In the wake of the pandemic, some employers — opting for the carrot over the stick — have started offering weekly attendance bonuses to incentivize a return to the office. We have recently seen an uptick in employee-filed litigation challenging pay practices associated with these bonuses. Employees contend that even though the bonuses result in higher pay than previous levels, they have been underpaid, and their employers have violated the Fair Labor Standards Act (FLSA) in the process.

These lawsuits hinge on the complex “regular rate” calculation that lies at the heart of the FLSA. The FLSA requires employers to pay non-exempt employees 1.5 times their regular hourly rate (i.e., the “regular rate”) for any hours worked over 40 in a given workweek. The Supreme Court has defined the regular rate as “the hourly rate actually paid the employee for the normal, non-overtime workweek for which he is employed.” In practical terms, if an employee is paid $1,000 for a regular 40-hour workweek, then their regular rate is $25 per hour ($1,000 divided by 40), and their overtime rate is $37.50 per hour.

Critically, the regular rate calculation is not limited to base pay. The FLSA requires that all remuneration be included in the calculation unless it falls within an exclusion. Because attendance bonuses rarely (if ever) fit into an exclusion, they should typically be included in the regular rate calculation. In the case of our example above, a paid weekly attendance bonus of $100 raises the employee’s weekly compensation from $1,000 to $1,100; the regular rate from $25 to $27.50; and the overtime rate from $37.50 to $41.25.

Unaware of the complexities of the FLSA, some employers are paying weekly attendance bonuses without increasing their employees’ regular rate.

Unfortunately, once a lawsuit has been filed, the fix is not as simple as paying the (often minimal) difference between the paid wages and the correct wages. The FLSA dictates enhanced penalties, including attorneys’ fees and (in some cases) double damages. Additionally, these cases are often filed as collective actions, substantially increasing the potential liability, cost and complexity of defense. These significant risks make it imperative for employers to be aware of this trend and the legal pitfalls associated with these well-intentioned bonuses.