While we may all look back and laugh at Clark Griswold from National Lampoon’s Christmas Vacation and his meltdown from not receiving a Christmas bonus, that may be a very real scenario for many employees this year following the struggles the COVID-19 pandemic brought to most employers.
Although canceling employee bonuses is a great setup for a comedy, year-end bonuses can lead to legal snags that are no laughing matter for employers. Under Kansas wage payment laws and general principles of contract law, employers are legally obligated to pay bonuses when employees meet the requirements to become eligible for and earn them. Simply put, employers must own up to promises they make to employees about pay.
For example, if you tell employees at the beginning of the year that you will pay them a holiday bonus of a set amount at the end of the year, you must pay the bonus to employees whose employment continues throughout the year. However, a past practice of giving discretionary Christmas bonuses does not give rise to a legal obligation to pay bonuses of a particular amount, or at all, in subsequent years. That seems simple enough. But, employers can unwittingly create a legal obligation if they include a Christmas bonus in an itemized list of compensation and benefits in an offer letter or annual compensation statement.
Year-end bonuses based on individual, department, or company productivity goals or profits can also create legal headaches. The key is to have clear, well-written bonus policies that pass legal muster. For example, how do you handle employees who work part of the year but are no longer employed at the end of the year or at the time bonuses are paid? If your policy is not clear, those employees may be entitled to a prorated payment for the time they worked. In addition, laws in Kansas and many other states preclude the forfeiture of earned wages. Thus, it's essential that your policy is clear that a bonus has not been earned, and employees thus have no right to payment, unless all criteria have been satisfied.
As I spend the Christmas season worried that my cat will get electrocuted by the Christmas tree, make sure you don’t worry about the implications of a Christmas bonus.