Resources

Client Alerts, News Articles, Blog Posts, & Multimedia

Everything you need to know about BMD and the industry.

Is Your Bonus System Creating Wage and Hour Violations? A Hidden Impact of the Labor Shortages

As employers struggle with attracting and retaining talent, many have turned to incentives such as Signing Bonuses and Retention Bonuses. In doing so, employers may be inadvertently exposing themselves to overtime law violations. 

Employers with non-exempt employees know that the Fair Labor Standards Act (FLSA) requires an overtime premium to non-exempt employees for work in excess of 40 hours per week. However, all too often, employers miscalculate the “regular rate” of pay, which is used for calculating the “overtime rate.” The miscalculation is becoming more prevalent in today’s market when employers fail to include supplemental compensation, such as certain Signing Bonuses and Retention Bonuses into the regular rate of pay.

An example: A non-exempt employee is hired at a rate of $20 per hour, and also receives a retention bonus of $1,200 after working for 12 weeks. In her 11th week of work, employee works 50 hours. In her 14th week of work, employee works 50 hours. What is her paycheck in week 11?  What is her paycheck in week 14?

  • Week 14 is the easy answer. Her regular rate of pay is $20/hour. She will receive 50 hours at regular rate = $1,000. She will also receive 10 hours at overtime premium of $10.00/hour ($20 x 0.5) = $100. Her paycheck for 50 hours of work in week 14 will be $1,100.00.
  • Week 11 is the complicated answer. The $1,200 bonus will be attributed evenly across her first 12 weeks for $100 per week. In week 11, she worked 50 hours, which increased her regular rate of pay by $2.00 ($100/50 hours). Her overtime rate was therefore increased by $1.00 ($2.00 x 0.5), and with 10 OT hours, her paycheck increased by $10.00 above the weeks when the bonus was inapplicable.  Her paycheck for 50 hours of work in week 11 will be $1,110.00.        

A quick default rule on the FLSA and “regular rate” of pay -

The “regular rate” of pay for non-exempt employees includes ALL compensation earned during a workweek.

The FLSA does permit certain defined exclusions from the total compensation, such as discretionary bonuses (i.e., employee of the month, severance, and referral bonuses); however, FLSA guidance provides that few bonuses are discretionary. A discretionary bonus must be unanticipated, purely discretionary, and/or independent from an individual’s specific work performance.  

All non-discretionary bonuses must be included in the total compensation. A non-discretionary bonus is any predictable, promised, or pending payment made because an employee meets a certain tenure, quality of work, quantity of production, or efficiency of operations. 

A pure signing bonus is discretionary. However, a signing bonus with a claw-back provision only vests once an employee meets a certain tenure; therefore, it becomes non-discretionary. 

Therefore, if we change the example above to: 

A non-exempt employee is hired at a rate of $20 per hour, and also receives a signing bonus of $1,200. Her offer letter provides that the employer will claw-back the signing bonus (or deduct it from her final paycheck) if she leaves before working for twelve (12) full weeks.    

It will result in the same calculation of overtime rate. The Signing Bonus did not vest until she worked 12 full weeks. Since it was tied to her tenure, it became non-discretionary.

What does this mean for employers? Employers who are utilizing certain Signing Bonuses and Retention Bonuses to attract and retain non-exempt employees must evaluate whether and how to attribute the bonus to workweeks covered by the bonus period. If the non-exempt employee earned overtime in a workweek, then the employer must calculate the regular rate, with the inclusion of the bonus, in order to determine the appropriate overtime rate.

Won’t my payroll system automatically adjust the overtime rate? Not necessarily. One of the purposes for this post is to make employers aware of the issue, which is occurring more and more frequently. It seems that many of the auto-payroll systems are not set up to address the reconciliation and/or employers are not inputting the correct data.

Can employers circumvent the issue? Maybe. There are plenty of strategies to consider, including:

  • Making Signing Bonuses earned and vested at the time of signing, and eliminating claw-backs.
  • Providing Retention Bonuses on a weekly basis, which avoids the task of having to reconcile overtime rate over an extended period of time. Any OT rate can be adjusted in that pay period.
  • Tying Retention Bonuses tied to a specific week of work, rather than a tenure of employment; i.e., a 50th week of work bonus of $1,000.00.

