Discretionary Bonus for Working Overtime, the Regular Rate, and the FLSA

Today’s FLSA Question: I work for a third-party EMS agency that contracts 911 service for a rural county. Our agency is struggling to find medics and EMTs. As a result, overtime and mandatory overtime has turned into the norm. In an effort to incentivize employees to take additional shifts, my company has begun offering a bonus in addition to overtime pay to employees that choose to work unexpected/last minute overtime shifts. These bonuses range between $50 to $100 per shift. However, these bonuses are not included in our regular or overtime rate. Our employer is saying that this is a discretionary bonus, since there is no requirement to provide it to employees, and as a result does not need to be included in the regular rate. I thought all bonuses needed to be included in an employee’s regular rate, no?

Answer: First, your employer is correct in stating that discretionary bonuses can be excluded from an employee’s regular rate. However, the bonus that you describe is not a discretionary bonus. Merely labelling a bonus as “discretionary,” does not necessarily make it fall within the FLSA and DOL requirements related to “discretionary bonuses.” As a result, these additional bonuses paid for taking the unexpected/last minute overtime shifts should be included in the regular rate.

The FLSA requires virtually all the money that an employee receives from his or her employer included in the regular rate. Whether any bonus can be properly excluded from an employee’s regular rate depends on the particular facts of the situation. Discretionary bonuses can be excluded from an employee’s regular rate of pay provided the following criteria is met:

1. The employer has the sole discretion, until at or near the end of the period that corresponds to the bonus, to determine whether to pay the bonus;
2. The employer has the sole discretion, until at or near the end of the period that corresponds to the bonus, to determine the amount of the bonus; and
3. The bonus payment is not made according to any prior contract, agreement, or promise causing an employee to expect such payments regularly.

Let’s apply your facts to the above requirements. First, your employer is not required to provide the bonus. So most likely, that will satisfy the first requirement. In theory, I suppose the employer could change the amount of the bonus, thus most likely satisfying the second requirement. However, the third requirement torpedoes your employer’s argument that the bonus is truly discretionary as contemplated by the FLSA and DOL regulations. Here, the employer has announced the bonus in advance. This creates an expectation/promise that the bonus will be paid to employees that opt to work extra shifts.

Whether or not a bonus is discretionary requires a careful examination of the specific facts and circumstances. As a general rule, it is much easier to reward employees for a past performance with a discretionary bonus. Conversely, it is almost impossible to incentivize employees to either improve their performance or meet certain conditions or goals with a discretionary bonus. In that instance, the very nature of the bonus is to incentivize the employee to do whatever is desired by the employer.