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People tend to use some of the reasons you mentioned---eg, higher status, bonus plan eligibility, more PTO---to compensate for the loss of overtime pay that goes with the move from non-exempt to exempt status.

One of the reasons non-exempt employees are not included in incentive plans is that if those incentives are non-discretionary they then have to be used to calculate or recalculate what a non-exempt employees gets paid for the period of time in which the bonus was earned. Thus there is an increased cost of the bonus, that being the extra OT and the cost of recalculating the OT. It has the potential for making that incentive program much more expensive than intended.

Legislation was introduced to take care of this problem during the Bush Administration, however, it was shot down by the Democrats bowing to Union pressure.

Many companies have gotten around the issue Michael mentioned because the FLSA allows an alternative method of calcualtion of bonus payments to non-exempt employees:

29CFR778.210 – Percentage of Total Earnings as Bonus
Occasionally, a bonus may be written as a percent of an employee’s wages. If the plan is written so the bonus would include a percentage of both straight time and overtime, you would not need to re-calculate the overtime. The example in the regulation is a performance bonus that pays 10 percent of straight time and 10 percent of overtime earnings. Take note, the regulation states this is an acceptable practice, as long as it is not used to circumvent the overtime requirements of the act.


Thanks Klaus. Great information to have.

Hey Klaus. That link you posted requires World at work membership. Have another?


Link to FLSA:


Thanks, Mike and Klaus, for the great follow-on points and discussion here ... and Klaus, for sharing the W@S/DOL link.

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