An Approach To Thinking About Discretionary vs Non-Discretionary Pay In California

A common question that we are often asked as the holiday season approaches is how must employers treat holiday bonuses, and are such bonuses subject to overtime calculations.  The key questions to determine is whether or not the bonus is a non-discretionary versus discretionary bonus.

While California does not have a definite answer as to  what is or is not non-discretionary , YourvirtualHR has come up with a simple concept to consider: is the bonus payment considered “earned” or not, meaning did the employee have to somehow qualify in order to get the bonus. Applying this concept should help employers determine whether or not a bonus is discretionary, and thus subject to overtime calculations.

Here are some questions for employers to consider:

  1. Do employees have to qualify for the bonus, i.e. earning/qualifying for the bonus is based on factors such as service years or performance. (If the answer is yes, then it is possible the bonus is non-discretionary;
  2. Is there a written bonus formula that is provided to employees, which includes the specifics of how they will earn the bonus? If yes, consider some examples and additional questions below in determining whether or not a bonus is “earned”:
    1. A policy that states that every year in December and an employee will receive a $100 bonus and/or receive a bonus that is paid at a certain time, could be considered earned and non-discretionary;
    1. A policy that states “Because our employees are valuable part of the company, from time to time, the company may evaluate and possibly grant a discretionary bonus or provide other perks or events to employees, amounts, details, and timing of payments are determined and/or paid at the sole and absolute direction of the employer” can probably be considered discretionary because there are no qualifications as to how the bonus is earned;
    1. A company decides that in December 2018, in order to show appreciation for everyone’s hard work, and a bonus will be paid in the amount of “x” for all employees. This could be considered discretionary.  Then in December 2019, the company decides that another amount “x” will be paid around the same time, as the company had a profitable year.  In December 2020, the company does not do as well and so offers a company luncheon to thank everyone but no bonus.  This is probably a discretionary bonus.
    1. Do all employees receive the same bonus regardless of performance or length of service, position, etc., or do employees have to qualify for the bonus? For example, do employees have to pass a probationary period, not be written up, be in good standing, or perform according to a certain standard? If there are qualification requirements, then the bonus could be considered a non-discretionary bonus because the employee has to “earn/qualify” in order to receive the bonus;
    1. Is the amount of bonus significant. For example,  $100.00 versus one month at the employee’s regular pay.  If it is significant, it could be considered a non-discretionary bonus.  (However, this is a very gray area. We have not not encountered any issues with the amount of payment, but rather the consistency and fairness of the payment in question).

Before you create a discretionary bonus policy, at least consider these factors and always consult with your employment law attorney to make sure you are in compliance with California’s overtime laws as they apply to discretionary bonuses.

For any questions about implementing an polices and how YourVirtualHR, Inc. can help,  please give us a call at Toll Free 1-562-888-0126 or email for more information.

DFEH Settles Disability Discrimination Case Against County of Los Angeles Involving Pre-Employment Physicals

The California Department of Fair Employment and Housing (DFEH) has settled an employment discrimination case with the County of Los Angeles involving two complainants who were allegedly denied or delayed positions with the County due to the County’s pre-employment medical examination requirements, which the DFEH alleged were overly broad. According to the DFEH’s complaint, one of the complainants was denied a position with the Los Angeles County Sheriff’s Department for more than 4 years because during her pre-employment medical exam she revealed that she had a thyroid condition, although she did not have any restrictions on her ability to perform the job. The other complainant was allegedly denied a position with the County when he revealed during his pre-employment medical exam that he had a prior knee injury although he too did not have any work restrictions. As part of the settlement, the County agreed to amend its civil service rules about pre-employment medical examinations and will overhaul its medical examination process to only consider medical information that is directly relevant to the job being applied for. The County will also pay a total of $560,000. Of that, $410,000 will be paid directly to a complainant and $150,000 to the DFEH for fees and costs. (The second complainant previously resolved the financial aspect of his case.)

For more about this article, read here.


DOL Investigation Recovers $3.5 Million In Back Wages And Benefits For Employees

The Department of Labor (DOL) is reporting that a company, California Cartage Company LLC, which is based in Long Beach, California, will pay $3,573,074 to 1,416 employees after the DOL found the company violated federal contract provisions of the McNamara-O’Hara Service Contract Act (SCA).  Investigators allege that California Cartage Company LLC violated the SCA by failing to pay prevailing wages, and required health and welfare benefits, to employees for work performed at a Centralized Examination Station operated for the U.S. Customs and Border Protection (CBP) at the Port of Los Angeles/Long Beach. Investigators also allege the company failed to apply the SCA clauses and wage determination to contracts for five subcontractors, which resulted in the subcontractors’ failure to pay required prevailing wages and fringe benefits to their employees as well. The contract required certain hourly rates, depending upon the positions workers held, and also required the payment of fringe benefits, holiday, and vacation time.

Read here for more details about this lawsuit.

Helpful Tool For Employers on Pay Equity Compliance

SB 358, California’s Fair Pay Act (Labor Code § 1197.5): requires that men and women receive equal pay for substantially similar work even if they work in different locations. The legislation was passed in 2016. In response to this, in particular to assist with implementation of the new law, the California Commission on the Status of Women and Girls created the California Pay Equity Task Force.  The Task Force has issued extensive guidance for employers including, “Tips for Pay Equity Compliance”, “Step by Step Pay Equity Evaluation”, and “How to Promote Pay Equity Culture.”

Read more about this helpful tool here.


EEOC Releases Preliminary FY 2018 Sexual Harassment Data

The U.S. Equal Employment Opportunity Commission (EEOC) has released its FY 2018 sexual harassment data today – highlighting its work over the past fiscal year to address the pervasive problem of workplace harassment. What You Should Know: EEOC Leads the Way in Preventing Workplace Harassment details the EEOC’s efforts to enforce the law, to educate and train workers and employers, and to share its expertise on new solutions to reduce harassing conduct in the workplace. Based on preliminary data, in FY 2018, the EEOC filed 66 harassment lawsuits, including 41 that included allegations of sexual harassment and recovered nearly $70 million for sexual harassment claims through litigation and administrative enforcement in FY 2018, up from $47.5 million in FY 2017.

For more about the report read here.