While calculating an employee’s overtime rate may seem routine, many employers either intentionally or unintentionally don’t calculate their workers’ overtime rate correctly. An employee’s overtime rate of pay should be calculated at one and one-half times their regular rate of pay. But, all monies paid for employment must be included when calculating an employee’s regular rate of pay for overtime purposes. This means that any non-discretionary bonus that an employee receives needs to be calculated into the regular rate of pay and then time and one-half (1.5x) must be taken off of that total amount. A few examples of the types of payments that an employer needs to include in an employee’s regular rate of pay are commissions, shift differentials, previously agreed upon lump sum payments and bonuses for catching shoplifters.
An example of this would be a sales associate at a department store making $10 an hour. Assume that the sales associate is also paid commissions on everything that she sells and one week has $500 in commissions. If that same week the sales associate works over 40 hours then the store must calculate the sales associate’s regular rate of pay including the $500 commissions to determine the proper overtime rate. If the store does not include the $500 commissions and instead just pays the sales associate at an overtime rate of $15 which is one and one-half times the $10 hourly rate, then the store is paying the sales associate at a lower overtime rate than what is lawful.
There are very limited circumstances when a bonus can be viewed as discretionary and be excluded from an overtime calculation. As a matter of fact, the employer bears the burden of establishing that a bonus is a discretionary one and excludable from the regular rate of pay when calculating overtime. The United States Supreme Court has ruled that exemptions to the wage laws must be narrowly construed in favor of the employee. Arnold v. Ben Kanowsky, Inc., 361 U.S. 388 (1960). New York courts have agreed. See Scott Wetzel Services Inc. v. New York State Board of Industrial Appeals et al., 252 A.D.2d 212, 214 (1998). Additionally, it is the employer’s burden to demonstrate the exemption applies.
For a bonus to be discretionary and excludable from the calculation of overtime, the employer has to have discretion as to if the bonus will be paid and the amount of the bonus until a time shortly before the bonus is to be paid. This means that for a bonus to be discretionary it cannot be agreed upon previously. It also cannot be a bonus that an employee is aware they will get if a certain goal is reached. For example, if an employee knows that on the one year anniversary of their employment they will receive a bonus of $1,000, that bonus is not discretionary and therefore once it is paid it must be included in calculating that employee’s regular rate of pay for overtime purposes.
According to the United States Supreme Court, “the rule for determining the regular rate of pay is to divide the wages actually paid by the hours actually worked in any workweek and adjudge additional payment to each individual on the basis for time in excess of forty hours worked for a single employer.” Bay Ridge Operating Co. v. Aaron, 334 U.S. 446, 468-469 (1948). “The regular rate by its very nature must reflect all payments which the parties have agreed shall be received regularly during the workweek, exclusive of overtime payments.” Id. at 461. This decision supports the fact that non-discretionary bonuses need to be included in the regular rate of pay when determining the overtime rate of pay.
New York Courts have also ruled that other employee payments must be included in the regular rate of pay when calculating the overtime rate of pay. In Johnson v. D.M. Rothman Company, Inc., 861 F.Supp.2d 326 (S.D.N.Y. 2012) the court ruled that an employer’s failure to include the night shift differential in their calculation of hourly employees’ overtime compensation rates was unlawful. In Johnson, the court ruled that night shift differential (an additional amount paid to employees who work at night) must be added to the regular rate before calculating an overtime rate.
Similarly, in Ramirez v. Riverbay Corp., 35 F.Supp.3d 513 (S.D.N.Y. 2014), a case in which the court appointed Louis Ginsberg, Esq. Class Counsel, the court ruled that failure to include nighttime differential pay in an employee’s “regular rate” for overtime purposes violated the New York State Labor Laws. Likewise, in Isaacs v. Central Parking Systems of New York, Inc., 2012 WL 957494 (E.D.N.Y. 2012), the court ruled that ““all remuneration,” specifically including but not limited to, shift differentials, must be included in the calculation of a “regular rate” of pay when calculating overtime under the FLSA (Fair Labor Standards Act) and NYLL (New York Labor Law).”
Some examples of non-discretionary bonuses that are common and that need to be included in an employee’s regular rate of pay when determining the overtime rate of pay include lump sum payments that are given to employees that were agreed to previously, sometimes in a collective bargaining agreement. Also, as discussed above, shift differential pay to hospital workers working the overnight shift are another form of payment that needs to be calculated into the regular rate of pay when determining the overtime rate of pay. Also, commissions paid to sales associates need to be included in the regular rate of pay whether commissions are paid on a weekly or a monthly basis. Another example of a non-discretionary bonus that has to be included in the regular rate of pay when calculating an employee’s overtime rate of pay would be incentive pay to security guards for catching shoplifters. These are just a few examples of the types of payments needed to be included in the regular rate of pay when calculating the overtime rate.
When these employee payments are not included in the regular rate of pay when calculating the overtime rate, then an employee is not being paid at their proper overtime rate. In fact, an employee is being paid less than they should be when these types of payments are not being included and such employees are owed additional overtime pay by their employer.
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