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“LEGISLATION TO ELIMINATE THE DISINCENTIVE FOR EMPLOYERS TO PROVIDE BONUSES TO CERTAIN EMPLOYEES” mentioning the U.S. Dept of Labor was published in the Extensions of Remarks section on pages E358-E359 on March 14, 1996.
The publication is reproduced in full below:
LEGISLATION TO ELIMINATE THE DISINCENTIVE FOR EMPLOYERS TO PROVIDE
BONUSES TO CERTAIN EMPLOYEES
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HON. CASS BALLENGER
of north carolina
in the house of representatives
Thursday, March 14, 1996
Mr. BALLENGER. Mr. Speaker, today I am joined by Mr. Goodling and Mr. Fawell in the introduction of legislation to eliminate the disincentive under the Fair Labor Standards Act for employers to provide bonuses to hourly paid employees. Presently, the FLSA requires that certain payments to a nonexempt employee--such as commissions, gainsharing, incentive, and performance contingent bonuses--must be included in the employee's regular hourly rate of pay for the purposes of calculating overtime pay.
It is becoming more common for companies to link pay to performance as they look for innovative ways to improve employee performance. More employers are awarding one-time payments to individual employees or to groups of employees in addition to regular wage increases. Employers have found that rewarding employees for high quality work improves their performance and the ability of the company to compete. If a company's profits exceed a certain level, employees are able to receive a proportionate piece of the profits. Unfortunately, many employers who choose to operate such pay systems can be burdened with unpredictable and complex overtime liabilities.
Under current law, an employer who wants to give an employee a bonus must divide the payment by the number of hours worked by the employee during the pay period that the bonus is meant to cover and add this amount to the employee's regular hourly rate of pay. This adjusted hourly rate must then be used to calculate time-and-a-half overtime pay for the pay period. Employers can easily provide additional compensation to executive, administrative, or professional employees who are exempt under the FLSA without having to recalculate rates of pay.
Some employers who provide discretionary bonuses do not realize that these payments should be incorporated into overtime pay. One company ran afoul of the FLSA when they gave their employees bonuses based on each employee's contribution to the company's success. The bonus program distributed over $300,000 to 400 employees. The amount of each employee's bonus was based on his or her attendance record, the amount of overtime worked, and the quality and quantity of work produced.
When the company was targeted for an audit, the Department of Labor cited it for not including the bonuses in the employees' regular rate for the purpose of calculating each employee's overtime pay rate. Consequently, the company was required to pay over $12,000 in back overtime pay to their employees. The company thought it was being a good employer by enabling its employees to reap the profits of the company and by paying wages that were far above the minimum. These types of actions taken by the Department of Labor are especially surprising in view of Labor Secretary Reich's exhortations to businesses to distribute a greater share of their earnings among their workers.
This legislation will eliminate the confusion regarding the definition of regular rate and remove disincentives in the FLSA to rewarding employee productivity. The definition of regular rate should have the meaning that employers and employees expect it to mean--the hourly rate or salary that is agreed upon between the employer and the employee. Thus, employers will know that they can provide additional rewards and incentives to their nonexempt employees without having to fear being penalized by the Department of Labor regulators for being too generous.
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