Report text available as:

  • TXT
  • PDF   (PDF provides a complete and accurate display of this text.) Tip ?

106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    106-358

======================================================================



 
               REWARDING PERFORMANCE IN COMPENSATION ACT

                                _______
                                

October 1, 1999.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

   Mr. Goodling, from the Committee on Education and the Workforce, 
                        submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 1381]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Education and the Workforce, to whom was 
referred the bill (H.R. 1381) to amend the Fair Labor Standards 
Act of 1938 to provide that an employee's ``regular rate'' for 
purposes of calculating overtime compensation will not be 
affected by certain additional payments, having considered the 
same, report favorably thereon with an amendment and recommend 
that the bill as amended do pass.
    The amendment is as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Rewarding Performance in Compensation 
Act''.

SEC. 2. REGULAR RATE FOR OVERTIME PURPOSES.

    Section 7(e) of the Fair Labor Standards Act of 1938 is amended--
    (1) by inserting before the semicolon at the end of paragraph (3) 
the following: ``; or (d) the payments are made to reward an employee 
or group of employees for meeting or exceeding the productivity, 
quality, efficiency, or sales goals as specified in a gainsharing, 
incentive bonus, commission, or performance contingent bonus plan''; 
and
    (2) by inserting after and below paragraph (7) the following:
``A plan described in paragraph (3)(d) shall be in writing and made 
available to employees, provide that the amount of the payments to be 
made under the plan be based upon a formula that is stated in the plan, 
and be established and maintained in good faith for the purpose of 
distributing to employees additional remuneration over and above the 
wages and salaries that are not dependent upon the existence of such 
plan or payments made pursuant to such plan.''.

                                Purpose

    The purpose of H.R. 1381 is to amend the Fair Labor 
Standards Act of 1938 to provide that an employee's ``regular 
rate'' for the purpose of calculating overtime compensation 
will not be affected by certain additional payments.

                            Committee Action


                             104TH CONGRESS

    The Subcommittee on Workforce Protections held a hearing on 
June 8, 1995, which focused on several issues under the Fair 
Labor Standards Act, including the problems associated with the 
use of bonus and gainsharing programs. The witnesses who 
testified were: Kathleen M. Fairall, Senior Human Resource 
Representative, The Timken Company, located in Randolph County, 
North Carolina; Ms. Sandie Moneypenny, Process Technician, The 
Timken Company, located in Randolph County, North Carolina; Dr. 
Richard W. Beatty, Professor of Industrial Relations and Human 
Resources, School of Management and Labor Relations, Rutgers 
University, New Brunswick, New Jersey; and Mr. Robert J. 
Niedzielski, Director of Human Resources, Tighe Industries, 
Inc., York, Pennsylvania, testifying on behalf of the Society 
for Human Resource Management.
    On March 14, 1996, Representative Cass Ballenger introduced 
H.R. 3087, legislation amending the Fair Labor Standards Act to 
provide that an employee's ``regular rate'' for the purpose of 
calculating overtime compensation will not be affected by 
certain additional payments.

                             105TH CONGRESS

    Representative Cass Ballenger introduced H.R. 2710, the 
Rewarding Performance in Compensation Act, on October 23, 1997. 
The Subcommittee on Workforce Protections held a hearing on the 
legislation on July 16, 1998. The following individuals 
testified at the hearing: Ms. Anita U. Hattiangadi, Economist, 
Employment Policy Foundation, Washington, D.C.; Ms. Jodi P. 
Holt, Manager of Compensation, Cordant Technologies, Inc, 
Ogden, Utah; Ms. Sally K. Fanning, SPHR, CCP, Director of 
Compensation and Benefits for Praxair, Inc., Connecticut, 
testifying on behalf of the Society for Human Resource 
Management; and Mr. Michael T. Leibig, Attorney-at-Law, 
Zwerdling, Paul, Leibig, Kahn, Thompson, & Wolly, Fairfax, 
Virginia.

                             106TH CONGRESS

    Representative Cass Ballenger introduced H.R. 1381, the 
Rewarding Performance in Compensation Act, on April 13, 1999. 
The Subcommittee on Workforce Protections held a hearing on the 
legislation on April 13, 1999. The following individuals 
testified: Ms. Margaret A. Coil, Partner, Center for Workforce 
Effectiveness, Northbrook, Illinois; Ms. Pam Farr, President 
and Chief Operating Officer, Cabot Advisory Group, LLC, 
Washington, D.C.; Ms. Lynne Bourgeois, SPHR, Director of Human 
Resources, BlueCross BlueShield of Louisiana, Baton Rouge, 
Louisiana, testifying on behalf of the Society for Human 
Resource Management; and Mr. Nicholas Clark, Assistant General 
Counsel, United Food and Commercial Workers International 
Union, Washington, D.C.
    On May 19, 1999, the Subcommittee on Workforce Protections 
ordered H.R. 1381 favorably reported without amendment by voice 
vote. The Committee on Education and the Workforce ordered the 
bill favorably reported, as amended, to the House of 
Representatives by a rollcall vote of 26-22 on June 23, 1999.

