How to calculate a bonus!

Before we breakdown how to calculate a bonus, first we have to discuss what a bonus is. Bonuses are a form of variable pay that are used to inspire employee loyalty or reward performance. It’s essential to know about the different kinds.

Discretionary bonuses

A bonus is discretionary if it’s given solely at the employer’s discretion and does not cause an expectation of payment from the employee. The bonus should not be contingent on the employee’s performance. Or tied to any agreement with the employee, nor should it be routine — thereby creating the expectation of regular payment.

For example, a Christmas bonus is discretionary if it meets both conditions:

  • The employer has sole discretion over the fact that the payment will be made and over the amount of the payment.
  • The employee does not have a contractual right to the bonus or was not promised the bonus.

A bonus is not discretionary if the employer retains the freedom to provide the bonus at its sole discretion. The employer also announces to the employee that he or she will receive the bonus, consequently creating the expectation of payment. For instance, a bonus rewarding an employee for exceptional performance is discretionary, provided no advance notice of the payment is given to the employee.

Nondiscretionary bonuses

A bonus is nondiscretionary if it causes an expectation of payment by the employee because the employer has promised to pay the bonus or because there’s an employer-employee agreement regarding payment of the bonus.

Nondiscretionary bonuses are usually offered for the purpose of improving performance and productivity, in which case the employer must set work goals and performance standards in advance of the payment. These bonuses are tied to the employees’ quality and quantity of work and are designed to motivate them to work more efficiently or to remain with the company.

Hiring bonuses, attendance bonuses and individual or group production bonuses are all examples of nondiscretionary bonuses.

Effect on overtime

If the bonus is discretionary, the amount should not be factored into overtime calculations. However, under the Fair Labor Standards Act, nondiscretionary bonuses must be included in nonexempt employees’ overtime pay calculations for the period of time that the bonus covers.

To calculate the overtime rate of pay for a nondiscretionary bonus earned over a single workweek:

  • Add the bonus to the employee’s total wages for the workweek.
  • Divide the total wages for the workweek by the total hours worked for the workweek to arrive at the regular rate of pay.
  • Multiply the regular rate of pay by 1.5 to get the overtime rate of pay.

If the bonus is earned over multiple weeks, the bonus amount for each workweek will need to be figured and included in the regular rate of pay for all overtime weeks covered by the bonus.

Ultimately, accurate overtime calculation is dependent upon you knowing whether the bonus is discretionary or nondiscretionary.

Don’t feel like doing math and keeping track of the numbers by yourself. We can do it for you.

 

 

Copyright 2021

Why Atlantic Payroll Partners

The biggest payroll companies probably won’t have time for your business. It’s that simple, you’ll be a number. At Atlantic Payroll Partners, you’ll be the opposite. We’ll know more than your name; we’ll know the names of your children and their birthday’s as well. We will know you.

We’ve been helping Florida business by managing their payroll and providing workers' compensation quotes for ten years. We help keep payroll cost affordable by provided transparent PEO payroll quotes that allow you to plan your budget accordingly. Like the big payroll companies, you can manage your payroll and payroll timekeeping with us, while reaping the benefits of PEO risk management.

Thinking about payroll outsourcing can be scary. Make sure you know what to expect from payroll outsourcing providers; to make the best decision for your business. In addition to offering payroll, and workers' comp quote we offer: Human Resource consultations, Accounting services, and benefits such as, 401ks and Healthcare plans.

Work from home pay, what should it be?

2020 has been a game changer and chances are you as a business owner have had to make some adjustments. One of the key adjustments that presented during the early stages of the COVID-19 Pandemic, remote work. More specifically, what is work from home pay? What should you be paying your employees?  Fun fact, since 2005, remote work has soared 173%, according to 2018 data from American Community Service. Whether you recently adopted this remote work model because of the pandemic or have been utilizing it for years, you should know your wage-and-hour responsibilities.

FLSA Rules for Remote Nonexempt Employees

Nonexempt means the employee is not exempt from overtime pay rules under the FLSA. You must pay remote nonexempt employees, whether hourly or salaried, no less than the federal minimum wage, which is currently $7.25. (Many states impose a higher minimum wage.) These employees must also receive overtime pay at 1.5 times their regular rate of pay for hours worked above 40 in a workweek.

The FLSA does not require you to provide short breaks, but if you choose to give them, the time must be paid. Meal periods are unpaid. The FLSA also mandates that you keep records of wages and hours for each remote nonexempt employee.

Challenges: It can be difficult to track hours and breaks for remote nonexempt employees because they’re working from home or elsewhere off-site. Depending on the type of work the employees do, you might not always know when they’re working. This can result in employees working overtime without your consent.

Solutions: Courts have ruled that remote nonexempt employees are responsible for tracking their own work hours, but their employer must give them the tools needed to track their time. For best results, adopt a timekeeping system, such as an online time clock, that simplifies tracking of remote employees’ work time. Also, develop policies regarding work hours, rest breaks, meals and overtime. Communicate the policies in writing to your remote team. Make sure each employee knows his or her work schedule, your expectations and the consequences of violating the policies.

FLSA Rules for Remote Exempt Employees

Employees who are excluded from the FLSA’s overtime pay provisions are “exempt,” meaning they do not need to be paid overtime for hours worked above 40 in a workweek (or other state-mandated rules). If you have remote exempt employees who are salaried, you must pay them their full salary for any week in which they do any work. Under the FLSA, exempt-salaried employees must receive no less than $684 per week, unless an allowable deduction applies.

You don’t have to track work hours for your exempt-salaried remote team because they’re paid based on a predetermined, fixed amount. But you can require that they work a certain number of hours per week. If you don’t track your remote exempt employees’ work hours, you should at least have some type of system for monitoring their day-to-day performance.

Other FLSA Implications

These include travel and on-call time for telecommuters. In both of these situations, determining how to pay telecommuters can be tricky, good thing Atlantic Payroll Partners can help.

Copyright 2021

Why Atlantic Payroll Partners

The biggest payroll companies probably won’t have time for your business. It’s that simple, you’ll be a number. At Atlantic Payroll Partners, you’ll be the opposite. We’ll know more than your name; we’ll know the names of your children and their birthday’s as well. We will know you.

We’ve been helping Florida business by managing their payroll and providing workers' compensation quotes for ten years. We help keep payroll cost affordable by provided transparent PEO payroll quotes that allow you to plan your budget accordingly. Like the big payroll companies, you can manage your payroll and payroll timekeeping with us, while reaping the benefits of PEO risk management.

Thinking about payroll outsourcing can be scary. Make sure you know what to expect from payroll outsourcing providers; to make the best decision for your business. In addition to offering payroll, and workers' comp quote we offer: Human Resource consultations, Accounting services, and benefits such as, 401ks and Healthcare plans.