Mass-Peculiarities: An Employers Guide to Wage & Hour Law in the Bay State 2022 Edition

74 | Massachusetts Wage & Hour Peculiarities, 2022 ed. © 2022 Seyfarth Shaw LLP 7. Calculation of the Regular Rate When a Bonus Is Included in the Rate Massachusetts law excludes bonuses in determining an employee’s regular rate. Under the FLSA, however, non-discretionary bonuses must be included in an employee’s regular rate. 413 To calculate the effect of the bonus on the employee’s regular rate, an employer must first determine the period of time the bonus is intended to cover. 414 If a bonus covers only one week, the regular rate for that week is calculated by adding the bonus to the employee’s other compensation for the week and dividing the total by the number of hours the employee worked. When a bonus plan calls for calculation of bonuses over a period longer than a week, the employer can disregard the bonus in computing the employee’s regular rate until such time as the bonus can be calculated. In the interim, the employer must pay overtime based on the employee’s hourly rate. Once the bonus can be ascertained, the employer must then apportion the bonus to the weeks during which it was earned. The employee will then be entitled to an additional overtime payment of one-half times the hourly rate of pay allocated to the bonus multiplied by the number of overtime hours worked that week. 415 If the bonus earnings cannot be identified with particular workweeks, the employer can use another reasonable and equitable method to allocate the bonus (such as dividing the bonus equally among each of the weeks of the period to which it relates or dividing the bonus in proportion to the hours worked each week of that period). 416 Example: Under an employer’s bonus plan, an employee is entitled to a non- discretionary $1,000 monthly bonus if the employee meets certain performance goals. The employee meets those goals in a month in which the employee worked 50 hours in each of the four weeks of that month. The bonus would be allocated to each of the four weeks by dividing the $1,000 bonus by 4 (corresponding to the four workweeks in the period) to determine the amount of the bonus allocable to each week. In this case, the amount would be $250.00. The employee’s overtime could be calculated by either of two methods, both of which result in the same total compensation: Method 1: The employee’s regular hourly compensation is calculated by multiplying the total hours worked by the employee’s regular hourly rate ($20.00 x 50 hours = $1000.00). The bonus allocable to the week is added to the employee’s regular hourly compensation ($250.00 + $1000.00 = $1250.00). That total is then divided by the total number of hours worked to obtain an adjusted hourly rate ($1250.00 ÷ 50 hours = $25.00 per hour). The overtime owed to the employee is equal to one-half of that hourly amount multiplied by the number of overtime hours worked by the employee (in this case, 10 hours). Thus, the employee would be owed $75.00 in overtime for each of the four weeks in the bonus period ($25.00 x .5 x 10 = $125.00). The employee’s total compensation 413 29 C.F.R. § 778.208. 414 29 C.F.R. § 778.209. 415 29 C.F.R. § 778.209(a). 416 29 C.F.R. § 778.209(b).