The types of compensation that need to be included in employees’ regular rates of pay for overtime purposes can trip up Payroll pros and potentially draw scrutiny from the Department of Labor’s (DOL) Wage and Hour Division.
A DOL investigation of a warehouse operator and e-commerce distributor shows how important it is for Payroll to get overtime pay right.
The discovery of illegal pay practices at a WIN.IT America Inc. warehouse in Hebron, KY, led to uncovering overtime pay violations at company facilities in Walton, KY, and City of Industry and Walnut, CA, according to a DOL press release.
The agency found that the employer owed 995 warehouse workers a grand total of $1,025,909 in unpaid overtime. The employer failed to pay FLSA-required overtime because it didn’t include merit-based bonuses in the employees’ regular rates of pay.
Additional overtime violations
Because WIN.IT’s violations go deeper than a “we didn’t know it should’ve been included” Payroll error, they could set the stage for civil lawsuits or a hefty fine.
Some workers, despite working more than 40 hours in a workweek, were paid straight-time for their work hours without the mandatory additional half-time rate for overtime pay, the DOL said.
The employer also misapplied the overtime rules to some salaried employees, the DOL said, denying them applicable overtime wages.
What goes into regular rate of pay
A general rule for your Payroll team regarding what should be included in the regular rate of pay was presented during the 2022 American Payroll Association Congress by Daniel Messeloff, a partner at the Cleveland law firm Tucker Ellis, LLP.
He said that any payment an employee receives that’s based on or measured by the person’s hours worked, production or efficiency should be calculated as part of the regular rate of pay. That includes commissions, shift differentials, incentive payments and “nondiscretionary” bonuses (unless the employer can show the bonus is FLSA-exempt).
Bonuses are considered nondiscretionary when employees know about and expect the bonus. They include:
- bonuses based on a predetermined formula, such as individual or group production bonuses
- bonuses for quality and accuracy of work
- bonuses announced to employees as incentives to work more efficiently
- attendance bonuses
- safety bonuses (e.g., number of days without an accident), and
- signing bonuses.