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'Tis the Season...for Employee Relations Nightmares?

Guest post by: Jennifer Loftus

Article Overview: This issue of Astronology will feature an article from the archives. We'll be back with a brand new edition on January 12th.

'Tis the Season...for Employee Relations Nightmares?

It's the holiday season. Employees' thoughts turn to visions of the large cash bonuses they have come to expect year in and year out. Potential employee relations nightmares include numerous aspects of holiday bonuses. Let's explore. First, what are potential legal issues in providing year-end or holiday cash bonuses? Epstein, Becker & Green, P.C., as quoted on workforce.com, state that employers may legally pay discretionary bonuses to employees. The biggest issue to be aware of is discrimination claims. While an employer can give an employee any bonus it wants for any reason, an employer may not award bonuses on the basis of an employee's protected characteristics, such as gender, race, or national origin.

There are two kinds of potential bonus discrimination. First is the obvious intentional discrimination, such as providing a bonus only to white males. More difficult is adverse impact discrimination, in which discretionary awards are distributed unequally between protected and non-protected employee classes. Be sure discretionary bonus policies are applied in a non-discriminatory fashion and do not result in statistically significant adverse impact.

Bonuses can also impact wage and hour issues. Providing discretionary bonuses to exempt employees based on hours worked could put the exemption status in jeopardy. For non-exempt employees, the employer must be sure the discretionary bonus is clearly discretionary - the non-exempt employee had no anticipation of receiving it, and the bonus is not tied to hours worked. Otherwise, Fair Labor Standards Act (FLSA) overtime rules apply to this bonus.

A third issue is worker's compensation liability. If the year-end or holiday bonus is based on an uninjured worker's tenure at the company throughout the previous year, the bonus may be prorated over the entire year, not just the quarter in which it is paid, for purposes of calculating the injured worker's average weekly wage. This ruling was decided in Kiebler v. Workers' Compensation Appeal Board, Commonwealth Court of Pennsylvania, No. 2113, C.D. June 16, 1999. If a year-end bonus is based on employment throughout the prior year, make it clear to employees. An organization may be able to prorate the bonus over the entire year for the purpose of calculating workers' compensation benefits.

Another issue to address is the impact of a weak economy. It is especially challenging to motivate staff during a weak economy. Fewer dollars are earmarked for bonus programs. It is very difficult for management to permit the payment of a year-end or holiday bonus during slow times.

The problem is one of confusing bonuses with compensation. The intent of a year-end or holiday bonus is to provide a way for the organization to say thank you to employees for their collective efforts over the past year. Holiday bonuses were never intended to become the yearly compensation entitlement employees look forward to as a way to pay off holiday expenses. But that is what they have become.

According to InMarketing, an incentive recognition company in Mahwah, NJ, "when you pay people for doing a good job, it becomes part of their salary expectation. A gift, however, is a luxury separate from compensation that shows respect and commends accomplishment."

For those with limited budgets, the use of gifts may be a viable alternative. According to Pat Zingheim of Schuster-Zingheim and Associates, Inc., "if you create a recognition program that is fun and makes a big deal of successes, people will get excited abut it." Remember, it doesn't have to be about the value of the gift. It's about the celebration and recognition that go with it. It shows employees they're appreciated, and gives them a symbol of that recognition.

Issues to address in developing your alternative year-end bonus program include the following:

1. Understand the message. What are we attempting to communicate to our employees? Is it a thank you for a great year? Is it a way to recognize the fact that they hung in there during a rough year? Take advantage of the moment and send the right message.

2. Pick the right gift. Take time to investigate what is important to your employees. In a community facing an economic downturn, perhaps a gift that can be used by the employee and their family would be valuable - gift certificates to a local food store, for example.

3. Who is to be included? Are all levels of the organization eligible for the gift? What about part-time employees and management? How you determine this also sends a message. Many organizations make the mistake of limiting the holiday or year-end recognition to non-management staff. If the goal is to thank everyone, then all should be included.

Regardless of the method and all the legal precautions you take, year-end or holiday bonuses are always difficult to administer. These bonuses do very little for organizations that do not regularly recognize employees. There are always some employees who feel they should get more than others due to their individual contributions. There are others who have come to count on the cash and are upset when a gift is substituted. These issues become non-issues if the organization consistently communicates organization-wide successes and failures throughout the year.

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Article Tags: adverse impact, cash bonuses, compensation liability, discretionary awards, discretionary bonus, discrimination claims, employee relations, epstein becker, exempt employee, exempt employees, fair labor standards act, flsa overtime rules, gender race, holiday bonus, holiday bonuses, holiday cash, intentional discrimination, labor standards act, national origin, wage and hour



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