A judge in Texas recently handed a class of drilling rig workers a big win – agreeing that two types of bonuses should have been included when determining their overtime pay rate. This is yet another in a long line of cases in which oilfield workers have successfully pursued recovery of back overtime wages.
The two types of bonus payments at issue in this case were, 1) Oil Based Mud (OBM) bonuses which were paid for working with a more dangerous and dirty type of drilling mud, and 2) Operator Bonuses which were paid by customers to the company, but then passed along to workers on their payroll checks. The employer excluded both of these bonus payments when calculating employees’ overtime pay rates, which resulted in less overtime pay.
Should Bonuses Be Included with Overtime Pay?
Workers frequently ask us – should my bonus be included in my overtime pay rate? The general rule under both federal and state labor laws on overtime is that all non-discretionary bonus payments must be included in the regular rate of pay. Non-discretionary bonuses include those that are offered to employees to encourage them to work more steadily, rapidly or efficiently, and bonuses designed to encourage employees to stay on the job. Very few bonuses are legally considered discretionary under the wage laws, allowing them to be excluded from the regular rate on which overtime pay is based.
While the employer claimed that the OBM bonus was really an expense reimbursement for wear and tear on workers’ clothes, the judge was not convinced, particularly because it made no effort to estimate the out-of-pocket costs employees incurred due to working with it. The judge agreed with the workers’ position that this bonus was really a type of shift differential pay for doing dirty and less desirable work. The law is clear that employers must include shift differential pay when determining an employee’s regular rate of pay. The following example shows how to calculate overtime for employees who receive shift differential pay.
Calculating Accurate Overtime with Shift Differential Pay
An employee is paid $8 an hour and overtime over 40 hours per workweek. She works three eight-hour day shifts at $8 an hour and three eight-hour evening shifts. She is paid $1 shift differential for each hour worked on the evening shift. Here’s how much she should be paid for her eight hours of overtime:
The additional half-time must be computed based on the regular rate of pay. The regular rate is defined as the total pay divided by the total hours worked. She earned a total of $408 for the 48 hours that she worked ($8 an hour times 24 hours plus $9 an hour times 24 hours). Her regular rate equaled $8.50 and her half-time premium is $4.25. Her total earnings for the 8 hours of overtime are $102.
Straight-Time Computation
| 3 days x 8 hours/day x $8/hour | $192 |
|---|---|
| 3 evenings x 8 hours/evening x $8/hour | $192 |
| 3 evenings x 8 hours/evening x $1/hour (shift differential) | $24 |
| Total ST earnings | $408 |
Regular Rate and Half-Time Premium Computation
| $408 (total ST compensation) ÷ 48 (total hours worked) = | $8.50 (regular rate) |
|---|---|
| $8.50 (regular rate) x ½ = | $4.25 (half-time premium) |
| $8.50 (regular rate) + $4.25 (half-time premium) = | $12.75 (overtime rate) |
Total Compensation Calculation
| 40 hours x $ 8.50 (regular rate) = | $340 (straight time earnings) |
|---|---|
| 8 overtime hours x $12.75 (overtime rate) = | $102 (overtime earnings) |
| Total earnings | $442 |
What About the “Operator Bonus”?
The second, and somewhat unusual, type of pay at issue was what the employer called an operator bonus, which was paid by the employer’s customer at its discretion. These amounts were then passed on to employees in their company paychecks. Following the general rule, the judge found that this extra pay must go into the regular rate calculation, confirming that an employer must be able to prove that certain payments should not be included in determining its employees’ regular rate. In other words, it is not the employees’ burden to prove that the payments should be included. When in doubt, an employer cannot leave it out.
Failing to include all types of payments when determining the overtime pay rate for employees happens far more often that workers realize – resulting in millions of dollars of overtime pay being lost.
Workers should remember that the general rule under both federal and state labor laws on overtime is that all non-discretionary bonus payments must be included in the regular rate of pay, and that few bonuses are legally considered discretionary under the wage laws.
If certain types of compensation are not being counted towards your regular rate on which overtime pay is based, or if you are not sure, you should ask questions. If you still are not certain that your overtime pay is being calculated correctly, get in touch with an employment law attorney who handles overtime pay cases for a consultation.
