From a client: How can I give my employees bonuses?
My employees are all hourly (non-exempt) and I would like to give them the opportunity to earn bonuses for referring business to us. But then I heard that bonuses have to be calculated into overtime pay and I don’t want to pay more in overtime or to do some calculation each time I want to give them a bonus. What are my options?
My HR survival tip
This company is right about the connection between bonuses and overtime pay. However, a different solution came to me that would be much simpler. This company doesn’t yet offer any form of paid time off. We decided to create a referral program that awarded employees with a certain number of paid bonus hours for each referral. Each bonus hour is equivalent to an hour’s pay but can’t be turned in for cash. They can use these hours as paid time off (like vacation pay) and, eventually, any earned and unused amount would be paid out upon termination.
Compare my solution to adjusting the overtime pay rate. Most people might just add the bonus amount to a paycheck. For example, if an employee worked 42 hours one week at $10 per hour, he would normally earn $400 of straight pay and $30 of overtime pay. Add a $100 bonus to this and you have a simple total of $530 ($400 straight pay + $30 overtime pay + $100 bonus). But that wouldn’t be the correct amount.
When you add a $100 bonus in California, it will come out differently because you must add the bonus amount into that week’s overtime calculation. Divide the $100 by the 42 hours worked and you get $2.38 per hour. Since overtime is one-and-one-half, that one-half is considered the overtime “premium.” The bonus overtime premium is $1.19 (half of the $2.38). Multiply the overtime premium of $1.19 times the 2 hours of overtime worked and you owe this employee an additional $2.38. The final amount owed is $532.38 ($400 of straight pay + $30 overtime pay + $100 bonus + $2.38 overtime premium pay on the bonus amount).
Don’t make the same miscalculation I did recently! I previously added 2 whole bonus overtime hours (of $3.57) instead of just 2 hours of the overtime “premium” pay (of $1.19)… we only need to pay the additional “premium” pay because the bonus was divided by all hours worked so the base pay for overtime was already paid.
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