmas or on other special occasion is a gift or in the nature of a gift, it may be excluded from the regular rate under section 7(e)(1) even though it is paid with regularity so that the Employees are led to expect it and even though the amounts paid to different Employees or groups of Employees vary with the amount of the salary or regular hourly rate of such Employees or according to their length of service with the firm so long as the amounts are not measured by

• r directly dependent upon hours worked, production, or efficiency. A Christmas bonus paid (not

pursuant to contract) in the amount of two weeks' salary to all Employees and an equal additional amount for each 5 years of service with the firm, for example, would be excludable from the regular rate under this category.

HOW CAN YOU “ACCIDENTALLY” TURN ONE INTO THE

OTHER

• How are you wording your Policies?
• What are your Practices? (attendance bonuses, production

bonuses, etc.)

• What do your Offer Letters promise?

It is not always what you say – sometimes it is what you DO!

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HOW TO CALCULATE THE OVERTIME RATE FOR HOURLY EMPLOYEES RECEIVING NON-DISCRETIONARY BONUSES

PERCENTAGE OF TOTAL EARNINGS AS BONUS §778.210 “In some instances the contract or plan for the payment of a bonus may also provide for the simultaneous payment of overtime compensation due on the

• bonus. For example, a contract made prior to the performance of services may

provide for the payment of additional compensation in the way of a bonus at the rate of 10 percent of the employee’s straight-time earnings, and 10

percent of his overtime earnings. In such instances, of course, payments according to the contract will satisfy in full the overtime provisions of the Act and no recomputation will be required.”

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HOW TO CALCULATE THE OVERTIME RATE FOR HOURLY EMPLOYEES RECEIVING NON-DISCRETIONARY BONUSES

Production Bonus

• Hourly Employees are given a $50 bonus each week Production

Bonuses are met.

• Employees are paid bi-weekly.
• An Employee has met the Bonus requirements for the current

pay period for the 1st week and not the 2nd week.

• They are paid $20 per hour.
• They worked 42 hours the 1st week of the pay period and 47

hours the 2nd week.

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HOW TO CALCULATE THE OVERTIME RATE FOR HOURLY EMPLOYEES RECEIVING NON-DISCRETIONARY BONUSES

Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Hours Worked Week 1 Hours Worked 8 8 8 8 8 2 42 Week 2 Hours Worked 5 9 8 9 8 8 47 $20.00 Hourly Rate $50.00 Bonus

Week 1 Regular Pay 42 hours @ $20 $840.00 Production Bonus $50.00 Total Regular Pay $890.00 Calculation of Regular Pay Rate $21.19 ($890 divided by 42 hours) Overtime Rate (1/2 of $21.19) $10.60 Overtime Pay $21.19 ($10.60 x 2 hours OT) Total Gross Pay Week 1 $911.19 Week 2 Regular Pay 47 hours @ $20 $940.00 Production Bonus $0.00 Total Regular Pay $940.00 Calculation of Regular Pay Rate $20.00 ($940 divided by 47 hours) Overtime Rate (1/2 of $20) $10.00 Overtime Pay $70.00 ($10 x 7 hours OT) Total Gross Pay Week 2 $1,010.00 WITH CORRECT BONUS CALCULATION

TOTAL GROSS PAY $1,921.19

Week 1 Regular Pay 42 hours @ $20 $840.00 Production Bonus $50.00 Total Regular Pay $890.00 Overtime Rate (1/2 of $20) $10.00 Overtime Pay $20.00 ($10 x 2 hours OT) Total Gross Pay Week 1 $910.00 Week 2 Regular Pay 47 hours @ $20 $940.00 Production Bonus $0.00 Total Regular Pay $940.00 Overtime Rate (1/2 of $20) $10.00 Overtime Pay $70.00 ($10 x 7 hours OT) Total Gross Pay Week 1 $1,010.00 WITH INCORRECT BONUS CALCULATION

TOTAL GROSS PAY $1,920.00

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HOW TO CALCULATE THE OVERTIME RATE FOR HOURLY EMPLOYEES RECEIVING NON-DISCRETIONARY BONUSES

Production Bonus

• Hourly Employees are given a $50 bonus each week Production Bonuses

are met.

• Bonuses are paid out Monthly, in the 1st pay of the following Month.
• An Employee has met the Bonus requirements for Weeks 1, 3 and 4.
• They are paid $20 per hour.
• Week 1 they worked 49 hours.
• Week 2 they worked 42 hours.
• Week 3 they worked 45 hours.
• Week 4 they worked 39 hours with 8 hours vacation.

