Incentive pay plans for front-line employees can be a cost effective way to get more bang for your payroll bucks. There are also tremendous employee benefits to be gained from a well-designed plan. Higher pay opportunity is an obvious benefit, but employees can also feel better inclusion, engagement and teamwork that can come as result of a properly designed plan.
Despite this seeming like a no-brainer, win-win, it is possible to have an otherwise great incentive plan that lands you in hot water with the Fair Labor Standards Act (FLSA) with a simple oversight of the administrative roles that are in place to protect workers.
According to the US Department of Labor, employees who are nonexempt under the FLSA need to be compensated at 1 ½ times their Regular Rate for all hours worked over 40 in a work week. Any incentive payments made to nonexempt employees need to reflect any overtime premium dollars employee may have earned. In other words, the amount of incentive pay needs to get added the employees’ Regular Rate and then the overtime premium is paid out on top of that.