© 2025 American Payroll Institute, Inc.
February 24, 2025 Volume 27 Issue 4
Illinois Supreme Court Rules Bonuses Not Tied to Hours
Are Included in Overtime
The Supreme Court of Illinois ruled that bonuses must
be included in the calculation of overtime, even if
those bonuses are not based on hours worked [Mercado
v. S&C Electric Co., No. 129526 (Ill., 1-24-25)]. The employer
had unsuccessfully argued that the regular rate of pay did
not include amounts that were not dependent on hours
worked.
Employer excluded bonuses from overtime
Two former factory assembly employees, Carmen
Mercado and Jorge Lopez, sued their employer, S&C Electric
Company (S&C), on behalf of a class of employees for failing
to include certain bonuses in their overtime. The bonuses
included incentive payments, incentive bonuses, and
performance bonuses. They were listed on the employees’
pay stubs as “KPI Incentive,” “MIS bonus,” “Success sharing,”
and “Seniority award.” The bonus payments ranged from
$100 to $900. When employees worked overtime, S&C did
not include these bonuses in the calculation of the regular
rate of pay, which in turn lowered the amount of overtime
that S&C paid.
After both Mercado and Lopez were no longer
employed with S&C, S&C paid them amounts that
purported to cover the unpaid overtime. The company also
changed its policies and began including the bonuses in
overtime calculations. Mercado and Lopez sued, claiming
that S&C had failed to pay them all overtime wages due.
They also claimed that the post-separation payments were
not sufficient to cover the amount that they were entitled
to for the unpaid wages.
S&C argued that the employees did not have a valid
claim, stating that the bonuses were excluded by law from
an employee’s regular rate of pay. Further, the company
argued that the post-separation payment was sufficient to
cover any damage even if the employees were owed more
for overtime.
The trial court dismissed the case, ruling that the
employees may have had a valid claim to unpaid overtime
however, the court also found that the post-separation
payments were sufficient to resolve any underpayment.
The appellate court agreed with the trial court on both
points.
Bonuses are included in overtime calculation
The Supreme Court of Illinois disagreed, ruling that the
bonuses should have been included in overtime and that
the post-separation payment did not fully compensate the
employees for their damages.
In Illinois, employers are required to pay employees
overtime at a rate of 1.5 times the employee’s regular
rate of pay for all hours worked in excess of 40 hours per
week. Regular rate is defined as: “all remuneration for
employment paid to, or on behalf of, the employees,” and
the law lists several exclusions. The exclusion at issue here
was: “Sums paid as gifts such as those made at holidays or
other amounts that are not measured by or dependent on
hours worked” (emphasis added).
The employees and the state attorney general (who
filed an amicus brief in the case) argued that “other
amounts” must be a payment similar to a gift to fall under
the exception. Further, Illinois regulations recognize that the
regular rate of pay does not require employees to be paid
on an hourly basis. Payments for piece-rate compensation,
salary, and commissions are also included in the regular
rate of pay calculation even though they are not based
on hours worked. The attorney general also argued that
incentive pay tied to a performance metric is “functionally
indistinguishable from piece-rate compensation.”
The Supreme Court agreed with the employees,
noting that “Sums paid as gifts” is followed by “such as.” This
means that the text of the exception provides examples
of payments that may be “of the same character as gifts.”
S&C argued that “Sums paid as gifts” and “other amounts”
were two different categories of payments covered by the
exception. The court said this interpretation would require
the law to be read as if “Sums paid as gifts” and “other
amounts” were both examples of payments “not measured
by or dependent on hours worked.” The court viewed this
as a distortion of the language. The court found further
support for its opinion by noting that in other regulations,
other types of compensation are listed in the regular rate
of pay that are not hourly-based, such as piece-rate pay,
salary, or payment per day or per job.
Employer failed to pay full damages
The court also disagreed that the employees’ damages
were adequately compensated. The appellate court had
ruled that there was no specific deadline for paying back
wages to avoid penalties, but the Supreme Court noted that
the monthly interest of 5% for any underpayment indicates
that an employee’s claim to unpaid wages accrues on the
date of payment. The employer was ordered to pay triple
the amount of the underpayment, costs, and attorney’s
fees, and interest of 5% per month.
