The Fair Labor Standards Act (FLSA) requires that covered nonexempt employees in the private sector and in federal, state and local governments receive overtime pay for any hours they work over 40 during a workweek. Overtime pay must be at least one and one-half times the employee’s regular rate of pay.

Bonuses can play a big role in determining an employee’s wages for the work week. However, whether the bonus is discretionary or nondiscretionary determines how it affects the employee’s regular rate of pay.

Discretionary bonuses are not considered part of an employee’s regular rate. A bonus is discretionary if:

• The employee has no expectation of payment
• The employer retains discretion regarding the amount and timing of payment
• The payment of the bonus is not tied to meeting specific standards or goals
• The payment has no effect on overtime rate calculations

Nondiscretionary bonuses are considered part of an employee’s total wages. A bonus is nondiscretionary if:

• There is an expectation of payment
• The employer has no discretion regarding the amount and timing of payment
• Payment is tied to employee performance or other specific standards or goals

The below compliance overview covers the details between discretionary and nondiscretionary bonuses, as well as whether bonuses should be included in overtime pay rate calculations. Contact your NEEBCo representative with additional questions.

Discretionary versus Nondiscretionary Bonuses