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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.
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