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Holiday Bonuses: The "Gift" that May Keep on Giving

By Kristine A. Sova

With wage-and-hour litigation continuing its growth, employers who provide holiday bonuses should make sure that they don't become proof of the old adage that no good deed goes unpunished by finding themselves on the receiving end of a wage claim. Wage-and-hour laws look to technical compliance, not generosity, and unbeknownst to many employers, there are circumstances when employers are required to include bonuses in the calculation of overtime wages due to non-exempt employees.

In general, the federal Fair Labor Standards Act and New York Labor Law require employers to pay all non-exempt employees overtime at a rate of time-and-a-half their regular rate of pay for all hours worked over 40 in a workweek. The "regular rate of pay" includes all compensation provided to the employee, with a few exceptions.

One of those exceptions is a holiday bonus, but only if certain criteria are met. Specifically, all of the following criteria must be met:

• The bonus must be gift, or in the nature of a gift. If the bonus is in any way measured by or dependent upon the employee's hours worked, production or efficiency, it is not a gift. A bonus will still be considered a gift even if the amounts paid to different employees or groups of employees are dependent on their base compensation and/or length of service.

• The bonus must not be "so substantial" that employees consider it part of the wages for which they work, as opposed to a gift.

• The bonus cannot be paid pursuant to contract or any other kind of agreement. If it is, the employee has a legal right to the payment and it is not in the nature of a gift.

Even if a holiday bonus is paid with such regularity that employees grow to expect it, the bonus is still properly excluded from overtime calculations so long as the above criteria are met. Further, even if a holiday bonus does not meet the criteria above, it may still be excluded from overtime calculations as a "discretionary bonus," a topic to be discussed in a future post.

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This page contains a single entry from the blog posted on December 10, 2013 5:46 PM.

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