For Immediate Release:

Sunday, September 8, 2013

Yea, you read correctly, should free beer considered a bonus? Is this the end of FREE BEER FRIDAYS!

This is the issue. A former non-exempt employee of Anheuser-Busch brewery has filed a lawsuit against the company. The former employee claims that the value of the free or discounted beer they received called ?incentive pay?, should have been included in hourly wages for the calculation of overtime. Because the company did not include the value of the beer in the hourly rate the company committed a violation of the FLSA for underpayment of overtime wages. (Controulis v. Anheuser-Busch, LLC, No. BC518518 (Cal. Super. Ct., Los Angeles Cnty., filed August 16, 2013)
Does he have a case? (pun intended).
It is very possible the employee could have a legal case against the company. The FLSA identifies two types of bonuses.

1. Non-discretionary- This category of bonus payments includes payments based on personal production, hours worked or work quality. Non-discretionary bonuses are promised to the employee in advance and are expected to be paid. Non-discretionary bonus payments must be included in hourly calculations for overtime purposes.
2. Discretionary ? This category of bonus payments refers to payments the employer makes to employees that are not based on any personal production and are not promised in advance to the employee. This would include payments such as yearly bonus payments that are given to all employees or Christmas bonus payments given to all employees. Discretionary bonus payments do not have to be included in hourly wages for overtime calculations.

So what does the C.F.R. say regarding bonus payments?
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. 29 CFR 778.211
If the former Anheuser-Busch worker can demonstrate that the free or discounted beer was given as the result of a promised bonus plan and was based on personal production criteria he will have a case. The value of the beer is taxable wages and should have been included in hourly rates for the calculation of overtime.
If you have questions regarding the taxability of fringe benefits, such as bonus payments, then contact Gary@IlluminareGroupInc.com or call 615-542-1919.
Gary Garner
IRS CIRCULAR 230 ? DISCLOSURE NOTICE: IRS Circular 230 regulates written communications about federal tax matters between tax advisors and their clients. To the extent the preceding correspondence and/or any attachment is a written tax advice communication, it is not a full ?covered opinion?. Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed herein.