                     Committee Statement and Views


Background

    The Fair Labor Standards Act of 1938 \1\ (FLSA) is the 
primary federal statute which regulates the wages and hours of 
work for most workers. Among other things, the FLSA mandates 
that employees who are ``nonexempt'' from its provisions 
receive an overtime rate of one-and-one-half times the 
employee's ``regular rate'' of pay for all hours worked over 40 
within a seven-day period. An employee's regular rate of pay 
generally must include all ``remuneration for employment'' with 
the exception of certain narrowly prescribed statutory 
exemptions.\2\
---------------------------------------------------------------------------
    \1\ 29 U.S.C. Sec. 201-219.
    \2\ 29 U.S.C. Sec. 207(e)(1)-(7).
---------------------------------------------------------------------------
    For example, the regular rate does not include, ``* * * 
sums paid as gifts; * * * the amounts of which are not measured 
by or dependent on hours worked, production, or efficiency.'' 
\3\ Likewise, ``payments made for occasional periods when no 
work is performed due to vacation, holiday, illness, failure of 
the employer to provide sufficient work, or other similar 
cause'' \4\ are not required to be calculated as part of the 
employee's regular rate of pay. Neither are ``* * * reasonable 
payments for traveling expenses, or other expenses, incurred by 
an employee in the furtherance of his employer's interests and 
properly reimbursable by the employer; and other similar 
payments to an employee which are not made as compensation for 
his hours of employment.'' \5\
---------------------------------------------------------------------------
    \3\ 29 U.S.C. Sec. 207(e)(1).
    \4\ 29 U.S.C. Sec. 207(e)(2).
    \5\ Ibid.
---------------------------------------------------------------------------
    The FLSA also excludes from calculation of the regular rate 
``sums paid in recognition of services performed during a given 
period if either (a) both the fact that payment is to be made 
and the amount of the payment are determined at the sole 
discretion of the employer at or near the end of the period and 
not pursuant to any prior contract, agreement, or promise 
causing the employee to expect such payments regularly, or (b) 
the payments are made pursuant to a bona fide profit-sharing 
plan or trust or bona fide thrift or savings plan, meeting the 
requirements of the Administrator set forth in appropriate 
regulations which he shall issue, having due regard among other 
relevant factors, to the extent to which the amounts paid to 
the employee are determined without regard to hours of work, 
production, or efficiency.'' \6\
---------------------------------------------------------------------------
    \6\ 29 U.S.C. Sec. 207(e)(3).
---------------------------------------------------------------------------
    The FLSA thus makes three distinctions which are relevant 
here. First, the FLSA distinguishes between bonuses paid to 
different employees. Bonuses paid to so-called ``exempt'' 
employees, the largest category of whom are professional, 
managerial, and administrative, require no particular 
recordkeeping or compensation treatment. Bonuses paid to 
``nonexempt'' employees may have to be treated as part of the 
employee's regular rate of pay and the employee's hourly and 
overtime rates recalculated to take any bonus into account.
    Second, the FLSA distinguishes between discretionary and 
non-discretionary bonuses. Bonuses for which the employer has 
the sole discretion as to their payment and amount are not 
required to be included as part of the employee's regular rate 
of pay. On the other hand, non-discretionary bonuses, which 
reward employees according to an agreed upon schedule or 
formula for meeting (either individually, as a team, as a 
workplace or as a company) performance measures such as 
quality, productivity, efficiency, or health and safety goals, 
are regarded as part of the regular rate. If a bonus is paid 
under such a schedule or formula, the employer must compute the 
bonus as part of the employee's regular rate of pay for the 
entire period of work on which the level of performance has 
been achieved. The employer must then divide the bonus by all 
of the hours worked by the employee and retroactively include 
that amount in the hourly rate used to determine overtime pay.
    Third, the FLSA distinguishes between performance bonuses 
tied to company profits (profit-sharing plans) and performance 
bonuses tied to other factors and measures, such as quality, 
productivity, sales, and safety. While payments to an employee 
under profit-sharing plans are not included in the employee's 
regular rate, payments to an employee based on other 
performance measures are required to be included in the 
employee's regular rate. This is so, despite the fact that 
current human resource policies and compensation programs often 
favor the use of gainsharing plans over profit-sharing because 
gainsharing plans can be linked to the performance of an 
individual or a group of individuals, while profit-sharing 
plans depend on the organization as a whole and are often 
dependent on a great many other factors.
    The Subcommittee on Workforce Protections has heard much 
testimony over the past few years that these distinctions and 
the current treatment of performance bonuses under the FLSA are 
outdated and, most importantly, do not benefit the very 
employees which the FLSA is intended to protect.
    Testimony before the Subcommittee, as well as other 
studies, shows that performance bonuses result in increased pay 
for employees, as well as improved performance by the company. 
Dr. Richard W. Beatty, professor of industrial relations and 
human resources, School of Management and Labor Relations, 
Rutgers University, put the issue in the context of other 
changes in the workplace, changes that have occurred and are 
occurring in order for companies to compete in the ever-
changing and very competitive world marketplace: \7\
---------------------------------------------------------------------------
    \7\ Hearings on the Fair Labor Standards Act before the 
Subcommittee on Workforce Protections, Committee on Education and the 
Workforce, U.S. House of Representatives, 104th Congress, First 
Session, June 8, 1995, Serial No. 104-46, pp. 191-192.

          * * * I think what we are seeing in the revision of 
        pay plans is that pay plans are going to be based more 
        and more upon the contributions of workers, the 
        competencies of workers, the collaboration of working 
        in teams, their creativity * * *
          These plans, and what's happening in incentive pay, I 
        believe have very real benefits for individuals, give 
        them the opportunity to earn more, also you give the 
        firm an opportunity to become more competitive * * *

    Gainsharing is one type of pay plan that links pay to 
measurable improvements in productivity. Employees are given 
individual or group productivity goals, and the savings 
achieved from such improvements, or the gains, are then shared 
between the company and the employees. The payouts are based 
directly on factors under an employee's control, such as 
productivity or costs, rather than on the company's profits. 
Thus, employees directly benefit from improvements that they 
help to produce by increasing their overall compensation. 
Gainsharing and other similar type plans allow employees not 
only to increase their wages, but also to share in the success 
of the company, to improve productivity, to have more control 
over their jobs, and to have more involvement in decision-
making.
    In 1998 testimony before the Subcommittee, economist Anita 
U. Hattiangadi reviewed the results of a number of studies 
which have shown that gainsharing plans result in improved 
productivity and increased pay for workers: \8\
---------------------------------------------------------------------------
    \8\ Hearing on H.R. 2710, the Rewarding Performance in Compensation 
Act, before the Subcommittee on Workforce Protections, Committee on 
Education and the Workforce, U.S. House of Representatives, 105th 
Congress, Second Session, July 16, 1998, Serial No. 105-132, pp. 5-6.

          An early study by Eldridge Puckett of gainsharing 
        found that productivity improvements in the first two 
        years of plan implementation range between ten and 49 
        percent, with average productivity growth of 23 
        percent.
          A study by the General Accounting Office found that 
        most firms achieved average labor cost savings of 17 
        percent, which they attributed to performance 
        improvements in employees, improved employee attitudes, 
        and improved productivity.
          A study by Roger Kaufmann of all firms known to have 
        info-share or gainsharing plans, found that the median 
        firm experienced a five to 15 percent increase in 
        productivity. That's compared to a two percent increase 
        for all manufacturing firms.
          Finally, a study by the American Compensation 
        Association found that most gainsharing plans 
        translated into 129 percent net return to firms, on 
        average. Gains per employee were about $2,000 per year.
          * * * In addition to these productivity increases, 
        there are also substantial increases in workers' wages 
        that are realized through gainsharing. When gains are 
        distributed to workers through bonus payouts, their 
        compensation rises and their standards of living rise 
        accordingly.
          Aggregate studies show that gainsharing bonuses range 
        from three to 29 percent of base pay. Workers in the 
        Puckett study earned average bonuses equal to 17 
        percent of gross pay during a two-year period, and 
        individual firms' bonuses range between eight and 29 
        percent. In the Kaufmann study, mean and median bonus 
        payouts during the first quarter of plan operation were 
        four and six percent of wages and salaries, 
        respectively, and remained significant over time. 
        Gainsharing payouts in the ACA study were approximately 
        three percent of base pay and had a median value of 
        $700.
          These studies show that workers can achieve 
        significant productivity and wage gains through a 
        gainsharing plan. In fact, EPF research shows that a 
        median-wage worker could earn a total of $17,000 to 
        $26,000 more over a 20-year period if gainsharing and 
        teams were implemented and more widespread.

