Sign-on bonuses have become a common incentive in healthcare, especially for nurses and other essential workers. While these bonuses can be a great perk, they can also lead to confusion when it comes to calculating overtime pay under the Fair Labor Standards Act (FLSA).
In some cases, sign-on bonuses must be included in your “regular rate of pay” for the purpose of determining overtime pay. Failure to do so could lead to wage violations and underpayment. In this post, we’ll explain how and when sign-on bonuses must be factored into your overtime rate, and provide examples of violations to watch out for.
When Must a Sign-On Bonus Be Included in the Regular Rate?
Under the FLSA, overtime pay is calculated at 1.5 times the employee’s regular rate of pay for any hours worked over 40 in a workweek. The regular rate of pay includes more than just your hourly wage – it must also include nondiscretionary bonuses, such as performance bonuses, attendance bonuses, and certain sign-on bonuses.
A sign-on bonus must be included in the regular rate if:
- It is contingent on meeting certain conditions, such as staying with the employer for a specified period of time (e.g., one year);
- It is tied to your performance, attendance, or other measurable criteria; or
- You are contractually entitled to it after fulfilling specific requirements.
On the other hand, a purely discretionary bonus, which is given without any set conditions and is not expected by the employee, does not need to be included in the regular rate.
How Failing to Include Sign-On Bonuses in Overtime Calculation Violates FLSA
Let’s look at two scenarios to understand how employers may violate FLSA overtime rules by not properly including sign-on bonuses in the regular rate.
Scenario 1: One-Time Sign-On Bonus Spread Over Multiple Pay Periods
A hospital offers a nurse a $5,000 sign-on bonus, paid in installments of $500 per month over the first 10 months of employment, as long as the nurse stays for a full year. This bonus is considered nondiscretionary because it is tied to the nurse’s continued employment. Therefore, the employer must include a portion of the sign-on bonus in the nurse’s regular rate of pay for each of those 10 months.
If the nurse’s base hourly wage is $40 and she works 10 hours of overtime in one week, the employer should calculate overtime pay based on a regular rate that includes the monthly $500 bonus.
FLSA Violation: If the employer calculates overtime pay based only on the $40 hourly rate and ignores the bonus, the nurse is underpaid. Here’s the correct overtime calculation:
- Regular rate: $40/hour + ($500 bonus ÷ 4 weeks) = $40 + $125 = $41.25/hour
- Overtime rate: $41.25 x 1.5 = $61.88/hour
- Extra overtime pay due for 10 hours: ($61.88 – $60) x 10 hours = $18.80 in extra pay per week.
Scenario 2: Sign-On Bonus Contingent on Length of Service
A skilled nursing facility offers a nurse a $3,000 sign-on bonus, contingent on the nurse staying with the facility for 18 months. The nurse receives the full bonus after completing the first 6 months. This is a nondiscretionary bonus because it is tied to a condition of employment, so the employer must factor it into the nurse’s regular rate for overtime calculations.
The nurse earns $35/hour and works 45 hours in a week. The $3,000 bonus should be allocated over the first 26 weeks (6 months). This means the weekly portion of the bonus is $3,000 ÷ 26 weeks = $115.38.
FLSA Violation: If the employer fails to add the bonus to the regular rate, the nurse is underpaid for overtime. Here’s the correct calculation:
- Regular rate: $35/hour + ($115.38 ÷ 40 hours) = $35 + $2.88 = $37.88/hour
- Overtime rate: $37.88 x 1.5 = $56.82/hour
- Extra overtime pay due for 5 hours: ($56.82 – $52.50) x 5 hours = $21.60 in extra pay for that week.
Conclusion
Nurses and healthcare workers should be aware that sign-on bonuses—when tied to conditions or ongoing employment—must be factored into the regular rate for overtime calculations. Employers who fail to include these bonuses in the overtime rate calculation are violating the FLSA, and workers may be entitled to back pay for the underpaid overtime.
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