What constitutes an earned bonus under the Wage Payment and Collection Act?
Section 2 of the Wage Payment and Collection Act provides: “Payments to separated employees shall be termed ‘final compensation’ and shall be defined as wages, salaries, earned commissions, earned bonuses, and the monetary equivalent of earned vacation and earned holidays, and any other compensation owed the employee by the employer pursuant to an employment contract or agreement between the two parties.”
Section 5 of the Act provides: “Every employer shall pay the final compensation of separated employees in full, at the time of separation if possible, but in no case later than the next regularly scheduled payday for such employee.”
Section 300.500 of the Act’s administrative rules, 56 Ill. Adm. Code 300.500, provides as follows: a) A claim for an earned bonus arises when an employee performs the requirements for a bonus set forth in a contract or an agreement between the parties; b) A former employee shall be entitled to a proportionate share of a bonus earned by length of service, regardless of any provision in the contract or agreement conditioning payment of the bonus upon employment on a particular date, when the employment relationship was terminated by mutual consent of the parties or by an act of the employer through no fault of the former employee.
An employee has a right to an earned bonus when there is an unequivocal promise by the employer and the employee has performed the requirements set forth in the bonus agreement between the parties and all of the required conditions for receiving the bonus set forth in the bonus agreement have been met.
Likewise, a length of service earned bonus is a type of unequivocal bonus for which an employee has a right depending on how the employee’s employment is terminated. For example, if an employee voluntarily leaves employment, prior to completing the required period of service, the employee is not entitled to a pro rata share of a length of service earned bonus.
Does the Act cover any claim for a discretionary bonus?
No, the Act does not cover any claim for a discretionary bonus.
- Example 1: An employer promises an employee to continue employment from January 1, 2012 through December 31, 2012, and the employee will receive a $500.00 bonus. Employee voluntarily resigns employment on November 30, 2012 and seeks a proportionate share of the $500.00 bonus. This is not an earned bonus since the employee voluntarily resigned employment before completing the 2012 year.
- Example 2: An employer promises an employee to continue employment from January 1, 2012 through December 31, 2012, and the employee will receive a $500.00 bonus. Employee is laid off on November 30, 2012 due financial difficulties of the company and seeks a proportionate share of the $500.00 bonus. This is an earned bonus since the employee separated due to no fault of her or her own and is entitled to a pro rata share of the earned bonus.
- Example 3: An employer promises to pay an employee a $1,000 bonus if the company exceeds profits by 2% in calendar year 2012 and as long as the employee does not violate any company policies during the 2012 year. Company exceeds its profits by 2%, however, the employee has been disciplined for abusing the company’s credit card policies. Employee separates employment in 2013 and seeks his or her $1,000.00 bonus. This is not an earned bonus since while the bonus was unequivocal promise to pay, the employee did not meet all the requirements set forth in the bonus plan due to violating company policy regarding credit card use.