Bonuses are a welcome addition to paychecks in most cases, but you may be uncertain if or how those bonuses can affect other parts of your check or even the criteria used to give them. California recognizes discretionary and non-discretionary bonuses. These have different criteria for how they are assigned and can affect your standard pay rate differently. If you have concerns about how your boss provides bonuses, reaching out to a trusted and experienced California law representative, such as a San Francisco overtime, wage, and hour attorney, can be a great option. Everyone deserves to be treated and paid fairly in their workplace.
Bonuses in California
Bonuses in California are given in addition to the regular pay for labor or services. The California Department of Industrial Relations (DIR) explains that a bonus is money given as part of the contracted compensation or simply as a gratuity where there is no promise of payment. These are defining characteristics of a discretionary or non-discretionary bonus. The United States Department of Labor (DOL) details the criteria for discretionary and non-discretionary bonuses as stated below.
Discretionary Bonuses
According to the Department of Labor, a discretionary bonus is one that is excludable from the regular rate of pay with the understanding that they are at the full discretion of the employer who determines whether they will be paid near the end of the period the bonus pertains to. Some conditions under which discretionary bonuses may be awarded include:
- as an acknowledgment of hard work after a stressful project
- employee of the month
- attendance bonuses
- severance bonuses
- other notices of exceptional work beyond performance measures
These bonuses are taxed as bonuses in California and are separate from your standard income, meaning they will not affect overtime rates. Further, these types of bonuses can be withheld or reduced for any reason since the provision is at the employer’s discretion.
Non-Discretionary Bonuses
A fundamental fact of non-discretionary bonuses is that they apply to the standard rate of pay, leading them to affect and increase the rate due to overtime hours worked. Additionally, these are structured so that an employee may be able to expect one based on how they perform, a promise made, or an agreement they signed. Examples of these may include:
- Performance-driven bonuses are provided according to a designated formula
- Bonuses for quality or accuracy of work
- Bonuses announced to employees as an incentive
When an employer pays a non-discretionary bonus, the amount is also classified as normal income for taxing purposes.
Withholding a Bonus in California
It is illegal for an employer to withhold a non-discretionary bonus due to reasons such as cash flow problems. This would be similar to failing to pay standard wages due to poor company performance. However, the bonus may be adjusted or withheld based on the contractual obligations or agreement with the employee. Examples of this may include commission for discounted or returned services.
However, an employer may withhold or reduce a discretionary bonus for almost any reason due to the employer holding full discretion of the payment. If you have concerns about withheld or reduced commission or bonus checks, you may benefit by speaking with an employment law attorney to determine if your employer is violating labor laws.