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May 14, 2010
Tips to Avoid Overtime Liability with Discretionary Bonuses

In a BLR webinar titled "Reducing Overtime Costs: What You Legally Can—and Can't—Do to Keep Workers at Their Straight-Time Rates," Laura P. Worsinger, Esq., offered advice on how employers can avoid overtime liability when awarding discretionary bonuses.

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What Is a Discretionary Bonus?

If a bonus is discretionary, it can be excluded from the regular rate. Discretionary means:

  • The employer retains discretion over both the amount of the bonus and the availability; and
  • The bonus must not be paid "pursuant to any prior contract, agreement, or promise causing the employee to expect such a payment regularly."

Best Practice Advice

Worsinger suggested that employers:

  • Make clear in employer agreements and/or company policies that the company may award bonuses but that they are not guaranteed.
  • Establish general criteria that might be considered in determining whether bonuses will be issued (e.g., sales, company profits, customer satisfaction, etc.) and notify employees.
  • Qualify any notice to employees with the proviso that bonuses are strictly discretionary on the part of management.
  • Avoid making promises as to whether bonuses will be issued at all, the amount that will be awarded, and the time the award will be made.

Laura P. Worsinger, Esq. is Of Counsel with the Los Angeles office of Dykema Gossett PLLC. She has broad counseling and litigation experience and specializes in the defense of employers in individual and class actions involving wage and hour violations, misclassification, discrimination, wrongful termination, and other employment-related proceedings. She can be contacted at

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