Bonus plan was unlawfully calculated under wage and hour laws

by on March 30, 2009 · 0 Comment POSTED IN: HR Info Center

Deductions were ruled ‘inappropriate’ under FLSA guidelines

Employers who offer incentive bonuses should check with their legal counsel to ensure that the bonuses are calculated, meeting all the requirements under wage and hour laws.

According to a recent court decision, some of the factors included in a company’s bottom line should not have been lawfully considered in calculating its incentive bonuses.

Correctly calculating bonuses under Wage and Hour Laws

When grocery store employee David Swanson took a close look at his bonus, he didn’t like what he saw. The bonus was based on the store’s net earnings. Fair enough. But what expenses were deducted to get that number? In this case the company deducted two inappropriate expenses to arrive at net earnings:

  1. The cost of workers compensation – which is illegal. After all, deducting workers-compensation costs from profits might discourage workers from filing legitimate claims, knowing that their bonuses could be affected.
  2. The cost of cash and merchandise shortages. It’s unlawful to deduct these shortages to arrive at the net profit in calculating bonuses for non-exempt employees. In the eyes of the law, cash and merchandise shortages should be borne by the employer and the exempt managers, but not the non-exempt employees.

Employers should review their bonus calculations and make sure that workers are classified properly as either exempt or non-exempt under FLSA guidelines.

FLSA guidelines show an employer’s compliance standards can go far beyond paying time and a half for overtime.

Cite: Ralph’s Grocery Co. v. Superior Court of Los Angeles County, No. BC384875, 10/23/03.

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