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• #Discretionary expenses how to

To make it easier to understand which commonly awarded bonuses are considered nondiscretionary, here is a list to consider:

#Discretionary expenses how to

Related: How To Be Successful in Middle Management Examples of nondiscretionary bonuses On the other hand, discretionary bonuses do not need to be factored into overtime pay. Even if the amount of a bonus being paid is left to the employer’s discretion, if the employer sets goals or standards in advance of the payout, the bonus is considered nondiscretionary pay.Įven if the nonexempt employee received a year-end bonus, it must be apportioned back into the workweeks in which it was earned to re-calculate any additional overtime pay that is owed to the employee for the period the bonus covers. This means that if a nonexempt employee receives a nondiscretionary bonus during a pay period and the hourly rate is raised, this type of payment must be factored into the overtime pay calculations for the period of time covered by the bonus. Nonexempt employees must be paid one and a half times their hourly rate for hours worked beyond 40. Exempt employees are given a salary and are expected to complete the tasks required for their job, regardless of how many hours it takes. Under the FLSA, certain types of bonus payments to nonexempt employees can retroactively raise their “regular rate” of pay, resulting in additional overtime pay due. The Fair Labor Standards Act (FLSA) is a federal law that establishes overtime pay eligibility for employees. Why discretionary and non-discretionary bonus pay matters An example of this is an incentive pay plan, which provides bonuses for employees who exceed productivity or performance goals. The employer predetermines the criteria and the employees expect to earn the bonus if they meet the criteria. Unlike a discretionary bonus, the nondiscretionary bonus does have specific criteria the employee must meet to qualify for the bonus.

Difference between a discretionary and nondiscretionary bonus The key to discretionary bonuses is that the employer has not set an expectation that a bonus will be paid if certain goals are met and the amount and timing of the bonus are not given in advance. Related: Guide To People Management: Definition, Tips and Skills What is a discretionary bonus?Ī discretionary bonus is one given at the sole discretion of the employer and is not expected by the employee. In this article, we explain the difference between discretionary and nondiscretionary bonuses, why understanding the difference is important for employers and some tips for reducing the burden of recalculating overtime pay. Identifying which type of bonus is best for your organization can take some time and research. Choosing the right option for your business can save you significant time and money at the end of the year and allow you to avoid any unnecessary challenges regarding overtime pay. Understanding the difference between nondiscretionary and discretionary bonuses can help you decide whether to include an incentive pay plan for nonexempt employees.