04.11.2023 | Newsletters

Employers Have Some Flexibility in Calculating Non-Discretionary Bonus Amounts

A bonus plan that enables employees to earn non-discretionary bonuses calculated as a percentage of total wages for the week was upheld as an appropriate way to treat overtime rates in the calculation of bonuses. In Lemm v. Ecolab Inc., he court rejected the employee’s argument that the employer was required to use the bonus calculation method set forth in the Department of Labor Standards Enforcement (“DLSE”) Manual. The DLSE’s method was approved in the 2018 case of Alvarado v. Dart Container Corp. for the calculation of a flat-rate bonus. In Dart, the flat-rate bonus was earned during the straight time and overtime hours worked. As such, the DLSE Manual’s method requiring a separate computation of the overtime rate earned on the bonus was correct.

However, in Lemm, the bonus was calculated as a percentage of earnings for both straight time and overtime hours. As such, the overtime rate was already taken into account when the employer applied the percentage to the employees’ total earnings to calculate the bonus amount.

Related practice team: Labor and Employment

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