Bonus pay is used by employers to recognize and reward employee contributions, improve morale, and increase productivity. However, employers need to develop their bonus programs carefully. Employers have been held legally responsible for paying bonuses expressly promised to employees as incentives. On the other hand, bonuses that are completely discretionary are not usually viewed as implied contracts. Under the Fair Labor Standards Act (FLSA), bonus payments must generally be included in the calculation of a worker's hourly rate when figuring the overtime premium.
Bonuses might be offered for the following reasons, among others:
1.Market conditions including counteroffers and retention due to specialized or extensive investment or training. A special pay increase may be provided to bring an employee's salary up to the level indicated by market data for comparable work outside the employer. Documentation including market data such as salary surveys, newspaper ads, or other relevant sources must be attached to the request. A special pay increase may be provided to retain an employee who has been offered a higher paying position outside. Offers may be actual or anticipated. A special pay increase may be provided to compensate an employee for specialized or extensive training.
2.Salary compression or inversion. A special pay increase may be provided to resolve a pay disparity caused when newly hired employees are compensated at the same level (compression) or at a higher rate (inversion) than a current employee.
3.Pay disparity. A special pay increase may be provided to resolve a pay disparity caused by factors other than salary compression or inversion, including relevant education, experience, or duties and responsibilities of other employees.
4.Sustained Superior Performance. A special pay increase may be provided to reward consistent excellence in job performance.