When Are Pay Bonuses Not Discretionary?
What to do if you’ve got unpaid, earned bonuses in Minnesota
By Benjy Schirm, J.D. | Reviewed by Canaan Suitt, J.D. | Last updated on January 4, 2024Use these links to jump to different sections:
- When Bonuses Are Discretionary
- Examples of Non-Discretionary Bonuses
- When Wages Must Be Paid Upon Termination in Minnesota
- Penalties for Withholding Non-Discretionary Bonus Payments
- How Courts Resolve Unpaid Bonus Disputes
- Find an Experienced Attorney
When an employee leaves a job for a better opportunity, an employer will often attempt to cover any monetary losses from losing a great employee. Any action an employer takes is governed by the employment contract the employee signed at their start. If this initial agreement included a bonus structure, those bonuses become a non-discretionary part of the employee’s income and must be paid.
When Bonuses Are Discretionary
Both employers and employees should be aware of whether bonuses are discretionary, meaning the employer can choose whether or not to give the bonus.
The Code of Federal Regulations (CFR) title 29, section 778 contains regulations on calculating regular rates of pay for overtime compensation under section 7 of the Fair Labor Standards Act (FLSA). CFR §29.778.211 says bonuses are discretionary if “payment… and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any:
- Prior contract;
- Agreement; or
- Promise causing the employee to expect such payments regularly.”
Examples of Non-Discretionary Bonuses
Types of bonuses that may be non-discretionary under a contract, agreement, or promise include:
- Holiday bonuses;
- Attendance bonuses;
- Production bonuses;
- Hiring bonuses;
- Group production bonuses; and
- Referral bonuses.
When Wages Must Be Paid Upon Termination in Minnesota
In Minnesota, employers know that they must pay the employee’s regular rate for earned wages upon termination of any contract. The issue of bonuses is often contested, but the Minnesota statute is fairly clear: When a Minnesota employer terminates an employee, it must pay all “wages or commissions actually earned and unpaid at the time of the discharge”—on the next regularly scheduled payday, or within 24 hours of receiving a demand for payment.
On top of that, when a Minnesota employee resigns, “The wages or commissions earned and unpaid at the time the employee quits or resigns” must be paid on the next regularly scheduled payday following the employee’s final day of employment (unless the employee is subject to a collective bargaining agreement with different requirements).
Penalties for Withholding Non-Discretionary Bonus Payments
There are stiff penalties for withholding bonus payments that are non-discretionary.
As the Minnesota statute says, discharged employees “may charge and collect a penalty equal to the amount of the employee’s average daily earnings at the employee’s regular rate of pay or the rate required by law, whichever rate is greater, for each day up to 15 days that the employer is in default.” Employers and employees often fight over whether the statutory definition of “wages” applies to bonuses.
How Courts Resolve Unpaid Bonus Disputes
Thankfully for employees, Minnesota courts generally resolve these disputes by applying traditional contract principles. They look to the terms of the bonus agreement to determine whether the employer agreed to pay a bonus, and they also ask whether the employee met the requirements to earn the bonus.
Employers can protect themselves from being locked into a bonus structure that may be unfavorable to them by properly drafting contracts that use clear and concise language. If, as an employer, you do not wish to pay out non-discretionary bonuses upon termination, expect to pay more in penalties and legal fees than the bonuses would have cost.
Find an Experienced Attorney
If you are an employee being denied a bonus, make sure you contact a reputable and experienced employment law attorney for legal advice to resolve any conflicts. For more information about this area, see our overview of wage and hour laws.
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