How Labor Laws Treat Bonuses in California

You work hard for your bonus. You keep track of every performance measure that your employer sets for you and you do your best to hit those marks. You do so relying on that promised bonus. So what happens if you are not paid your bonus, or it doesn’t come when it is supposed to? Do you simply throw up your hands because it was “extra” money? To answer that question, it is important to understand how California labor laws treat bonuses.

Types of Bonuses

California law views bonuses in two categories, “discretionary” and “non-discretionary” bonuses. These are also referred to as “unearned” and “earned” bonuses. Discretionary bonuses are “sums paid as gifts at a holiday or other special occasions, such as a reward for good service, which are not measured by or dependent upon hours worked, production or efficiency, are not included for purposes of determining the regular rate of pay.” An example is a Christmas bonuses, which is given entirely by an employer’s choice. Further the bonus is not tied to any contract or work-performance measure. It is therefore referred to as an “unearned” bonus.

In contrast, non-discretionary bonuses-referred to as “earned” bonuses-are awarded as part of a work-performance policy, an employment contract, obligation, or an understanding between employees and the employer. These bonuses may be associated with work performance measures, with reaching revenue or sales targets, productivity, or other pre-determined measure.

Significantly, all earned bonuses are treated as wages for purposes of the California Labor Code Section 200, since they are an obligation the employer assumed when the employee met their agreed to performance measure. This is significant for several reasons.

  1. Bonuses Factor Into Overtime Pay – The California Division of Labor Standards Enforcement requires that an employee’s overtime is calculated and paid based on the employee’s “regular rate” of pay. This regular rate equals an employee’s base salary, in addition to non-discretionary bonuses. This is important because it means that bonuses make your overtime pay higher.
  2. Bonuses Must be Timely Paid – Since your earned bonus is treated as wages, you are entitled to timely payment of your bonus, pursuant to Labor Code 204. In addition to timely payment, you bonus must appear on your pay statement and is subject to withholding taxes.
  3. Your Bonus if Protected Even if You Are Terminated – Upon termination, you are entitled to payment of your earned bonuses. California Labor Code 201 states that: “If an employer discharges an employee, the wages earned and unpaid at the time of discharge are due and payable immediately.” Further, if an employee quits, they are entitled to all of their unpaid wages, including unpaid bonuses, within 72 hours of their last day, unless they have given 72 hours notice, at which point payment is due on their last day.

The word "bonus"

Call Moss Bollinger

If you are being denied your earned bonus, and your employer refuses to fulfill its obligations, you need an attorney. The California Labor Code offers you strong protections for your right to receive your hard earned money in a timely manner. Contact us today so that we can evaluate your claim. Moss Bollinger is dedicated to employees who want to enforce their legal rights against their employers. We charge no fees up front and do not get paid unless you do. Call Moss Bollinger today at (866) 535-2994 for a free consultation or reach us online.

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