Illinois: Nondiscretionary Bonuses Must be Included in the Regular Rate

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January 24, 2025

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  • Employers must factor nondiscretionary bonuses into the regular rate calculation for overtime hourly rates.

Discussion:

In Mercado v. S&C Electric Co., the Illinois Supreme Court said that employers must factor nondiscretionary bonuses into the calculation for overtime hourly rates. An employee’s regular rate is used to calculate their overtime pay rate. Illinois state law defines “regular rate” as all remuneration for employment paid to, or on behalf of, the employee, with certain exceptions for gifts, vacation, holiday, sick pay, discretionary bonuses, benefits payments, and premium pay.

 

Here, performance bonuses were not included in the regular rate calculation. The employer claimed the bonus amounts were exempt from the definition of regular rate for “[s]ums paid as gifts such as those made at holidays or other amounts that are not measured by or dependent on hours worked.” The argument focused on whether “gifts” are to be read as being separate from “other amounts,” or in combination together as like kind payments.

 

The Illinois Supreme Court determined that, in reading the full context of the statutory language, “other amounts” is amplified by the term “such as” to indicate that it is a like kind payment to “gifts,” rather than being separately identified exclusions. This means that the regular rate exclusion is only meant to be for gifts or payments that operate like gifts. The regular rate does not identify an entirely separate exclusion for “amounts not measured by or dependent on hours worked.” Employers should review regular rate calculations for compliance.

 

Action Items

  1. Audit regular rate calculations for compliance.
  2. Review with legal counsel for historical corrections.
  3. Update payroll processes to reflect required overtime calculations.
  4. Have appropriate personnel trained on requirements.

  

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2025 ManagEase