Bonuses for Collateral Duties and the Regular Rate

Today’s FLSA Question: I am the administrator for a fulltime fire and EMS district. We have several personnel that work part-time collateral positions within our organization. These collateral positions include training officer, EMS coordinator, and HAZMAT officer. Personnel receive overtime when working in these capacities outside of their normal work hours, however they also spend a great deal of their on-duty time attending to these collateral duties. As a result, the union and the district recently entered into a new collective bargaining agreement that provides bonuses for firefighters and officers that accept the collateral work assignments. The bonuses range from $2,000 to $3,000 annually depending on the individual’s qualifications and the assignment. The bonuses are paid out at the end of the year and are prorated if the member opts out of their collateral position during the previous year. Since these bonuses are paid lump sum at the end of the year, can they be excluded from the member’s regular rate of pay?

Answer: The FLSA requires virtually of the money an employer pays to an employee included in the employee’s regular rate of pay. While there are limited exceptions to this general rule, none of those exceptions likely applies to the bonus program that you describe. The fact that the bonus is paid lump sum at the conclusion of the year may complicate the proper calculation of the employee’s regular rate, however the way the bonus is paid or the title that it is given is irrelevant to any FLSA implications that may arise as a result of the bonus.

Here the bonus is promised to employees in advance under the terms of a collective bargaining agreement. The bonus is intended to reward individuals that opt to perform collateral duties in addition to their normal work during their scheduled work hours. Department of Labor (DOL) regulations found at 29 CFR 778.211)(c) specifically state that “bonuses which are announced to employees to induce them to work more steadily or more rapidly or more efficiently or to remain with the firm are regarded as part of the regular rate of pay.”

Here is the full text of that regulation:

§ 778.211 Discretionary bonuses (c)

Promised bonuses not excluded.  The bonus, to be excluded under section 7(e)(3)(a), must not be paid pursuant to any prior contract, agreement, or promise. For example, any bonus which is promised to employees upon hiring or which is the result of collective bargaining would not be excluded from the regular rate under this provision of the Act. Bonuses which are announced to employees to induce them to work more steadily or more rapidly or more efficiently or to remain with the firm are regarded as part of the regular rate of pay. Most attendance bonuses, individual or group production bonuses, bonuses for quality and accuracy of work, bonuses contingent upon the employee’s continuing in employment until the time the payment is to be made and the like are in this category; in such circumstances they must be included in the regular rate of pay.