    Not only do performance bonus plans, such as gainsharing, 
help achieve more productive businesses and higher pay for 
employees, but they also are an important part of meaningful 
employee involvement and allow employees to have a greater 
share in their company's success. In fact, President Clinton 
has urged business groups to share ``the benefits when times 
are good'' \9\ by working in partnership with employees.\10\
---------------------------------------------------------------------------
    \9\ Strobel, Warren P., ``Clinton Prods U.S. Firms to Treat Their 
Workers Better.'' The Washington Times, March 24, 1996.
    \10\ Given President Clinton's admonition in this regard, it is 
unfortunate that his administration is opposed to legislation that 
would encourage businesses to share their success with workers.
---------------------------------------------------------------------------
    Despite the benefits of performance bonus and gainsharing 
plans for employees, the FLSA currently discourages employers 
from offering such plans to their nonexempt employees. This 
point has been made repeatedly in testimony before the 
Subcommittee. As. Ms. Margaret A. Coil, a partner with the 
Center for Workforce Effectiveness in Northbrook, Illinois, 
testified: \11\
---------------------------------------------------------------------------
    \11\ Hearing on the Rewarding Performance in Compensation Act 
before the Subcommittee on Workforce Protections, Committee on 
Education and the Workforce, U.S. House of Representatives, 106th 
Congress, First Session, April 13, 1999, Serial No. 106-17, pp. 40, 47.

          * * * We and many of our clients, are looking for 
        ways to make employees ``business partners'' and 
        provide opportunities to share in the success of the 
        business.
          Goalsharing, gainsharing and incentive compensation 
        are labels used to speak to these monetary linkages 
        between business performance and rewards. Under the 
        current statutory framework, these programs are 
        problematic when applied to the nonexempt workforce of 
        a firm.
          Companies are also trying to minimize the trappings 
        of hierarchy to ensure that all employees feel free to 
        participate in the organization. The collaboration 
        required to be successful and to make the workplace an 
        engaging environment is also impeded by the strict 
        interpretations we have seen from the DOL. The DOL is 
        valiantly trying to apply sixty year old labor law to a 
        workplace that was not envisioned when the regulations 
        were enacted. At the same time, employers are trying to 
        understand and comply with these regulations that make 
        little sense in the current reality of work, the 
        workplace and today's workers.
          * * * Does it make sense to continue to enforce 
        provisions written for and about a workplace that has 
        all but become extinct? Is it not time that the 
        regulations be amended to fit the realities of work 
        today in the United States?
          I am not suggesting that the Fair Labor Standards Act 
        be removed and abandoned. I do believe that there needs 
        to be a reasonable framework within which all employers 
        can legally operate in this country. At the same time, 
        it is important that employers and employees be 
        afforded the flexibility to ensure a workplace that is 
        responsive to the diversity, complexity, and the 
        intellectual contribution necessary to succeed.

    Sally K. Fanning, director of compensation and benefits for 
Praxair, Inc., explained the effect of the outdated provisions 
of the law on her company: \12\
---------------------------------------------------------------------------
    \12\ Hearing on H.R. 2710, the Rewarding Performance in 
Compensation Act, before the Subcommittee on Workforce Protections, 
Committee on Education and the Workforce, U.S. House of 
Representatives, 105th Congress, Second Session, July 16, 1998, Serial 
No. 105-132, p. 8.

          We compete very globally, and we need to be able to 
        use every tool available to reward and motivate 
        employees. It's important that you understand that SHRM 
        does not take exception with the intent or the spirit 
        of the FLSA. The contention is with the outdated 
        provisions. The regulation that we are talking about 
        today was essentially written in 1953, 45 years ago. 
        And it was really intended to address individual 
        productivity incentive systems such as piece-rate 
        systems for cut-and-sew type of operations. Very easy 
        to measure on an individual basis.
          Today's incentive rewards focus on group 
        productivity, teams, company-wide profit-sharing. The 
        regulations do encourage profit-sharing, but they do 
        not encourage productivity-improvement programs, nor 
        employee-ownership programs.

    The Committee believes that the FLSA creates a disincentive 
for employers to include hourly workers in employee bonus and 
gainsharing programs. For other types of employees, such as 
executive, administrative, or professional employees who are 
exempt from minimum wage and overtime, an employer can easily 
give financial rewards without having to recalculate rates of 
pay. Yet, hourly workers should have the same opportunity as 
salaried workers to participate in gainsharing programs. Ms. 
Lynne Bourgeois, director of human resources for BlueCross 
BlueShield of Louisiana, told the Subcommittee that employees 
want to be rewarded for a job well done: \13\
---------------------------------------------------------------------------
    \13\ Hearing on the Rewarding Performance in Compensation Act 
before the Subcommittee on Workforce Protections, Committee on 
Education and the Workforce, U.S. House of Representatives, 106th 
Congress, First Session, April 13, 1999, Serial No. 106-17, p. 67.

          * * * They want to feel like a key player on a 
        winning team. Different standards such as ``how 
        incentives must be paid'' continue to separate non-
        exempt and exempt employee groups. Today's employees 
        are not well served by the outdated provision of the 
        FLSA. It discourages companies from fully motivating 
---------------------------------------------------------------------------
        and rewarding their employees for their hard work.

    Ms. Coil also described how, in her experience, the regular 
rate requirements of the FLSA deter many employers from 
implementing bonus or gainsharing programs for their nonexempt 
workforce: \14\
---------------------------------------------------------------------------
    \14\ Ibid., p. 45.

          The restrictions of [the] FLSA make adopting 
        incentive compensation for nonexempt employees 
        problematic at best. They force employers to choose 
        between complying with the regulations or opting to 
        restrict incentive compensation to their exempt 
---------------------------------------------------------------------------
        workforce where it can be simply applied.

    Many employers who choose to operate performance-based pay 
plans for their nonexempt workforce can be burdened with 
unpredictable and complex administrative costs. The 
administrative costs of recalculating each employee's regular 
rate and overtime rate can be substantial, taking up much of 
the money that the employer has set aside for the employee 
bonuses. Ms. Pam Farr, president and chief operating officer, 
Cabot Advisory Group, LLC, testified that: \15\
---------------------------------------------------------------------------
    \15\ Ibid., p. 58.

