[Congressional Record Volume 142, Number 35 (Thursday, March 14, 1996)]
[Extensions of Remarks]
[Pages E358-E359]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  LEGISLATION TO ELIMINATE THE DISINCENTIVE FOR EMPLOYERS TO PROVIDE 
                      BONUSES TO CERTAIN EMPLOYEES

                                 ______


                          HON. CASS BALLENGER

                           of north carolina

                    in the house of representatives

                        Thursday, March 14, 1996

  Mr. BALLENGER. Mr. Speaker, today I am joined by Mr. Goodling and Mr. 
Fawell in the introduction of legislation to eliminate the disincentive 
under the Fair Labor Standards Act for employers to provide bonuses to 
hourly paid employees. Presently, the FLSA requires that certain 
payments to a nonexempt employee--such as commissions, gainsharing, 
incentive, and performance contingent bonuses--must be included in the 
employee's

[[Page E359]]

regular hourly rate of pay for the purposes of calculating overtime 
pay.
  It is becoming more common for companies to link pay to performance 
as they look for innovative ways to improve employee performance. More 
employers are awarding one-time payments to individual employees or to 
groups of employees in addition to regular wage increases. Employers 
have found that rewarding employees for high quality work improves 
their performance and the ability of the company to compete. If a 
company's profits exceed a certain level, employees are able to receive 
a proportionate piece of the profits. Unfortunately, many employers who 
choose to operate such pay systems can be burdened with unpredictable 
and complex overtime liabilities.

  Under current law, an employer who wants to give an employee a bonus 
must divide the payment by the number of hours worked by the employee 
during the pay period that the bonus is meant to cover and add this 
amount to the employee's regular hourly rate of pay. This adjusted 
hourly rate must then be used to calculate time-and-a-half overtime pay 
for the pay period. Employers can easily provide additional 
compensation to executive, administrative, or professional employees 
who are exempt under the FLSA without having to recalculate rates of 
pay.
  Some employers who provide discretionary bonuses do not realize that 
these payments should be incorporated into overtime pay. One company 
ran afoul of the FLSA when they gave their employees bonuses based on 
each employee's contribution to the company's success. The bonus 
program distributed over $300,000 to 400 employees. The amount of each 
employee's bonus was based on his or her attendance record, the amount 
of overtime worked, and the quality and quantity of work produced.
  When the company was targeted for an audit, the Department of Labor 
cited it for not including the bonuses in the employees' regular rate 
for the purpose of calculating each employee's overtime pay rate. 
Consequently, the company was required to pay over $12,000 in back 
overtime pay to their employees. The company thought it was being a 
good employer by enabling its employees to reap the profits of the 
company and by paying wages that were far above the minimum. These 
types of actions taken by the Department of Labor are especially 
surprising in view of Labor Secretary Reich's exhortations to 
businesses to distribute a greater share of their earnings among their 
workers.
  This legislation will eliminate the confusion regarding the 
definition of regular rate and remove disincentives in the FLSA to 
rewarding employee productivity. The definition of regular rate should 
have the meaning that employers and employees expect it to mean--the 
hourly rate or salary that is agreed upon between the employer and the 
employee. Thus, employers will know that they can provide additional 
rewards and incentives to their nonexempt employees without having to 
fear being penalized by the Department of Labor regulators for being 
too generous.

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