Third Circuit: Third Party Bonuses May Be Factored into the Regular Rate

In Department of Labor v. Bristol Excavating, Inc., the Third Circuit Court of Appeal stated that third-party bonuses may be required to be factored in the regular hourly rate for purposes of calculating overtime. The court said that the determinative factor is the agreement of “remuneration for employment” between the employer and employee, which must be reviewed on a case-by-case basis.

For a payment to become part of the employment agreement, it must be regularly and actually received by the employee. However, where employees cannot expect a bonus they don’t know they are entitled to, the “payment by a third party of an unannounced or truly discretionary bonus should not be classified as remuneration for employment.” The court stated that “the more direct the employer’s involvement is in initiating a program or setting and insisting upon a specific payment from a third party, the clearer it becomes that the employer is invested in the arrangement in a way that could be called an implicit agreement with the employees that the third-party bonuses are remuneration for employment.”

Conversely, an implied agreement does not exist simply because the employer allows its employees to participate in a third-party bonus program and does something to facilitate their receipt of the bonuses. Rather, the court would consider whether the specific requirements for receiving the payment are known by the employees in advance of performing work; whether the payment itself is for a reasonably specific amount; and whether the employer’s facilitation of the payment is significantly more than serving as a pass through vehicle. However, the court cautioned that money that the employer and employee have agreed is “part of regular pay cannot be funneled through third parties to dodge overtime requirements.”

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