          * * * the amount of human resources staff time 
        required to recalculate overtime pay after the bonus 
        amounts have been determined has partially caused 
        companies to slow down the pace with which they roll 
        out such bonus plans. Although calculating overtime on 
        an employee's bonus is not impossible, it consumes a 
        significant amount of staff time * * * For example, a 
        single bonus payment for a single employee may involve 
        three or four steps that must be performed by a person, 
        and for companies that have multiple facilities in 
        several states, the calculations take on geometric 
        proportions. While much can be computerized, it still 
        takes time and effort to build the programs, test for 
        compliance, calculate weekly wage reports, and cut the 
        bonus checks. Many executives when faced with the 
        decision of either implementing additional bonus 
        programs or allocating the staff's time to improve 
        administration of existing programs would opt for the 
        latter. Employees would be better served if the 
        employer spent additional time communicating the plans 
        to employees, training them on how to satisfy customers 
        to become more efficient, and celebrating and honoring 
---------------------------------------------------------------------------
        their efforts above and beyond the average.

    Current law also reinforces the concept that employees 
should be paid only on the basis of how many hours they work, 
rather than on their contribution to gains in productivity, 
quality of service, or other similar type goals. In complying 
with the regular rate requirements prescribed in the FLSA, 
companies are compelled to reward employees based on the time 
that they are on the clock versus their contribution to the 
organization. Ms. Farr described how the FLSA is a barrier to 
team-based bonus plans: \16\
---------------------------------------------------------------------------
    \16\ Ibid., p. 57.

          * * * [T]he FLSA effectively precludes companies from 
        offering bonus plans because it requires bonuses to be 
        included in the employee's regular rate of pay. 
        Companies must pay overtime compensation based upon 
        this higher hourly rate, distorting overtime pay.
          By requiring companies to pay employees overtime on a 
        bonus payment, the FLSA contradicts the messages that 
        companies attempt to send through such payments. The 
        bonuses are not given merely to increase employee's 
        base pay. Rather, they are provided for achieving goals 
        that go well beyond performing the minimum job 
        requirements. Employees who delight the customers and 
        think of ways to increase sales, improve manufacturing 
        processes, or otherwise save money by being more 
        efficient should receive a bonus. Because the bonus is 
        paid separately, and for distinct reasons, it should be 
        differentiated from base pay or the overtime premiums 
        that employees receive.

    Similarly, Ms. Kathleen M. Fairall, senior human resource 
representative with the Timken Company in Randolph County, 
North Carolina, told of how current law undermines rewards 
based on teamwork: \17\
---------------------------------------------------------------------------
    \17\ Hearings on the Fair Labor Standards Act before the 
Subcommittee on Workforce Protections, Committee on Education and the 
Workforce, U.S. House of Representatives, 104h Congress, First Session, 
June 8, 1995, Serial No. 104-46, p. 184.

          Currently, the Act requires that if an employer wants 
        to provide employees a non-discretionary bonus, they 
        must determine the period of time covered by the bonus, 
        for that period recalculate the previously established 
        regular rate of pay or base pay by adding in the 
        proposed bonus payment, and then recalculate any 
        overtime pay that had been paid during the time covered 
        by the bonus. If that sounds complicated, there's a 
        simple reason. It is. And as a result, a non-exempt 
        employee who works overtime in that period receives the 
        bonus and then an additional ``extra'' payment for his 
        or her recalculated overtime. The employee who does not 
        work overtime or who is exempt does not receive this 
        ``extra'' payment.
          This type of preferential treatment strikes a blow to 
        the heart of work teams--essentially the law is saying 
        ``you are equal, except with bonus payments.'' Each 
        member of a team contributes equally to the business 
        and this must be reflected in equal bonus payments. 
        This is the foundation on which self directed teams 
        must be built.

    Ms. Sandie Moneypenny, a process technician for the Timken 
Company, described the effect of current law on self-directed 
work teams: \18\
---------------------------------------------------------------------------
    \18\ Ibid., p. 187.

          * * * In our plant, we have some pieces of equipment 
        that are not as dependable as others and some processes 
        that are slower than the rest. The people in these 
        areas work more hours. They would receive a larger 
        bonus than the other associates in the plant. Just 
        because these people work more hours does not mean they 
        are more valuable than the rest of us. They could 
        actually be not as efficient at operating their process 
        or may not be as experienced at maintaining their 
---------------------------------------------------------------------------
        equipment.

    It is true that many employers do maintain performance 
bonus and gainsharing plans for their nonexempt employees.\19\ 
Some employers do so unaware that the FLSA treats such bonuses 
as part of the employees' regular rate--until they happen to be 
audited by the Department of Labor.\20\ Other employers have 
maintained such programs despite the administrative difficulty 
and expense of doing so, and despite the fact that the FLSA's 
current treatment of performance bonuses can undermine the 
purpose of the gainsharing or performance bonus plan. For many 
employees, however, the current burdens and costs imposed on 
performance bonuses and gainsharing programs simply prevents 
such bonuses from being available to them.\21\
---------------------------------------------------------------------------
    \19\ A recent survey by William M. Mercer indicated that 24 percent 
of large and midsize companies use team-based incentive pay.
    \20\ As Mr. Robert J. Niedzielski from Tighe Industries, Inc., in 
York, Pennsylvania, testified before the Subcommittee in April 1999: 
``We thought we were being a good employer by sharing profits with our 
associates. We thought we had been a responsible employer by paying 
wages far above the minimum and complying with the overtime provisions 
of the FLSA. Finally, we thought we had been a fair employer, by 
consistently applying the criteria for bonus determination.''
    \21\ In April 1999 testimony before the Subcommittee, Ms. Lynne 
Bourgeois testified about her experience with her former employer: ``We 
implemented a management incentive program--the sales group had 
commission and sales incentives but the support staff, all non-exempt, 
received base pay and overtime. Consequently, the support staff often 
felt left out and not appreciated since they were not able to 
participate in the branch's financial success. After considering the 
issue, we decided not to implement a gainsharing program for the 
support staff because of the time and effort that would have been 
necessary to perform the bureaucratic calculations.''
---------------------------------------------------------------------------
    The Committee does not believe that the current treatment 
of performance bonuses and gainsharing plans is necessary or 
beneficial for employees. Federal law should not discourage 
companies from implementing such plans, yet that is what the 
FLSA currently does.