What are the risks? Failure to calculate overtime rates of non-exempt employees at the proper rates of pay is a beacon to attract plaintiffs’ attorneys. The FLSA provides for recovery of unpaid wages and liquidated damages. State laws can allow recovery of triple damages. With today’s labor shortages and high-turnover, inadvertent calculation errors can quickly add up. While the total amount of unpaid wages are usually limited, the liquidated damages, costs, and attorney fees are always exponentially higher.   

For employers offering non-discretionary bonuses to non-exempt employees, make sure you are performing accurate calculations of rates of pay and overtime rates. For employers considering implementation of a bonus system, make sure that the system is set up properly to avoid creating liabilities. For additional information, mathematic calculations, or guidance on Wage and Hour matters, please contact Labor + Employment Partner Jeffrey C. Miller, jcmiller@bmdllc.com, or any member of the BMD L+E Team.

New York, Kansas, Massachusetts, and Delaware Become the latest States to Adopt Full Practice Authority for Nurse Practitioners

While the COVID-19 pandemic certainly created many obstacles and hardships, it also created many opportunities to try doing things differently. This can be seen in the instant rise of remote work opportunities, telehealth visits, and virtual meetings. Many States took the challenges of the pandemic and turned them into an opportunity to adjust the regulations governing licensed professionals, including for advanced practice registered nurses (APRNs).

Explosive Growth in Pot of Gold Opportunity for Bank (and Other) Cannabis Lenders Driving Erosion of the Barriers

Our original article on bank lending to the cannabis industry anticipated that the convergence of interest between banks and the cannabis industry would draw more and larger banks to the industry. Banks were awash in liquidity with limited deployment options, while bankable cannabis businesses had rapidly growing needs for more and lower cost credit. Since then, the pot of gold opportunity for banks to lend into the cannabis industry has grown exponentially due to a combination of market constraints on equity causing a dramatic shift to debt and the ever-increasing capital needs of one of the country’s fastest growing industries. At the same time, hurdles to entry of new banks are being systematically cleared as the yellow brick road to the cannabis industry’s access to the financial markets is being paved, brick by brick, by the progressively increasing number and size of banks that are now entering the market.

2021 EEOC Charge Statistics: Retaliation & Impact of Remote Work

The U.S. Equal Employment Opportunity Commission (EEOC) released its detailed information on workplace discrimination charges it received in 2021. Unsurprisingly, for the second year in a row, the total number of charges decreased as COVID-19 either shut down workplaces or disconnected employees from each other. In 2021, the agency received a total of approximately 61,000 workplace discrimination charges - the fewest in 25 years by a wide margin. For reference, the agency received over 67,000 charges in 2020, and averaged almost 90,000 charges per year over the previous 10 years.

Ohio’s Managed Care Overhaul Delayed – New Implementation Timeline

At the direction of Governor Mike DeWine, the Ohio Department of Medicaid (ODM) launched the Medicaid Managed Care Procurement process in 2019. ODM’s stated vision for the procurement was to focus on people and not just the business of managed care. This is the first structural change to Ohio’s managed care system since the Centers for Medicare & Medicaid Services' (CMS) approval of Ohio’s Medicaid program in 2005. Initially, all of the new managed care programs were supposed to be implemented starting on July 1, 2022. However, ODM Director Maureen Corcoran recently confirmed that this date will be pushed back for several managed care-related programs.

Laboratory Specimen Collection Arrangements with Contract Hospitals - OIG Advisory Opinion 22-09

On April 28, 2022, the Department of Health and Human Services, Office of Inspector General (“OIG”) published an Advisory Opinion[1] in which it evaluated a proposed arrangement where a network of clinical laboratories (the “Requestor”) would compensate hospitals (each a “Contract Hospital”) for specimen collection, processing, and handling services (“Collection Services”) for laboratory tests furnished by the Requestor (the “Proposed Arrangement”). The OIG concluded that the Proposed Arrangement would generate prohibited remuneration under the federal Anti-Kickback Statute (“AKS”) if the requisite intent were present. This is due to both the possibility that the proposed per-patient-encounter fee would be used to induce or reward referrals to Requestor and the associated risk of improperly steering patients to Requestor.