Employee Referral Bonus Programs

When an employer gives an employee a non-discretionary bonus, the bonus must be calculated into the regular rate of pay for the purpose of calculating overtime pay.  A non-discretionary bonus includes those that are announced to employees to encourage them to work more steadily, rapidly or efficiently. Few bonuses are discretionary under the Fair Labor Standards Act, allowing exclusion from the regular rate of pay.

However, referral bonuses paid for recruitment of new employees are not included in the regular rate of pay, if certain conditions are met, such as:  

  • Employee participation must be strictly voluntary;
  • The bonus program must run for a limited time period;
  • Employee recruitment efforts should not involve significant time;
  • Employee recruitment efforts should be limited to after-hours solicitation; and
  • Employees should not be allowed to conduct door-to-door solicitation.

Employers understand they have better success with new hires when they are referred by current employees.  Although there is value in referral bonus programs, strict compliance is essential to avoid running afoul of the Fair Labor Standards Act.

Employers should seek competent employment counsel to assist with drafting and implementing a referral bonus program.