Legislation

    The Rewarding Performance in Compensation Act is intended 
to make performance bonuses and gainsharing more available to 
employees by removing the current obstacles to such plans in 
the FLSA. Under the bill, payments ``made to reward an employee 
or group of employees for meeting or exceeding the 
productivity, quality, efficiency, or sales goals'' would not 
be considered part of the employee's regular rate of pay.
    As introduced, H.R. 1381 specified that such payments must 
be made pursuant to a compensation plan; in other words, an 
employer could not utilize such performance bonuses on an ad 
hoc basis. During the Committee's consideration of the bill, 
opponents of the bill argued that employers would abuse the 
change made by H.R. 1381, particularly, they alleged, by 
redesignating a portion of an employee's regular, base pay as a 
performance bonus and thereby avoid paying overtime on that 
portion of the employee's hourly pay. The specific example 
given was an employee who is paid $10 per hour. Opponents 
alleged that his employer would continue to pay $10 per hour, 
but the employer would designate some portion of the $10--for 
example, $4 as a ``performance bonus.'' As a result, under this 
hypothetical, if the employee worked overtime, he or she would 
receive the time-and-one-half overtime rate only on $6, rather 
than on the employee's real hourly rate of $10.
    As was pointed out during the Subcommittee and full 
Committee markups on H.R. 1381, this hypothetical ignores a 
number of practical considerations. It also ignores current 
Department of Labor regulations prohibiting false or ``pseudo'' 
bonuses, regulations that are unchanged by H.R. 1381 and would 
remain in place. Those regulations read as follows: \22\
---------------------------------------------------------------------------
    \22\ 29 C.F.R. Sec. 778.502.

          (a) The term ``bonus'' is properly applied to a sum 
        which is paid as an addition to total wages usually 
        because of extra effort of one kind or another, or as a 
        reward for loyal service or as a gift. The term is 
        improperly applied if it is used to designate a portion 
        of regular wages which the employee is entitled to 
        receive under his regular wage contract * * *
          (e) The general rule may be stated that wherever the 
        employee is guaranteed a fixed or determinable sum as 
        his wages each week, no part of this sum is a true 
        bonus and the rules of determining overtime due on 
        bonuses do not apply.

    In short, the law currently prohibits, and would continue 
to prohibit, the hypothetical situation that opponents claim 
would result from the passage of H.R. 1381.
    In order to further ensure that H.R. 1381 accomplishes the 
goal of increasing employee pay by promoting legitimate 
performance bonuses and gainsharing plans and not be 
misconstrued or misused, the Committee adopted an amendment in 
the nature of a substitute which was offered by Rep. Cass 
Ballenger, the chief sponsor of H.R. 1381 and the Chairman of 
the Subcommittee on Workforce Protections.
    The amendment is similar to long-standing Department of 
Labor regulations defining when payments made to employees 
under profit-sharing plans are not included in the employee's 
regular rate of pay.\23\
---------------------------------------------------------------------------
    \23\ 29 C.F.R. Sec. 549.0-549.4.
---------------------------------------------------------------------------
    First, the amendment requires that the plan under which the 
performance bonus is provided and calculated be in writing and 
made available to employees. The requirement ensures that 
employees are informed about the performance bonus and the 
basis and manner on which it is calculated. It also provides 
further assurance to employees that, contrary to claims made by 
the opponents of H.R. 1381, an employer may not arbitrarily 
claim that some portion of an employee's regular, hourly pay is 
deemed a performance bonus on which overtime need not be paid.
    Second, the amendment requires that the plan specify the 
formula by which the performance bonus to be paid to the 
employees is to be calculated. As is the case under the 
Department of Labor's regulations for profit-sharing plans, the 
formula stated may be ``per capita'' (that is, each employee 
covered by the plan will receive the same amount if a certain 
goal is reached or exceeded.) Alternatively, the bonus may vary 
by individual or group performance. In either case, the plan 
must state how the performance bonus or gainsharing payment is 
calculated and when it is to be paid.
    Third, the amendment states that the plan for paying 
performance bonuses or gainsharing payments must be 
``established and maintained in good faith for the purpose of 
distributing to employees additional remuneration over and 
above the wages and salaries that are not dependent upon the 
existence of such plan or payments made pursuant to such 
plan.'' This requirement further ensures that any attempt by an 
employer simply to ``rename'' a portion of an employee's 
regular hourly rate as a ``performance bonus'' is not permitted 
under H.R. 1381. The performance bonus must be separately 
determined and identified as such to the employee and must be 
``over and above'' the employee's regular base pay.
    H.R. 1381 does not prohibit an employer from changing pay 
plans, for example, changing from all base pay to a base pay 
plus performance bonus, even if such a change may result in 
changes in the amount of base pay. But, in order for the 
performance bonus to be exempt from the regular rate, it must 
be ``established and maintained in good faith,'' that is, to 
carry out the purposes of the performance plan itself and not 
to evade or avoid paying employees time-and-a-half overtime 
compensation.
    Performance plans and gainsharing payment plans are 
obviously of great variety. One of the witnesses who testified 
before the Subcommittee on Workforce Protections described a 
performance bonus plan that was instituted for housekeepers and 
other employees of Fairfield Inns: \24\
---------------------------------------------------------------------------
    \24\ Hearing on the Rewarding Performance in Compensation Act 
before the Subcommittee on Workforce Protections, Committee on 
Education and the Workforce, U.S. House of Representatives, 106th 
Congress, First Session, April 13, 1999, Serial No. 106-17, pp. 6-7.

          * * * [I]n our small hotels, we recognized that it 
        had to be a team approach. We were all interdependent. 
        Housekeepers, front-desk, laundry, maintenance, and 
        sometimes restaurant workers, all had to be part of a 
        moving-part, organic organization. The housekeepers 
        couldn't check people in if the rooms weren't ready or 
        if the plumbing didn't work. Our housekeepers needed 
        fresh linens. Our front-desk people couldn't check 
        people out unless all of the bill was in order.
          So, we worked with employees. This was very important 
        when we began the gainsharing plans. We talked to the 
        employees about ``what they would think if we had a 
        gainsharing type plan?'' We worked with the managers 
        and compensation experts, ``how would they be able to 
        administer it?''
          We had a very strong belief that we needed to reward 
        the associates on top of their base pay. We actually 
        calculated these bonuses based on actual guest 
        comments. People like yourselves that were checking out 
        of our hotels, who rated us on room cleanliness, on 
        friendliness, on services, and all of the amenities. 
        The bonuses were paid out quarterly, and it averaged in 
        our beginning years from $200-300 per quarter.
          * * * We would ask the housekeepers, ``how do you 
        think we can improve the check-in speed?'' We would ask 
        them about the room amenities, and they gave us great 
        information. They listened to the customers, who 
        oftentimes were in the room when they began cleaning. 
        We learned from our employees. They also helped us 
        adjust the bonus plans over time.

