What is Non Discretionary Bonus?
A non-discretionary bonus is a payment given to employees when they meet specific company criteria, such as productivity or performance goals. Unlike discretionary bonuses, which are given at the employer’s discretion, non-discretionary bonuses are typically expected by employees if they achieve the required targets.
Examples of Non-Discretionary Bonuses:
Hiring bonuses: Paid to new employees as an incentive to join the company.
Attendance bonuses: Rewarding employees for maintaining good attendance.
Bonuses for quality of work: Given when employees meet or exceed quality standards.
Bonuses for accuracy of work: Paid for achieving a high level of precision in tasks.
Profitability bonuses: Tied to company profits or financial performance.
Individual or group production bonuses: Based on individual or team production levels.
Key Considerations for Non-Discretionary Bonuses:
Expectation of payment: Employees may come to expect these bonuses once the company sets specific performance criteria.
Overtime pay: Non-discretionary bonuses can influence overtime pay for non-exempt employees, as they may be factored into the regular rate of pay used to calculate overtime. This means non-exempt employees might receive additional compensation for overtime if their bonus is included in their regular pay.
Legal considerations: Employees should seek legal advice if they have concerns about their non-discretionary bonuses, particularly regarding overtime pay and wage regulations.
Impact on Overtime Pay:
Non-discretionary bonuses are considered part of an employee’s regular earnings and may be included in the calculation of overtime pay for non-exempt employees. If an employee works over 40 hours in a week, their overtime pay is calculated based on the regular rate of pay, which may include non-discretionary bonuses.
Why Employers Use Non-Discretionary Bonuses:
Employers use non-discretionary bonuses to motivate employees to meet specific goals, reward good performance, and encourage job retention. These bonuses help reduce turnover, improve morale, and incentivize employees to perform at their best, knowing they will be rewarded for meeting targets.