Discretionary Bonuses

What is Discretionary Bonuses?

Discretionary bonuses are payments made by an employer that are not guaranteed or required by an employment agreement, company policy, or prior commitment. The employer retains full control over whether to award the bonus, the amount, and the timing, making these bonuses distinct from contractual or performance-based incentives.

Why Discretionary Bonuses Matters

Because discretionary bonuses are not promised in advance, they are generally excluded from the regular rate of pay when calculating overtime under the Fair Labor Standards Act. Employers often use them to recognise exceptional contributions, reward year-end performance, or boost morale during challenging periods. To maintain their discretionary status, organisations should avoid creating patterns or expectations that could reclassify these payments as non-discretionary.