    Such a plan involves different considerations and factors 
than a performance bonus, for example, for employees at a 
manufacturing plant. The goal of H.R. 1381 is to provide 
protections against abuse while allowing flexibility for 
employers and employees to structure such plans in ways that 
meet their needs. Current law also balances these two factors, 
but does so in a way that, as the testimony verifies, 
discourages employers from maintaining such plans for their 
nonexempt, hourly employees. The Committee believes that a 
better balance is struck by H.R. 1381, which encourages greater 
use of performance bonuses but maintains protections against 
abuse.

Conclusion

    H.R. 1381 will not reduce the pay of workers; it will 
encourage employers to include more of their hourly workers in 
performance bonus plans and thereby increase their 
compensation. Nor does H.R. 1381 in any way affect the 40-hour 
workweek or the right to overtime pay on employees' regular, 
hourly wage. It simply brings the 1938 Fair Labor Standards Act 
a step closer to meeting the workplace realities as we enter 
the 21st century.
    In conjunction with the Committee's markup of H.R. 1381, 
the Secretary of Labor sent a letter \25\ expressing the 
Administration's opposition to the legislation. The letter 
unfortunately ignored the realities of current workplace needs 
and policies and, in response, Rep. Cass Ballenger sent the 
following letter to Secretary Herman:
---------------------------------------------------------------------------
    \25\ Letter dated June 22, 1999, from Alexis M. Herman, Secretary 
of Labor, U.S. Department of Labor, to the Honorable William F. 
Goodling, Chairman, Committee on Education and the Workforce, U.S. 
House of Representatives.

             Subcommittee on Workforce Protections,
                  Committee on Education and the Workforce,
                                      Washington, DC, May 25, 1999.
Hon. Alexis M. Herman,
Secretary of Labor, U.S. Department of Labor,
Washington, DC.
    Dear Madam Secretary: I must respond to the excessive 
rhetoric in your letter to me dated May 19, 1999, expressing 
the Department of Labor's views on H.R. 1381, the ``Rewarding 
Performance in Compensation Act.'' Your letter arrived just as 
the Subcommittee on Workforce Protections was beginning the 
markup of several bills, including H.R. 1381. The timing of its 
arrival couldn't have been more indicative of its rhetorical 
rather than substantive intent.
    As I'm sure you know, the purpose of H.R. 1381 is to 
encourage companies to implement bonus, ``gainsharing,'' and 
similar compensation plans that provide a means for employees 
to share directly in the benefits the company receives when the 
employees' efforts produce improvements in any number of 
areas--productively, product or service quality, safety, etc.
    Your predecessor as Secretary of Labor, Mr. Reich, 
frequently criticized American companies for, in his view, 
failing to share their success with their employees. In that 
context, he frequently urged employers to implement employee 
gainsharing programs. President Clinton has echoed the same 
theme and has encouraged employers to implement employee 
gainsharing programs. Additionally, as I am sure you are aware, 
studies have shown that employee gainsharing programs have 
helped American workers become more productive and led to 
increased compensation for employees. I regret that you and 
your Department apparently do not share your predecessor's 
encouragement for compensation programs by which employees can 
directly share in the success that their efforts have helped to 
achieve.
    The Subcommittee on Workforce Protections has received 
considerable testimony, over several Congresses, from companies 
large and small, that a principal deterrent to providing or 
expanding gainsharing programs for non-exempt workers is the 
current treatment of bonus and gainsharing programs under the 
Fair Labor Standards Act (FLSA). H.R. 1381 attempts to address 
that very issue, thereby encouraging wider use of gainsharing 
programs.
    During our hearings on this issue, only one witness has 
taken the same approach as you expressed in your letter, that 
is, to say that any change in the law is unwarranted. That 
witness testified that the number of hours worked should be the 
only way in which an employee's contribution is measured. Not 
only is this position inconsistent with current law (profit 
sharing and employed benefits, for example, are not now 
included in the employee's regular rate), but it also reflects 
a view of work that is increasingly at odds with what employees 
want and what the workplace of the 1990s demands.
    Beyond that, your letter repeats the old, worn out rhetoric 
that any legislation that amends the FLSA to make it fit the 
workplace of the 1990s rather than the 1930s is ``an assault on 
the 40-hour workweek.'' If in fact, as you say in your letter, 
employers would simply decrease employees' hourly wage as a 
result of H.R. 1381, then any profit-making company would 
already be doing so under the exclusion from regular rate for 
``profit sharing'' payments that was added to the FLSA in 1949. 
The rhetoric in your letter simply makes no sense.
    I have made very clear and I am willing to work with anyone 
to improve the legislation to address any legitimate concerns. 
Your letter of May 19, however, contributes nothing towards 
constructive discussion or the needs of employees as we enter 
the 21st century.
            Sincerely,
                                            Cass Ballenger,
                                                          Chairman.

                                Summary

    The bill would amend the Fair Labor Standards Act to 
specify that an employee's regular rate of pay for the purposes 
of calculating overtime would be unchanged by additional 
payments that reward or provide incentives for meeting 
productivity, quality, efficiency or sales goals. Any incentive 
plan offered pursuant to the bill must be in writing and made 
available to employees, the amount of the payments must be 
based on a formula that is stated in the plan, and the plan 
must be established and maintained in good faith for the 
purpose of distributing additional compensation over and above 
the employee's wages and salaries.

                      Section-by-Section Analysis


Section 1. Short title

    ``Rewarding Performance in Compensation Act''.

Section 2. Regular rate for overtime purposes

    Adds a new provision to section 7(e)(3) of the Fair Labor 
Standards Act of 1938 which specifies that certain payments can 
be excluded from the calculation of the employee's regular rate 
of pay if the payments are made to reward an employee or group 
of employees for meeting or exceeding the productivity, 
quality, efficiency, or sales goals as specified in a 
gainsharing, incentive bonus, commission, or performance 
contingent bonus plan.
    Adds a new provision after section 7(e)(7) which specifies 
that such plan shall be in writing and made available to 
employees, provide that the amount of the payments to be made 
under the plan be based upon a formula that is stated in the 
plan, and be established and maintained in good faith for the 
purpose of distributing to employees additional remuneration 
over and above the wages and salaries that are not dependent 
upon the existence of such plan or payments made pursuant to 
such plan.

                       Explanation of Amendments

    The Amendment in the Nature of a Substitute is explained in 
the body of this report.

