Is A “Bonus” Worth It?

Although bonuses continue to offer stimulus to the employee population to perform above-standard, there’s significant liability for wage/hour violations and often labor cost increases that may be associated with improper payments associated with certain types of bonus payments.

Incentivizing the work of employees has been a long-standing practice for employers across all industries. Since the modern era of employee management, employers have used bonus payments as a tool to reward attendance, sales performance, and other achievements that produce above-satisfactory work. Incentives or bonuses historically have been a viable work enhancement tool for employers. However, some employers continue to pay incentives that may constitute a bonus under the United States Department of Labor definition as outlined in the Code of Federal Regulations without adhering to specific guidelines for factoring in extra compensation paid for overtime where a bonus payment is considered part of the regular rate at which an employee is employed. This complex analysis and calculation for determining the inclusion and exclusion of bonuses in computing the “regular rate” relies on the type of payment being paid to the employee, such as a gift on special occasions, discretionary bonuses and more. See Title 29, Part 778 CFR – Overtime Compensation for the complete U.S. DOL guidance on overtime compensation.

Some bonuses come with a price! Work with your Human Resources or Finance team to determine the efficiency of your bonus plan before implementation to ensure a timely and accurate analysis of the proposed plan to avoid any pitfalls.

The U.S. Department of Labor’s Wage & Hour Division (“WHD”) devotes time and resources to enforcement investigations. Since 2010, the WHD has recorded 638 violations of the Fair Labor Standards Act – Minimum Wage and Overtime, in the State of California. These violations resulted in back payments to be made to employees and civil penalties. To review a comprehensive data list of all violations, visit the Data Enforcement webpage at