Were Your Employees Naughty or Nice? Year-End Bonuses

In one of the most fantastic Christmas movies ever made (for those of you with a sense of humor, that is...), Clark Griswold is so upset by the fact that his Christmas bonus is a one-year membership in the Jelly of the Month Club instead of the cash he was counting on to build his family a swimming pool that he loses his temper - cursing his boss, Clark adds that if anyone needs a last-minute gift idea, he should bring him his boss tied up on a bow.  Clark's Christmas wish is granted by his crazy cousin-in-law, after his crazy cousin kidnaps his boss.

Among other important holiday lessons, National Lampoon's Christmas Vacation teaches us that year-end bonuses can raise a host of problems.  Here are a couple to consider as you head into the last few weeks of the year:

Forgoing or Reducing Year-End Bonuses 
If your company usually provides year-end bonuses, but is forgoing them or reducing the amount of the bonuses to save cash this year, expect some upset employees.  Cookies, anyone?

Upset feelings aside, you are not required to give out bonuses each year, nor are you prevented from changing the amount, so long as your company does not have an established bonus plan or employee contracts that obligate you to pay year-end bonuses or pay bonuses in a specified amount.

If your company does have an established bonus plan, or is contractually required to provide them to certain employees, failure to meet the plan or contractual obligations may expose your company to liability for breach of contract and/or liability for unpaid wages.   In addition, if you customarily provide employees with bonuses every year, it's possible that your employees may be able to claim that you breached an implied contact to provide bonuses.  Because of the potential legal liability involved in straying from your company's usual bonus practices, it's a good idea to review these issues carefully before making any final decisions, especially since unhappy employees are more likely to bring a lawsuit.

Including Bonuses in Overtime Pay Calculations

If your company is providing year-end bonuses this year, remember that under certain circumstances, bonuses should be included in your non-exempt employees' regular rate of pay when calculating their overtime rates.  Generally, bonuses that are discretionary and paid purely as gifts for past services do not need to be included when calculating your employees' regular rates of pay.

Bonuses that are measured by or dependent upon an employee's hours worked, production, or efficiency, on the other hand, must generally be included his or her regular rate of pay for purposes of calculating overtime pay. Other types of bonuses that must generally be included in overtime calculations include bonuses based on duration of service, bonuses promised at the time of hire, and bonuses that are so significant that they could be construed as part of an employee's overall compensation.  Understanding your overtime pay obligations as they relate to bonuses is important since failure to do so can result in unpaid wages, exposing you to legal liability.

Concerned your employees are plotting to kidnap you? Don't worry, it's just a movie!

Important Must-See Moments from National Lampoon's Christmas Vacation
Lastly, and most importantly, in case you've somehow missed National Lampoon's Christmas Vacation, you can watch the flip-out/kidnapping scene here: http://www.youtube.com/watch?v=M55m81BWdBc; or watch a montage of some of the best scenes here: http://www.youtube.com/watch?v=Cd0wMTx-8Tk&feature=related.

For specific advice about how laws governing bonuses apply to your company, please consult a California employment law attorney.