              Application of Law to the Legislative Branch

    Section 102(b)(3) of Public Law 104-1 requires a 
description of the application of this bill to the legislative 
branch. This bill amends the Fair Labor Standards Act of 1938 
to provide that an employee's ``regular rate'' for the purpose 
of calculating overtime compensation will not be affected by 
certain additional payments. The bill does not prevent 
legislative branch employees from receiving the benefits of 
this legislation.

                       Unfunded Mandate Statement

    Section 423 of the Congressional Budget and Impoundment 
Control Act (as amended by Section 101(a)(2) of the Unfunded 
Mandates Reform Act, P.L. 104-4) requires a statement of 
whether the provisions of the reported bill include unfunded 
mandates. This bill amends the Fair Labor Standards Act of 1938 
to provide that an employee's ``regular rate'' for the purpose 
of calculating overtime compensation will not be affected by 
certain additional payments. As such, the bill does not contain 
any unfunded mandates.

                             Rollcall Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee Report to include for 
each record vote on a motion to report the measure or matter 
and on any amendments offered to the measure or matter the 
total number of votes for and against and the names of the 
Members voting for and against.


                             Correspondence

                     Congress of the United States,
                                  House of Representatives,
                                Washington, DC, September 23, 1999.
Hon. William F. Goodling,
Chairman, House Education and the Workforce Committee, Rayburn House 
        Office Building, Washington, DC.
    Dear Mr. Chairman, Due to other legislative 
responsibilities, I was unable to be present for the House 
Education and Workforce Committee vote on H.R. 1381, the 
Rewarding Performance in Compensation Act. Had I been present I 
would have voted in the affirmative. Please include this in the 
full committee report. Thank you.
            Sincerely,
                                               Matt Salmon,
                                                Member of Congress.

  Statement of Oversight Findings and Recommendations of the Committee

    In compliance with clause 3(c)(1) of rule XIII and clause 
(2)(b)(1) of rule X of the Rules of the House of 
Representatives, the Committee's oversight findings and 
recommendations are reflected in the body of this report.

   New Budget Authority and Congressional Budget Office Cost Estimate

    With respect to the requirements of clause 3(c)(2) of rule 
XIII of the House of Representatives and section 308(a) of the 
Congressional Budget Act of 1974 and with respect to 
requirements of 3(c)(3) of rule XIII of the House of 
Representatives and section 402 of the Congressional Budget Act 
of 1974, the Committee has received the following cost estimate 
for H.R. 1381 from the Director of the Congressional Budget 
Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, July 2, 1999.
Hon. William F. Goodling,
Chairman, Committee on Education and the Workforce, House of 
        Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1381, the 
Rewarding Performance in Compensation Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Christina 
Hawley Sadoti.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 1381--Rewarding Performance in Compensation Act

    H.R. 1381 would amend the Fair Labor Standards Act of 1938 
to provide that an employee's regular rate of compensation for 
purposes of calculating overtime compensation will not be 
affected by additional payments, such a performance bonuses. 
CBO estimates that enactment of H.R. 1381 would have no 
significant impact on the federal budget. Because the bill 
would not affect direct spending or receipts, pay-as-you-go 
procedures would not apply.
    H.R. 1381 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no net costs on state, local, or tribal 
governments.
    This estimate was prepared by Christina Hawley Sadoti 
(federal cost), Susan Sieg (impact on state, local, and tribal 
governments), and Karuna Patel (impact on the private sector).
    This estimate was approved by Paul N. Van de Water, 
Assistant Director for Budget Analysis.

 Statement of Oversight Findings of the Committee on Government Reform

    With respect to the requirement of clause 3(c)(4) of rule 
XIII of the Rules of the House of Representatives, the 
Committee has received no report of oversight findings and 
recommendations from the Committee on Government Reform on the 
subject of H.R. 1381.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority for this legislation is provided in 
Article I, section 8, clause 3, which grants Congress the power 
to regulate commerce with foreign nations, among the several 
States, and with the Indian tribes.

                           Committee Estimate

    Clauses 3(d)(2) of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison by the 
Committee of the costs that would be incurred in carrying out 
H.R. 1381. However, clause 3(d)(3)(B) of that rule provides 
that this requirement does not apply when the Committee has 
included in its report a timely submitted cost estimate of the 
bill prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

           SECTION 7 OF THE FAIR LABOR STANDARDS ACT OF 1938


                             maximum hours

  Sec. 7. (a) * * *

           *       *       *       *       *       *       *

  (e) As used in this section the ``regular rate'' at which an 
employee is employed shall be deemed to include all 
remuneration for employment paid to, or on behalf of, the 
employee, but shall not be deemed to include--
          (1) * * *

           *       *       *       *       *       *       *

          (3) sums paid in recognition of services performed 
        during a given period if either, (a) both the fact that 
        payment is to be made and the amount of the payment are 
        determined at the sole discretion of the employer at or 
        near the end of the period and not pursuant to any 
        prior contract, agreement, or promise causing the 
        employee to expect such payments regularly; or (b) the 
        payments are made pursuant to a bona fide profit-
        sharing plan or trust or bona fide thrift or savings 
        plan, meeting the requirements of the Secretary of 
        Labor set forth in appropriate regulations which he 
        shall issue, having due regard among other relevant 
        facts, to the extent to which the amounts paid to the 
        employee are determined without regard to hours of 
        work, production, or efficiency; or (c) the payments 
        are talent fees (as such talent fees are defined and 
        delimited by regulations of the Secretary) paid to 
        performers, including announcers, on radio and 
        television programs; or (d) the payments are made to 
        reward an employee or group of employees for meeting or 
        exceeding the productivity, quality, efficiency, or 
        sales goals as specified in a gainsharing, incentive 
        bonus, commission, or performance contingent bonus 
        plan;