February 24, 2025 Volume 27 Issue 4
Illinois Supreme Court Rules Bonuses Not Tied to Hours
Are Included in Overtime
The Supreme Court of Illinois ruled that bonuses must
be included in the calculation of overtime, even if
those bonuses are not based on hours worked [Mercado
v. S&C Electric Co., No. 129526 (Ill., 1-24-25)]. The employer
had unsuccessfully argued that the regular rate of pay did
not include amounts that were not dependent on hours
worked.
Employer excluded bonuses from overtime
Two former factory assembly employees, Carmen
Mercado and Jorge Lopez, sued their employer, S&C Electric
Company (S&C), on behalf of a class of employees for failing
to include certain bonuses in their overtime. The bonuses
included incentive payments, incentive bonuses, and
performance bonuses. They were listed on the employees’
pay stubs as “KPI Incentive,” “MIS bonus,” “Success sharing,”
and “Seniority award.” The bonus payments ranged from
$100 to $900. When employees worked overtime, S&C did
not include these bonuses in the calculation of the regular
rate of pay, which in turn lowered the amount of overtime
that S&C paid.
After both Mercado and Lopez were no longer
employed with S&C, S&C paid them amounts that
purported to cover the unpaid overtime. The company also
changed its policies and began including the bonuses in
overtime calculations. Mercado and Lopez sued, claiming
that S&C had failed to pay them all overtime wages due.
They also claimed that the post-separation payments were
not sufficient to cover the amount that they were entitled
to for the unpaid wages.
S&C argued that the employees did not have a valid
claim, stating that the bonuses were excluded by law from
an employee’s regular rate of pay. Further, the company
argued that the post-separation payment was sufficient to
cover any damage even if the employees were owed more
for overtime.
The trial court dismissed the case, ruling that the
employees may have had a valid claim to unpaid overtime
however, the court also found that the post-separation
payments were sufficient to resolve any underpayment.
The appellate court agreed with the trial court on both
points.
Bonuses are included in overtime calculation
The Supreme Court of Illinois disagreed, ruling that the
bonuses should have been included in overtime and that
the post-separation payment did not fully compensate the
employees for their damages.
In Illinois, employers are required to pay employees
overtime at a rate of 1.5 times the employee’s regular
rate of pay for all hours worked in excess of 40 hours per
week. Regular rate is defined as: “all remuneration for
employment paid to, or on behalf of, the employees,” and
the law lists several exclusions. The exclusion at issue here
was: “Sums paid as gifts such as those made at holidays or
other amounts that are not measured by or dependent on
hours worked” (emphasis added).
The employees and the state attorney general (who
filed an amicus brief in the case) argued that “other
amounts” must be a payment similar to a gift to fall under
the exception. Further, Illinois regulations recognize that the
regular rate of pay does not require employees to be paid
on an hourly basis. Payments for piece-rate compensation,
salary, and commissions are also included in the regular
rate of pay calculation even though they are not based
on hours worked. The attorney general also argued that
incentive pay tied to a performance metric is “functionally
indistinguishable from piece-rate compensation.”
The Supreme Court agreed with the employees,
noting that “Sums paid as gifts” is followed by “such as.” This
means that the text of the exception provides examples
of payments that may be “of the same character as gifts.”
S&C argued that “Sums paid as gifts” and “other amounts”
were two different categories of payments covered by the
exception. The court said this interpretation would require
the law to be read as if “Sums paid as gifts” and “other
amounts” were both examples of payments “not measured
by or dependent on hours worked.” The court viewed this
as a distortion of the language. The court found further
support for its opinion by noting that in other regulations,
other types of compensation are listed in the regular rate
of pay that are not hourly-based, such as piece-rate pay,
salary, or payment per day or per job.
Employer failed to pay full damages
The court also disagreed that the employees’ damages
were adequately compensated. The appellate court had
ruled that there was no specific deadline for paying back
wages to avoid penalties, but the Supreme Court noted that
the monthly interest of 5% for any underpayment indicates
that an employee’s claim to unpaid wages accrues on the
date of payment. The employer was ordered to pay triple
the amount of the underpayment, costs, and attorney’s
fees, and interest of 5% per month.
