Employment Law: Twenty-Three-Cent Bonus Adds Up to One Big Payroll Headache

Oct 29, 2012

 

The following article was published in Business Management Daily on October 28, 2012:


23-cent bonus adds up to one big payroll headache

 

By Payroll Legal Alert

www.businessmanagementdaily.com


If an employer retains complete control over whether to pay a bonus and the amount of the bonus, then it can be excluded from an employee’s regular rate as a discretionary bonus. But both parts of this test count equally.

Recently, a federal trial court ruled that bonuses that always equaled $50 failed the second part of the test and had to be included in employees’ regular rates. Worse: The court allowed the case to proceed as a class action, and refused to dismiss California state law claims. (Provine v. Office Depot, Inc., No. C 11-00903 SI, N.D. Calif., 2012)

No applause for the Bravo program

Under a company’s employee incentive program, managers recognized outstanding employees with “Bravo” cards, which went into a hopper. Every month a name was drawn and the winner received $50. An employee won twice, several months apart. For those two months, he worked 19 minutes of overtime.

The employee quit and sued in federal court, claiming that the awards should have been included in his regular rate. If they had been, he claimed, he would have received an additional 23 cents in overtime.

He also sued under California law for failure to provide accurate pay statements, unfair competition, failure to pay all wages owed at termination and civil penalties under the state’s private attorney general law. As icing on the cake, he wanted the case certified as a class action.

Encore, encore

The company asked the court to dismiss the case. Company: The bonuses were discretionary, since winning depended on a random drawing. To back up its claim, it presented a 1996 Department of Labor Opinion Letter, which concluded that an employer could exclude the value of a car from an employee’s regular rate, provided eligible employees were entered into a lottery, the value of the prize was large and the likelihood of any employee winning was remote.

The court didn’t bite. Court: The letter didn’t address whether a set, known value for a bonus renders it nondiscretionary under the Fair Labor Standards Act. Even though the fact of receiving a bonus was discretionary, the Bravo awards weren’t discretionary because the amount of the payment was known to all employees in advance.

One state law claim-failing to pay all wages due at termination-may end up costing the employer a bundle. Under California law, employers that willfully fail to pay final wages may be liable for up to 30 days of unpaid wages. According to the court, based on an eight-hour workday, 23 cents of unpaid overtime adds up to $2,016.

Cents and Sensibility

This case is still in the early stages and the employer could yet prevail. Even so, it would be prudent to review your company’s employee incentive programs to ensure they meet both parts of the discretionary-bonus test.

Nondiscretionary bonuses must be included in employees’ regular rates, when figuring their overtime rates. If a bonus is for the current week, add it to the employee’s other earnings and figure the regular rate based on the total. Trouble: Bonuses spanning more than one week must be allocated back over the weeks they were earned and the regular rate refigured.

Idea: You can ditch the math by basing employees’ bonuses on a percentage of their total straight time and overtime pay.

View the original article here:  http://www.businessmanagementdaily.com/33235/23-cent-bonus-adds-up-to-one-big-payroll-headache