Many people receive bonuses on top of receiving regular salaried or hourly compensation for work performed. Bonuses often make a significant difference in the amount earned in a year. They can help an employee put a down payment on a house, save for a child’s college education, or pay off debts.
Whether a holiday reward or a performance-based payout, a bonus often represents more than money. It’s recognition, security, and momentum. And when an employer withholds it, the consequences ripple far beyond your bank account.
If you’re dealing with an employer holding onto bonus pay you’ve already earned, it’s more than frustrating. In California, it may also be illegal. Depending on the type of bonus involved, state and federal laws may protect your right to payment and give you grounds for a legal claim if your employer withholds it.
Read on to learn more about the different types of bonuses, how California law handles them, and what you should do if your boss withholds your earned compensation.
Understanding the Two Types of Bonuses
Many employers don’t realize that bonuses are grouped into two categories: discretionary and nondiscretionary.
Discretionary Bonuses
Discretionary bonuses can be part of an employee’s compensation. These bonuses are discretionary because the employer can decide to give the additional compensation based on their own judgment and evaluation of various factors. These are also referred to as “unearned” bonuses. They do not count as part of an employee’s wages or regular rate of pay. Employers also have the freedom to decide the timing and amount of the bonus. For example, employers may give bonuses for exceptional performance or to reward employees after a good financial year. They can also give a bonus for no reason at all. Essentially, a discretionary bonus is a gift the employer has the sole authority to give. It is not dependent on an employee meeting work performance metrics
Bonuses allow employers flexibility to reward exceptional work and performance at their discretion. Discretionary bonuses are mostly unplanned and unexpected, and employees should not expect them regularly. Even if the employer gives out holiday bonuses most years, it can still decide not to give them any given year.
Nondiscretionary Bonuses
A bonus is nondiscretionary if the employee has an expectation of payment and the employer lacks the authority to determine the bonus’s timing or amount. Nondiscretionary bonuses are commonly based on objective performance goals, like meeting sales targets or productivity goals. These bonuses are predetermined and typically part of a contract. An employee receives the bonus once they have met the conditions or goals. Bonuses that are nondiscretionary are also called “earned” bonuses. Nondiscretionary bonuses are considered part of an employee’s wages.
Why Does the Type of Bonus Matter?
Understanding the types of bonuses can help ensure you get what you are owed. Employers do not have to pay discretionary bonuses, and employees cannot typically seek to enforce payment. For example, if profits are down, an employer may decide it is best not to give out year-end bonuses. You may not receive that bonus even if you received one in prior years.
On the other hand, if your employer agrees to pay you a bonus based on specific conditions, and you meet those conditions, you have earned the bonus. An employer is required to pay you an earned or nondiscretionary bonus.
Employers may try to dispute that they owe you the bonus by claiming it was discretionary instead of nondiscretionary. Unfortunately, if that happens, you will be responsible for showing that the bonus was nondiscretionary by proving:
- The bonus was agreed upon,
- It was linked to a specific performance metric, and
- You achieved that metric.
This may be challenging to demonstrate, but a talented employment attorney in Los Angeles can help you review documents and prior statements from your employer to help you make your case.
Can a Company Withhold Your Bonus If You Quit or Get Fired?
With discretionary bonuses, the short answer is yes, a company can withhold those bonuses. Because discretionary bonuses are at the employer’s sole discretion and not contract- or performance-based, you will not likely be able to recover them.
An employer cannot, however, withhold earned bonuses once you have met the requirements for the bonus. Nondiscretionary bonuses are considered wages, and it is illegal for an employer to withhold payment. If you were promised a bonus for work you performed, you are entitled to receive the bonus regardless of whether you are still an employee, were fired, or quit. If your employer refuses to pay, you may have a claim for unpaid wages or breach of contract.
Note that some employer policies state that a bonus is not earned unless the employee is still employed at the time it is distributed. If remaining employed for a certain time is a requirement to earn the bonus, then the employer may withhold it if you fail to complete that requirement. Thus, if you plan on quitting, be sure to review the policies and agreements to help determine if quitting will impact your right to receive your bonus.
It is possible to recover your bonus even if you were fired. If you believe you were fired because the employer didn’t want to pay your bonus, you might have a claim against them. You may also have a claim if you were owed the bonus at the time you were fired. As long as you meet the performance criteria to earn the bonus at the time you are terminated, you may be entitled to the bonus.
What If the Bonus Is Commission-Based?
Not all bonuses are tied to performance reviews or holiday cheer. In many industries, especially sales, employers structure bonuses as commission-based compensation, tied directly to deals closed, revenue generated, or specific client milestones.
In California, commissions are legally considered wages. That means once you’ve earned the commission by fulfilling the terms of the agreement, your employer must pay it out. This holds true even if the employer calls it a “bonus.”
Here’s what helps distinguish a commission from a discretionary bonus under California law:
- It’s measurable based on work done, like a percentage of sales or accounts managed;
- It’s agreed upon in advance, typically in writing; and
- It’s not left up to the employer’s discretion.
If your employer withholds commissions after you’ve met the terms, you may have a strong claim for unpaid wages. Even worse, some companies try to reclassify commissions as “discretionary” bonuses to avoid paying them. That’s unlawful. A knowledgeable employment attorney can help distinguish between the two and fight for your rightful compensation.
Employer Holding Onto Bonus? An Employee’s Next Steps
An employer holding onto bonus payments can cause frustration and confusion. You did the work. You met the goals. But the reward your employer promised you financially and professionally is still out of reach. Whether it was a performance incentive, sales commission, or promised year-end payout, not receiving it can throw off your plans and your peace of mind. So here are a few things you can do.
Review the terms of your employment contract and other related workplace policies for any terms related to bonuses. Collect any documentation that shows your employer promised a bonus for work performed and you performed the work. This may include your contract, pay stubs, performance reviews, emails, or tax forms.
You can speak with your employer or HR department directly if you feel comfortable approaching them about the issue of your bonus. Employers are not allowed to retaliate against employees who inquire or complain about unpaid bonuses or wages internally or to any government agency.
In California, if you haven’t received payment of your promised bonus, you can submit a wage claim with the Labor Commissioner’s Office. You may also be able to file a civil suit against the employer with the help of an employment attorney.
An employee denied a promised bonus can pursue civil litigation by filing a lawsuit against the employer in court.
Contact King & Siegel LLP Today to Help You Fight for Your Bonus
You are entitled to the money you have earned. If your company is not paying a promised bonus, contact King & Siegel LLP to help you navigate the complicated situation. Our skilled California employment law attorneys are equipped to fight for the compensation you are owed.
King & Siegal LLP attorneys have graduated from some of the nation’s top law schools and have worked in the best litigation firms across the country. We are intimately familiar with handling wage cases, including recovering bonuses. Our firm has recovered millions of dollars for our clients in various employment cases. Contact us today for a consultation, and let us help you fight for your bonus.
Julian Burns King graduated with honors from Harvard Law School and founded King & Siegel in 2018. As head of the Firm’s discrimination and harassment practice areas, she champions the rights of working parents and victims of workplace discrimination and harassment. She has been recognized as a “Rising Star” by Super Lawyers annually since 2018 and has recovered tens of millions of dollars on behalf of her clients.