Must we prorate bonuses for employees who missed work while out on FMLA leave?
Q. Many of our employees are eligible for a bonus at the end of each year if they meet specific yearly sales goals. Are we required to prorate the bonus for employees who fail to meet their goals because they took FMLA leave during the year?
A. Employees that take FMLA leave are entitled to return to the same or an equivalent position with equivalent benefits, pay and other terms and conditions of employment. Equivalent pay can include pay increases, premium pay and—in certain circumstances—bonuses.
Until recently, the conventional wisdom was that employers should prorate both bonus eligibility and the bonus itself to account for employee’s use of FMLA leave. But, the 2008 changes to FMLA regulations made clear that employers are not required to award bonuses to employees that take FMLA if the bonus is based on achieving a specified goal, and the employee fails to meet the goal due to FMLA leave. The regulations list hours worked, products sold and perfect attendance as examples of goal-based bonuses that don’t require prorating.
However, if an employer pays a bonus to an employee who took non-FMLA leave of similar duration and who failed to meet the goal, it may not deny the bonus to an employee who failed to meet the goal due to FMLA leave.
For a variety of reasons, including morale and recruiting, some employers may still wish to prorate goal-based bonus eligibility and awards. That’s fine, as long as they do so in a nondiscriminatory manner.