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Turning Point

Off The Clock

New rules on bonuses and overtime pay.

By Stephen Barlas

The looming election-year debate over a minimum-wage increase opens the door to serious talk about a business-sought employee bonus reform amendment. We might see a compromise gel this summer--if such groups as the U.S. Chamber of Commerce and the National Association of Manufacturers agree to accept a minimum-wage increase in exchange for passage of the Rewarding Performance and Compensation Act (H.R. 2710).

Proposed by Rep. Cass Ballenger (R-NC), chair of the House Workforce Protections Subcommittee, H.R. 2710 would make it easier for companies to give their hourly employees performance-based bonuses. Hearings on the bill will likely take place in the next few months.

Currently, a company paying variable bonuses must divide those individual bonuses by the number of weeks the bonus is meant to cover, for example, 52. Then that figure is added to the employee's hourly wage, and his or her overtime pay for the year is refigured. An overtime payment must then be added to the bonus.

If an employee has not worked overtime, the system is simple. And if the company gives the same bonus to all hourly employees, overtime does not have to be refigured. "The problem is that you can't improve performance by paying the same bonus across the board," maintains Bob Niedzielski, director of human resources development for Tighe Industries Inc., a York, Pennsylvania, costume and gymnastics-apparel manufacturer.

Tighe was audited by the Department of Labor in 1993 after it distributed $307,000 in variable bonuses for the previous fiscal year. Tighe had to do the recalculations--and ante up an additional $12,390 in overtime pay.

Peter Eide, labor policy manager for the U.S. Chamber of Commerce, says the performance bonus issue must be addressed. Says Eide, "We've had members who were on the verge of issuing bonuses, found out about the overtime recalculation provision, and were then stymied."

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This article was originally published in the April 1998 print edition of Entrepreneur with the headline: Turning Point.

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