           *       *       *       *       *       *       *

A plan described in paragraph (3)(d) shall be in writing and 
made available to employees, provide that the amount of the 
payments to be made under the plan be based upon a formula that 
is stated in the plan, and be established and maintained in 
good faith for the purpose of distributing to employees 
additional remuneration over and above the wages and salaries 
that are not dependent upon the existence of such plan or 
payments made pursuant to such plan.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    We strongly oppose H.R. 1381. This legislation effectively 
repeals the requirement that workers be paid time-and-a-half 
for hours worked in excess of 40 hours a week. There are 
approximately 73 million workers who are entitled to overtime 
pay. The number of overtime hours worked are presently at or 
near an all-time high. Since 1990, overtime work has increased 
by one third in the manufacturing sector.
    Under current law, a worker is entitled to time-and-a-half 
pay based on all incentive based pay a worker receives. H.R. 
1381 permits employers to exclude performance-related bonuses 
from the calculation of a workers' overtime pay. A worker who 
is making $10 an hour today is entitled to $15 an hour for 
overtime work. H.R. 1381 would provide a financial incentive to 
employers to reduce base pay to the minimum wage, $5.15 an 
hour, and convert all additional compensation to some form of 
bonus.
    For example, this bill would allow an employer to pay a $10 
an hour worker $5.15 and an additional bonus of $4.85 an hour 
for the first forty hours worked in a week. Under this 
arrangement the employee appears to be receiving the same rate 
of pay per hour. However, when the employee works overtime, 
H.R. 1381 provides that instead of receiving $15 an hour, the 
employee would only be entitled to $7.73 an hour. In effect, 
H.R. 1381 enables employers to require workers to work overtime 
for less than the normal amount of compensation they receive 
for regular hours worked. Simply put, this legislation 
encourages employers to make workers work longer hours for less 
pay and will result in the creation of fewer jobs as a 
consequence.
    The Majority contends that an amendment in the nature of 
substitute adopted in Committee will ensure that the 
legislation is not abused. Notwithstanding that amendment, this 
bill remains fatally flawed. The amendment provides that a 
bonus plan must be written and that the bonus must be in 
accordance with a specific formula. Additionally, the amendment 
provides that the bonus plan must be ``established and 
maintained in good faith for the purpose of distributing to 
employees additional remuneration over and above the wages and 
salaries that are not dependent upon the existence of such 
plan.'' By definition, every bonus is in addition an employee's 
regular wage. Nothing in this amendment says that an employer 
may not reconfigure the pay or lower the wages of current 
employees. However, even if the amendment prevented employers 
from reconfiguring the pay of current employees, this bill 
remains fatally flawed. Such a provision would simply have the 
effect of providing financial incentive for employers to 
displace current workers with new workers. There is nothing in 
this legislation that prevents an employer from restructuring 
the compensation package of a new worker or a worker who is 
moved into a new job. The ultimate consequence of the 
legislation remains the same.
    Proponents of H.R. 1381 also claim that existing Department 
of Labor regulations will ensure that the provisions of the 
legislation will not result in the restructuring of workers' 
pay. As quoted by the Majority, those regulations provide:

          (a) The term ``bonus'' is properly applied to a sum 
        which is paid as an additional to total wages usually 
        because of extra effort of one kind or another, or as a 
        reward for loyal service, or as a gift. The term is 
        improperly applied if it is used to designate a portion 
        of regular wages which the employee is entitled to 
        receive under his regular wage contract * * *
          (e) The general rule may be stated that wherever the 
        employee is guaranteed a fixed or determinable sum as 
        his wages each week, no part of this sum is a true 
        bonus and rules of determining overtime due on bonuses 
        do not apply.

    The intent of these provisions is to prevent an employer 
from claiming ad hoc that a part of an employees regular wage 
is a bonus that would otherwise be exempt from the overtime 
calculation. However, these provisions do not restrict an 
employer from establishing the employee's wage at any level the 
employer desires and the provisions do not restrict an employer 
from providing additional compensation in the form of bonuses. 
Claims of the Majority notwithstanding, nothing in these 
regulations prevents an employer from establishing an 
employee's ``wage'' at the minimum wage rate and providing 
additional compensation in the form of performance bonuses. Far 
from prohibiting this, H.R. 1381 encourages it by ensuring that 
no part of the bonus will be used in calculating the employee's 
overtime pay.
    Our Republican colleagues claim that employers would not be 
so cost conscious as to try to reduce overtime costs by 
converting wages to bonuses. Controlling overtime costs has 
been, is, and will remain an important management objective. 
However, this bill provides important additional financial 
incentives for employers. The potential savings to employers, 
not only in terms of reduced overtime pay, but in terms of 
reduced hiring, training, and fringe benefit costs are such 
that, ultimately, employers will have to take advantage of the 
loophole created by H.R. 1381 in order to remain competitive. 
The fact is that enactment of H.R. 1381 would make it much 
cheaper for employers to work fewer workers for longer hours 
than to hire new workers for a second shift.
    Finally, it is hard to give credence to the justification 
proffered by the proponents of this legislation that it is too 
difficult for employers to offer bonuses if they must account 
for overtime. As the Majority notes, thousands of employers 
operate gainsharing plans and other performance based bonus 
plans for non-exempt workers. Calculating for overtime does not 
require an employer to generate any new information. The 
employer already knows how many hours the employee has worked, 
how many overtime hours the employee has worked, and what the 
employee has been paid for those hours so far. Calculating a 
bonus for employees that includes proper overtime is an easy 
process, as the Department of Labor's regulations make clear 
(see 29 CFR Section 778.209). Where employees have already been 
paid their regular hourly rate for non-overtime work and have 
already been paid time-and-a-half for overtime hours, 
additional pay due to a bonus is easily computed simply by 
multiplying the number of overtime hours worked over the period 
for which the bonus is paid by one-half of the overall hourly 
increase in pay caused by the bonus payment.
    Employees have been paying performance based bonuses to 
workers in compliance with the Fair Labor Standards Act for 
more than fifty years. To contend that it is now too difficult, 
in an era when there is widespread use of payroll services and 
virtually universal computer access, is not credible.
    Eliminating or reducing overtime pay is nothing less than a 
pay cut for millions of working families who work extra hours 
to make ends meet. H.R. 1381 jeopardizes their living standards 
at the same time that it effectively requires them to work 
longer for less.
    The Majority is seeking to impose this pay cut upon workers 
at a time when corporate profits are at unprecedented levels 
and executive incomes are not just 10 to 20 times greater than 
workers' salaries, but are 200 to 400 times greater. The 
Democrats on this Committee are committed to increasing the 
income of low wage workers by increasing the minimum wage. The 
Majority continues to block a minimum wage increase, while 
pushing legislation that undermines overtime pay and decreases 
workers' income. It is difficult to imagine a more wrong-headed 
piece of legislation than H.R. 1381.
                                   William L. Clay.
                                   Dale E. Kildee.
                                   Major R. Owens.
                                   Patsy T. Mink.
                                   Tim Roemer.
                                   Lynn Woolsey.
                                   Chaka Fattah.
                                   Carolyn McCarthy.
                                   Ron Kind.
                                   Harold E. Ford, Jr.
                                   David Wu.
                                   George Miller.
                                   Matthew G. Martinez.
                                   Donald M. Payne.
                                   Robert E. Andrews.
                                   Bobby Scott.
                                   Carlos Romero-Barcelo.
                                   Ruben Hinojosa.
                                   John F. Tierney.
                                   Loretta Sanchez.
                                   Dennis J. Kucinich.
                                   Rush Holt.