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This ESS trainer is the second in a 2-part series on correctly calculating overtime, especially when bonuses or commissions are involved. Read part one here.
Here at CEDR, we often hear variants of the following from employers who think they can exclude bonuses when calculating overtime:
I’ve been directed to call my bonuses and other incentive systems “discretionary.” So they don’t count towards the base rate of pay.
It’s important to understand the difference between outcome-based bonuses and discretionary bonuses.
Discretionary bonuses are those that are not based on an outcome, such as Christmas bonuses, because they are based on no particular criteria and of an undetermined amount. Simply put, they are at the discretion of the business owner.
Outcome-based bonuses are those that are based on sets of goals or outcomes, such as an increase in profit, number of new patients, sales, and internal referrals. These types of bonuses are actually considered wages and are factored into wages paid.
For commissions, the same holds true. These are wages based on outcomes by agreement, and are therefore promises of additional wages.
The additional amount for either an outcome-based bonus or a commission affects overtime calculations.
Let’s look at a sample overtime pay calculation. This employee earns a production-based salary and worked overtime:
A hygienist works 46 hours (6 hours of overtime). Her compensation is 33% of net production and she generates $3800.00 in net production for the week.
33% of $3800.00 = $1254.00 (earned income)
$1254.00/46 hours = $27.26 per hour, which is her regular rate of pay.
The next part gets a little tricky, but bear with me. Remember that time and a half for all hours worked over 40 is owed for overtime. Since you’ve already paid the employee $27.26 for the 6 hours of overtime, the only thing left is calculating the half time.
$27.26/2 = $13.63 per hour. Since the employee worked 6 hours of overtime, you owe an additional $13.63 x 6 hours = $81.78.
So added together, you owe the hygienist $1254.00 + $81.78.
Now, here’s an example where a bonus has to be factored in:
A front office associate works 46 hours (6 hours overtime). Her compensation is $12/hour and she earns an $80 dollar bonus for that week.
Remember that the regular rate includes the hourly rate PLUS all other forms of compensation added up, then divided by the number of hours actually worked.
$12.00 (hourly rate) x 46 (hours) = $552.00
$80.00 bonus + $552.00 hourly wage = $632.00 (earned income)
$632.00/46 (hours) = $13.73 per hour (regular rate)
$13.74, not $12.00, is the employee’s regular rate of pay, used to determine the amount owed for overtime.
$13.74/2 = $6.87 per hour. Since the employee worked 6 hours of overtime, you owe an additional $6.86 x 6 (hours), which is an additional $41.22.
So that ends up as $552.00 + $41.22 = $593.22.
You’re probably thinking:
You mean I have to go back and recalculate what I owe anyone that worked overtime once they earn the commission or bonus?
What! You mean I have pay them overtime even though they are getting a day rate and commissions?
The answer to both is yes.
You may also be thinking that all hygienists or other highly paid professionals automatically fall under the professional exemption for overtime. But that’s not always true. Click HERE for more on that.
In short, it’s important to determine the difference between regular and hourly rates of pay because otherwise it can turn into a real mess when payday rolls around…or when the liability catches up with you. CEDR can help prevent headaches for you and your employees in these matters – just contact us at 866-414-6056.
Are your practices and policies helping to protect your medical practice from wage and hour lawsuits and penalties? Have you been calculating overtime correctly when bonuses are involved? And are your overtime policies – and ALL your other employee policies – totally in compliance with state and federal employment laws?
CEDR can help. As an ESS member, you are eligible for special savings on our individually customized, HR-compliant employee handbooks! Call us at 866-414-6056, or shoot us an email at firstname.lastname@example.org for a quick, free quote.
OR, just want to know more about overtime pay and other policy pitfalls? Check out our blog at www.cedrsolutions.com/hr-base-camp for HR knowledge, examples, and tips to help protect your practice.
Friendly Disclaimer: This article is general education and guidance and is not a substitution for legal advice. Employment issues are complicated and often require specific expert or legal guidance based on the circumstances.