Many employees earn compensation via bonuses, in addition to their regular wages. California law defines specific requirements about the timing of payment of such bonuses, whether earned bonuses may be denied, and the inclusion of non-discretionary bonuses in the regular rate of pay for non-exempt employees, including overtime-eligible salespeople.
Bonuses are considered “wages” within the meaning of Labor Code § 200. More specifically, a bonus is money promised to an employee in addition to the employee’s salary, commission, or hourly wages.
Bonuses may be discretionary, where there is no promise for their payment (discretionary bonus), or they may be required payment based on a promise to pay a bonus for a specific result (non-discretionary bonus).
Payment and Calculation of Discretionary and Non-Discretionary Bonuses
Discretionary bonuses are not based on objective criteria. As such, they are considered a gratuity, as opposed to a contract to pay promised moneys. An employer is generally not required to pay this amount because it is not considered earned.
Non-discretionary bonuses are bonuses based on objective criteria. The promise of payment is a unilateral contract which becomes a binding agreement on the employer when an employee begins performance called upon in that contract (i.e., bonus promise). This means that the employer cannot unilaterally revoke it.
This is important because if the promise of bonus is an inducement to start employment or to continue employment, the bonus is earned by the employee by working and performing and may be payable to the employee upon separation from his or her job. Conversely, an employee who leaves employment before the bonus calculation date may not be entitled to the bonus if the employer expressly qualified earning the bonus on the employee’s continued employment.
However, if the employer terminates the employee before fulfillment of all terms of the bonus agreement without valid cause (e.g., based on the employee’s conduct/performance), the employee may be entitled to recover, at least, a pro-rata share of the promised bonus.
Finally, criteria that is not within the employee’s control (e.g., shortages) and which are usually considered a cost of doing business may not be deducted when calculating the bonus amounts.
Calculation of the Regular Rate Of Pay
When an employer calculates a non-exempt employee’s regular rate of pay for purposes of overtime calculation, non-discretionary bonuses must be included into the formula. Employers often pay their employees non-discretionary bonuses but fail to include these bonus amounts when calculating the amount of overtime wages due to the employee. In such cases, the employer may be paying the employee less overtime wages that the employee actually earned.
Recovering Your Earned Bonuses
If you believe that you did not receive a bonus from your company that you earned, talk with a lawyer from our firm. We can discuss the situation at work to determine whether or not you have a viable employment law claim. If you do, we will walk you through every step of your case as we fight to ensure that you get the bonuses coming to you. We will protect you against employer retaliation, as well.