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:
- 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.
- 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.
- 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.
- Sustained Superior Performance. A special pay increase may be provided
to reward consistent excellence in job performance.
- Increased responsibilities.
