This is the second installment in a six-part series from FirefighterOvertime.org on the regular rate.
Proper calculation of the regular rate is critical. All FLSA overtime must be at least time and one-half of the regular rate. The regular rate has been referred to as the “linchpin” of the FLSA. Not only is calculating the regular rate important, it can be difficult, especially for firefighters. Calculating the proper regular rate is frequently one of the most challenging administrative tasks for any fire department leader. In fact, the U.S. Supreme Court has written that calculating the regular rate can even be “perplexing” at times.
Properly calculating a firefighter’s regular rate may seem overwhelming at first, but with the proper knowledge, anybody can do it. Failing to include wage augments in the regular rate is the leading cause of FLSA lawsuits in the fire service today. In this six-part series, we will explore which wage augments can be excluded from the regular rate.
Important Point to Remember
The regular rate must include “all remuneration for employment paid to, or on behalf of, the employee,” with only a few narrow exceptions. That means all the money an employee receives from his or her employer must be included in the regular rate unless it fits into one of these six narrow exceptions.
Regular Rate Exception #2 – Discretionary Bonus Exception
Monetary bonuses paid to an employee as a gift for special occasions or at the sole discretion of the employer do not need to be included in the regular rate.
In order to qualify for the discretionary bonus exception, special occasion bonuses must be made “in the nature of a gift” and cannot be related to hours worked, production, or efficiency. For example, money paid at Christmas to each employee, as a reward for service, does not need to be included in the regular rate.
Also, bonuses made at the sole discretion of an employer do not need to be included in the regular rate. Sole discretion bonuses require the employer maintain complete discretion over whether to provide the bonus and the amount of the bonus.
Collective bargaining agreements can contain provisions titled “special occasion bonuses” or even “sole discretion bonuses.” At first glance, it may appear these payments would not need to be included in the regular rate. However, if an employee has a legal right to receive a bonus, it can no longer be considered “in the nature of a gift” or at the “sole discretion” of the employer. Therefore, bonuses contained in a CBA cannot be considered discretionary and must be included in the regular rate.
The employer needs to carefully examine the nature and way the bonus is paid to determine if it meets the specific requirements of the discretionary bonus exception.
Stay tuned for the next installment in the six-part series on the regular rate and firefighters: Regular Rate Exclusion #3: Occasional Periods When No Work is Performed Exception.