Is a Year-End Bonus Discretionary? What Happens If I Don’t Get Paid?
Bonuses come in a variety of different shapes and sizes. Understanding your particular bonus can ensure that you receive the fair and correct amount.
What is the difference between discretionary and non-discretionary bonuses?
A non-discretionary bonus:
Usually contractual – paid because of a contract or agreement that has been made between the employer and employee ahead of time.
- Ex: bonus tied to commission numbers
- Ex: bonus tied to length of service
- Ex: bonus tied to new business development
May use a mathematical determinant to arrive at the amount
Is usually associated with production, quality, attendance or another form of performance.
May implicate calculations for your regular rate of pay and calculation of overtime
- Is typically pursuant to a contract or agreement in writing
A discretionary bonus:
Payable solely at the discretion of the employer
- Ex: for “good performance”
Usually one in which the amount, requirements, and timing are not disclosed in advance
Could be completed at any time during employment, rather than by a set time
- Ex: payable based on performance vs. payable if new business reaches $100,000 in the first year
Is usually paid for services performed
Is not part of a pattern that has led employees to expect it
- Could be given at any time
What about holiday bonuses?
Even when given each year, which may lead employees to expect them, holiday bonuses are usually treated as discretionary.
If holiday bonuses are provided based on certain criteria, but not to all employees, it is recommended an employer document why certain employees have not earned the bonus.
What are the legal implications related to discretionary and non-discretionary bonuses?
Discretionary bonuses may be withheld from the employee under certain circumstances provided it is done in good faith, on reasonable grounds, and not for a discriminatory purpose. It should not be withdrawn capriciously or irrationally. Lack of good faith and reasonable ground may give rise to a potential cause of action against the employer by the employee.
In non-discretionary bonuses, where employees have a contractual right to receive the bonus, withdrawal of the bonus may constitute a potential claim for breach of contract.
Bonuses are subject to equal pay and anti-discrimination laws. To maintain fairness and guard against legal claims, bonuses should be based on objective, identified factors. In addition to an appearance of fairness, disclosing these factors well in advance of year’s end will motivate employees to achieve benchmarks the employer considers valuable.
Should you have any questions related to the issue of bonuses, please contact us online or call our offices at (561) 653-0008. At Scott • Wagner and Associates., our approachable and knowledgeable lawyers are dedicated to providing skilled legal representation for your unique situation.
- American Institute of Professional Bookkeepers
- Compensation Daily