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When are you required to pay a bonus? Steps that employers can take to ensure that employees have a clear understanding of whether they're entitled to one.

With much litigation at the NH Department of Labor involving disputes over unpaid bonuses, it's a good time for businesses to take a look at their bonus structures --both formal and informal plans and practices.

Since New Hampshire law considers bonuses to be wages, employers must inform employees in writing at the time of hire of their eligibility for any bonus, along with their rate of pay and other terms and conditions of employment. The wage information should be contained in an employee's offer letter and must be signed by the employee.

In addition, any changes to an employee's terms and conditions of employment must also be in writing and signed by the employee. Therefore, when an employee is given a pay increase, he/she must be provided notification of that pay increase in writing and sign a copy of the notification. Employers must maintain all documentation regarding employees' wages and changes to wages.

New Hampshire law requires that employers pay all wages due to employees within eight days after the expiration of the week in which the work is performed. This law also includes bonus and commission payments and considers a bonus to be wages when it is due and owing. The key for employers to successfully defending against a claim for an unpaid bonus is to define when it is due and owing.

There are two types of bonuses:

* Non-discretionary: Some employers have a bonus plan that states with specificity the criteria that must be met in order for the employee to be eligible to receive the bonus. This type of bonus is referred to as a non-discretionary bonus because the employer agrees to pay the bonus to the employee when certain conditions are met. Businesses typically have non-discretionary bonuses for sales employees for whom results can be more easily quantified.

* Discretionary: Many employers have bonuses that they pay out at the end of the year, or more frequently, depending on the financial standing of the business, among other factors. This is a discretionary bonus because the employer decides which employees are eligible to receive the bonus, the criteria for receiving the bonus, and, most importantly, whether it will be paid at all. Unless the employer is clear about the bonus being discretionary, employees often believe that they are entitled to payment of the bonus and wage claims at the DOL.

There are steps that employers can take to ensure that employees have a clear understanding of their entitlement to potential bonuses.

Employers should state in writing that any discretionary bonus is paid by the company at its "sole discretion" and the company should make it clear as to whether the employee must be employed at the time the discretionary bonus is paid in order to receive it. A statement as to the discretionary bonus should be contained in the employee handbook as well as in employee offer letters so that there is evidence of the employer providing notice to the employee in writing of the bonus terms and of the employee receiving that notice.

If an employee brings a wage claim at the DOL and prevails, in addition to the bonus amount, the DOL could award liquidated damages, which is an additional amount equaling the bonus owed. An employer could be liable for liquidated damages if the employer "willfully and without good cause fails to pay" all wages due within the timeframe required by the statute.

The NH Supreme Court has defined "willfully and without good cause" to mean, "voluntary, with knowledge of the obligation and despite the financial ability to pay the wages owed." Liquidated damages are less likely to be found if the employer had a written bonus plan and/or policy and followed it in good faith--albeit erroneously.

Claims for unpaid bonuses are made every year to the DOL, and those claims are usually not covered by the employer's employment liability insurance coverage. Therefore, employers are well advised to consult with experienced employment counsel to formulate bonus language that will insulate it from litigation.

Beth Deragon, an attorney in the Employment Law Practice and Litigation Group at the law firm of McLane Middleton, can be reached at or at 603-628-1490.
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Title Annotation:THE LAW
Author:Deragon, Beth A.
Publication:New Hampshire Business Review
Date:Apr 14, 2017
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