Including Bonuses and Commissions in Overtime

Background

The Fair Labor Standards Act governs the calculation of overtime wages.  Certain types of dollar payments to employees must be included when calculating overtime wages.  

• Discretionary payments are made by the employer at their sole discretion, and are not expected by the employee.  The employer chooses when and how much to pay, such as a congratulatory bonus or gift. The payment is not directly tied to the employee’s work.  These types of payments are not included when calculating overtime wages. 
• Non-discretionary payments are made to employees based on their work performance.  Certain standards need to be met in order to receive the payment. Examples would be a bonus that is part of a specific pay plan or predetermined criteria to earn the bonus. These types of payments must be included in overtime, since these payments are expected.

For more details, see our blog articles:
Commission Employees and Overtime Rules
What is Bonus Pay?

How to include a bonus or commission in overtime

When adding or editing a Money Type, either in the payroll setup wizard or in Settings > Hours & Money Types, check the “Included When Calculating Overtime” box.

Note, the money type needs to be taxable in order to be included in overtime.  If the “Taxable” field is set to “No,” you won’t see the overtime checkbox.

Tips are always taxable, but they are not included in overtime calculations, since they would be considered discretionary payments.  When you are adding or editing a tip money type where wages are reported in Box 7 – Social Security Tips, you will not be able to edit the overtime box.