(a) Statutory provision. Section 7(e) (3)(a) of the Act provides
that the regular rate shall not be deemed to include ``sums paid in
recognition of services
performed during a given period if * * * (a) both the fact that payment
is to be made and the amount of the payment are determined at the sole
discretion of the employer at or near the end of the period and not
pursuant to any prior contract, agreement, or promise causing the
employee to expect such payments regularly * * *''. Such sums may not,
however, be credited toward overtime compensation due under the Act.
(b) Discretionary character of excluded bonus. In order for a bonus
to qualify for exclusion as a discretionary bonus under section
7(e)(3)(a) the employer must retain discretion both as to the fact of
payment and as to the amount until a time quite close to the end of the
period for which the bonus is paid. The sum, if any, to be paid as a
bonus is determined by the employer without prior promise or agreement.
The employee has no contract right, express or implied, to any amount.
If the employer promises in advance to pay a bonus, he has abandoned his
discretion with regard to it. Thus, if an employer announces to his
employees in January that he intends to pay them a bonus in June, he has
thereby abandoned his discretion regarding the fact of payment by
promising a bonus to his employees. Such a bonus would not be excluded
from the regular rate under section 7(e)(3)(a). Similarly, an employer
who promises to sales employees that they will receive a monthly bonus
computed on the basis of allocating 1 cent for each item sold whenever,
is his discretion, the financial condition of the firm warrants such
payments, has abandoned discretion with regard to the amount of the
bonus though not with regard to the fact of payment. Such a bonus would
not be excluded from the regular rate. On the other hand, if a bonus
such as the one just described were paid without prior contract, promise
or announcement and the decision as to the fact and amount of payment
lay in the employer's sole discretion, the bonus would be properly
excluded from the regular rate.
(c) Promised bonuses not excluded. The bonus, to be excluded under
section 7(e)(3)(a), must not be paid ``pursuant to any prior contract,
agreement, or promise.'' For example, any bonus which is promised to
employees upon hiring or which is the result of collective bargaining
would not be excluded from the regular rate under this provision of the
Act. Bonuses which are announced to employees to induce them to work
more steadily or more rapidly or more efficiently or to remain with the
firm are regarded as part of the regular rate of pay. Attendance
bonuses, individual or group production bonuses, bonuses for quality and
accuracy of work, bonuses contingent upon the employee's continuing in
employment until the time the payment is to be made and the like are in
this category. They must be included in the regular rate of pay.
