The Fair Labor Standards Act (FLSA) is one of the most significant pieces of employment legislation impacting nearly every employer in the United States including agriculture employers such as farmers cooperatives and feedlots and any subsequent spin off entities such as LLC arrangements. The FLSA is the federal law the regulates which employees are eligible for overtime, currently overtime is 1.5 times an employee's regular rate of pay. Simple enough, right? Unfortunately the calculation of "regular rate" throws many employers for a loop including and especially our agri-business clients who are paying acre incentives to custom applicators or gallon fuel/oil bonuses to delivery drivers. 

So, what's the deal? Well, overtime is calculated based on what is known as "regular rate". The regular rate of pay does not necessarily equal an employee's hourly rate of pay. Included in the regular rate of pay are other work-related payments such as shift differentials, bonuses, longevity pay, educational incentive pay, etc. Thus, the regular rate always equals or exceeds an employee's hourly rate of pay or, if the employee is salaried (non-exempt salaried), the employee's hourly equivalent.

Gifts, discretionary bonuses, pension benefit plans, profit sharing and thrift saving plans may all be excluded from the calculation of the regular rate. In addition, if an employer pays an extra hourly premium that equals or exceeds the time and one-half rate for working on a particular holiday or day of the week, the employer may exclude that premium. Acre incentives and fuel gallon incentives are included in bonuses because they are tied to working certain hours or achieving a certain level of performance (these are two common ones in agribusiness, however any bonus tied to production would be subject to overtime).
 

Therefore employers must pay overtime on acre incentives and fuel gallon bonuses. In determining the overtime rate, a non-discretionary bonus should be prorated back over the life of the time period for which it is being paid, within reason.

Employers who are not properly calculating "regular rate" and paying overtime on bonuses that are tied to production, run the risk of getting a hefty fine and owing back pay to all employees impacted by such bonuses. If your company is ever audited by the Department of Labor (DOL) they will most certainly look for these types of violations since they are common bonuses among agribusinesses. 

If you have questions regarding the calculation of regular rate or would like assistance in correcting this situation in your company please contact ProValue for further assistance.