## Facts

- Shepard Niles Crane & Hoist Corp., a New York manufacturer engaged in interstate commerce, employed about 450 workers paid hourly wages.
- Beginning in 1940, the company paid additional sums labeled “bonuses” to employees at roughly three-month intervals over several years.
- The amounts were calculated in proportion to each employee’s straight-time hourly rate and hours worked and were approved by the company’s board of directors.
- The company treated the payments as wages for most purposes (including tax withholding) but excluded them from the “regular rate” used to compute overtime under the Fair Labor Standards Act (FLSA).
- The Wage and Hour Administrator sued for injunctive relief, alleging the failure to include these bonus payments in the regular rate violated the FLSA overtime provisions.
- The district court denied the Administrator’s motion for summary judgment and dismissed the complaint, reasoning the payments were not made under a binding plan or promise and therefore were not part of the regular rate.

## Issues

1. Whether regularly paid “bonuses” that are proportionate to employees’ straight-time wages and hours worked must be included in the FLSA “regular rate” for overtime calculations, even if the employer characterizes them as discretionary and not promised under an enforceable plan.

## Decision

- The Second Circuit reversed the judgment dismissing the complaint.
- The court held the recurring bonus payments were part of the employees’ regular rate of pay for FLSA overtime purposes.
- The case was remanded for further proceedings consistent with that holding, including consideration of appropriate injunctive relief.

## Legal Principles

- The FLSA “regular rate” includes remuneration that, in substance, functions as compensation for hours worked; labels such as “bonus” do not control.
- Bonus payments systematically tied to employees’ wages or hours and paid with regularity are generally included in the regular rate used to compute overtime premiums.
- The absence of a legally enforceable promise or formal bonus plan does not, by itself, exclude a payment from the regular rate when the payment is regular in practice and measured by work performed.
- Excluding wage-like recurring payments from the regular rate would allow circumvention of statutory overtime protections by artificially lowering the overtime base rate.

## Conclusion

The Second Circuit held that the employer’s recurring, wage-proportionate bonus payments had to be included in employees’ FLSA regular rate when calculating overtime, rejecting the view that lack of a binding bonus plan or asserted discretion removed such payments from the overtime base.


McComb v. Shepard Niles Crane & Hoist Corp., 171 F.2d 69 (2d Cir. 1948)