HR and Employment Law Topics
Bonus Payments (including Incentive Compensation)
National Summary
Many employers offer their employees various types of
bonuses—including performance awards, gain-sharing systems, and profit
sharing. While bonuses are generally used to reward performance, awards
are not directly tied to job performance and are usually offered for
perfect attendance, for providing new hire referrals, to recognize
an outstanding employee, to motivate employees to work safely, or
to reward employee suggestions. There are various legal and tax considerations
for employers giving awards and bonuses to their employees. Promised
bonuses may be construed as contracts by the courts, while the Fair Labor Standards Act (FLSA) requires employers to
count nondiscretionary bonuses in an employee's regular rate of pay
for the purpose of calculating overtime.
Summary for [Your State]
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