Retroactive Pay Increases, Bonuses and the FLSA

Today’s Question:

The city and firefighters just concluded a long and drawn out battle over a new contract.  The old contract expired six months ago.  The new contract contains two provisions that are raising questions in the stations.  The first is a 2% retroactive pay increase (retroactive to July 1) and the second is a “bonus” that is payable to all firefighters at the end of the year. 

The questions being asked are:

1. “Do the retro and “bonus” payments need to be included in the regular rate?”

            AND, if that answer is YES…

2. “Which work period should these payments be included in?”

The answer to the first question is clear.  The regular rate must include retroactive pay increases and one-time non-discretionary bonuses.  The answer to the second question is a bit more involved.

The regulations at 29 CFR §778.303 entitled Retroactive pay increases address this precise question.  Retroactive pay increases and non-discretionary bonuses “must be prorated back over the hours of the period to which it is allocable to determine the resultant increases in the regular rate”.

For example, if a firefighter receives a 2% pay raise in December that is retroactive to July 1st of the same year.  The firefighter is owed an additional 2% retroactively on all FLSA overtime earned from July until December.  This is the proper way to calculate the regular rate for retroactive pay increases.

Similarly, a $520 non-discretionary bonus paid at the end of the first year of the contract should be apportioned out over the course of the year.  The firefighters regular rate must reflect the additional money week by week over the course of the year.

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