[Congressional Record Volume 143, Number 144 (Thursday, October 23, 1997)]
[Extensions of Remarks]
[Page E2071]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               REWARDING PERFORMANCE IN COMPENSATION ACT

                                 ______
                                 

                          HON. CASS BALLENGER

                           of north carolina

                    in the house of representatives

                       Thursday, October 23, 1997

  Mr. BALLENGER. Mr. Speaker, today I am introducing legislation which 
will continue our efforts to make the Fair Labor Standards Act [FLSA] 
applicable to today's work force. Presently, the FLSA requires that 
certain payments to a nonexempt employee--such as commissions, gain 
sharing, incentive, and performance contingent bonuses--must be 
included in the employee's regular hourly rate of pay for the purposes 
of calculating overtime pay. Oftentimes, this discourages employers 
from monetarily rewarding their employees for good performance. This 
legislation will remove the barriers within the FLSA which, in effect, 
prevent employers from providing bonuses to hourly paid employees.
  It is becoming more common for companies to link pay to performance 
as they look for innovative ways to encourage employee performance and 
allow employees to share in the company's success. 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. 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 
based on production, performance, or other factors, 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. On the other hand, 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.
  Many 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. Instead it 
was penalized by the Department of Labor for letting its employees 
share in its success. Meanwhile, President Clinton was exhorting 
businesses to work in partnership with employees, by sharing the 
benefits when times are good.
  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.

                          ____________________