By: Leiann Laiks, Esq.
Non-discretionary bonuses play a significant role in employee compensation in California.
Here’s what businesses need to know about these bonuses:
Definition and Criteria:
- Promise and Commitment: A bonus is considered non-discretionary if the employer has already committed to it and cannot alter the amount or timing without breaching the agreement.
- Performance-Based: Non-discretionary bonuses are typically tied to employee performance or group achievements, such as reaching sales targets or meeting project milestones.
Key Considerations for Employers:
- Legal Obligation: Employers should recognize that non-discretionary bonuses are a form of compensation that employees can reasonably expect. They may alter the regular rate of pay and impact overtime calculations for non-exempt workers.
- Naming Conventions: The label “discretionary” or “non-discretionary” does not determine the legal classification of a bonus. Employers must adhere to the agreed-upon terms and fulfill their commitments accordingly.
- Workplace Incentives: Non-discretionary bonuses are often used to motivate employees and incentivize positive workplace behavior, contributing to a productive and engaged workforce.
By understanding the nature and implications of non-discretionary bonuses, businesses can effectively incorporate them into their compensation structures and foster a fair and transparent relationship with their employees.
This blog is written as of March 2025. Recommendations and legal requirements are changing rapidly, so please continue to review our legal updates or review postings on relevant government websites.
All blogs on this site are for educational purposes only, do not constitute legal advice or opinion, and should not be applied to your situation, or any specific situation, without consultation with counsel. Strategy Law, LLP does not provide any legal advice concerning any matter discussed in a blog except upon formal engagement including, without limitation, execution of Strategy Law, LLP’s formal legal services agreement, and with respect to specific factual situations. No blog constitutes a guarantee, warranty, or prediction regarding the result of any legal matter discussed in the blog or any representation.