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HOW TO CALCULATE THE OVERTIME RATE FOR HOURLY EMPLOYEES RECEIVING NON-DISCRETIONARY BONUSES

Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Hours Worked Week 1 Hours Worked 8 10 9 9 8 5 49 Week 2 Hours Worked 9 8 9 8 8 42 Week 3 Hours Worked 10 8 9 9 9 45 Week 4 Hours Worked 8 10 9 10 10 47

vacation

$20.00 Hourly Rate $50.00 Bonus Week 1 Regular Pay 49 hours @ $20 $980.00 Production Bonus $0.00 Total Regular Pay $980.00 Calculation of Regular Pay Rate $20.00 ($980 divided by 49 hours) Overtime Rate (1/2 of $20) $10.00 Overtime Pay $90.00 ($10 x 9 hours OT) Total Gross Pay Week 1 $1,070.00 Week 2 Regular Pay 42 hours @ $20 $840.00 Production Bonus $0.00 Total Regular Pay $840.00 Calculation of Regular Pay Rate $20.00 ($840 divided by 42 hours) Overtime Rate (1/2 of $20) $10.00 Overtime Pay $20.00 ($10 x 2 hours OT) Total Gross Pay Week 2 $860.00

WITH CORRECT BONUS CALCULATION ORIGINAL PAY

TOTAL GROSS PAY $3,820.00

Week 3 Regular Pay 45 hours @ $20 $900.00 Production Bonus $0.00 Total Regular Pay $900.00 Overtime Rate (1/2 of $20) $10.00 Overtime Pay $50.00 ($10 x 5 hours OT) Total Gross Pay Week 3 $950.00 Week 4 Regular Pay 47 hours @ $20 $940.00 Production Bonus $0.00 Total Regular Pay $940.00 Overtime Rate (1/2 of $20) $10.00 Overtime Pay $0.00 ($10 x 0 hours OT) Total Gross Pay Week 4 $940.00

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HOW TO CALCULATE THE OVERTIME RATE FOR HOURLY EMPLOYEES RECEIVING NON-DISCRETIONARY BONUSES

Less Original Pay

TOTAL GROSS PAY $3,820.00 Week 1 Regular Pay 49 hours @ $20 $980.00 Production Bonus $50.00 Total Regular Pay $1,030.00 Calculation of Regular Pay Rate $21.02 ($1030 divided by 49 hours) Overtime Rate (1/2 of $21.02) $10.51 Overtime Pay $94.59 ($10.51 x 9 hours OT) Total Gross Pay Week 1 $1,124.59 Week 2 Regular Pay 42 hours @ $20 $840.00 Production Bonus $0.00 Total Regular Pay $840.00 Calculation of Regular Pay Rate $20.00 ($840 divided by 42 hours) Overtime Rate (1/2 of $20) $10.00 Overtime Pay $20.00 ($10 x 2 hours OT) Total Gross Pay Week 2 $860.00

WITH CORRECT BONUS CALCULATION

TOTAL GROSS PAY $3,977.37 DUE TO EMPLOYEE $157.37 Week 3 Regular Pay 45 hours @ $20 $900.00 Production Bonus $50.00 Total Regular Pay $950.00 Calculation of Regular Pay Rate $21.11 ($950 divided by 45 hours) Overtime Rate (1/2 of $21.11) $10.56 Overtime Pay $52.78 ($10.56 x 5 hours OT) Total Gross Pay Week 3 $1,002.78 Week 4 Regular Pay 47 hours @ $20 $940.00 Production Bonus $50.00 Total Regular Pay $990.00 Calculation of Regular Pay Rate $21.06 ($990 divided by 47 hours) Overtime Rate (1/2 of $21.06) $10.53 Overtime Pay $0.00 ($10.53 x 0 hours OT) Total Gross Pay Week 4 $990.00

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QUESTIONS?

Disclaimers As part of our continued tradition and commitment to our Customer as well as the Community we serve, Paytime, Inc. is honored to provide this and many other educational resources. This presentation is being offered, and was developed, to provide timely and accurate information delivered by a subject matter expert to the audience in attendance. This material and presentation is offered with the understanding that the presenter(s), publisher(s), sponsor(s) and Paytime, Inc. are not engaged in rendering legal, accounting, or other professional services. This presentation is meant to provide general and summary information only. The subject matter is not specific to any company, individual or industry and none should be implied. No attorney-client relationship or consultant-client relationship has been created and no legal or other professional advice is implied nor

• inferred. If legal, accounting, consulting or other professional advice is needed, those services from a licensed professional in good-standing should be acquired. By attending this educational event, you agree to release

Paytime, Inc., its subsidiaries and affiliates and each of their respective shareholders, officers, directors and Employees from any and all losses, damages, liabilities, deficiencies, claims, actions, judgments, settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind arising from your use of this presentation and/or educational resource(s) and any and all information contained herein. The attendee and participant assumes all responsibilities for the use, contents, interpretations and any circumstances resulting from the aforementioned.

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THANK YOU FOR ATTENDING!

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