A paycheck is your employee’s carrot to do good work. You can sweeten that carrot with a well-timed bonus. Many practices use discretionary and non-discretionary bonuses to retain team members and keep them actively engaged with their work, but there are a few rules about how you can distribute them. Bonuses impact regular compensation as well as overtime calculations, and the type of bonus matters. So what is the difference between discretionary and non-discretionary bonuses?
Just Like it Sounds: Discretionary Bonuses are Up to the Employer
A discretionary bonus has no strings attached. You can give them for a reason, but that reason isn’t a pre-defined metric or expectation that the employee knows they can earn. A discretionary bonus has the following characteristics:
It’s based solely on the employer’s discretion.
- If you like the performance of your dental assistant, you could give them a bonus. If your practice had a really good year and you want to share profits with your team just this once, you can. But nobody expects you to do this. That’s what makes it discretionary.
It’s a non-recurring giveaway.
- Nothing in the law requires you to continue giving any particular discretionary bonus. It can happen once, twice, or 50 times. The value may change, too.
There is no expectation of payment.
- While a culture of bonuses may exist in your practice, a discretionary bonus by law creates no assumption that payment will come.
Examples of discretionary bonuses include employee of the month, a wedding gift, a one-time bonus for going above and beyond during an emergency, severance (when not required by law), or a refer-a-friend bonus. By the way, referral bonuses are typically discretionary, but only if participation is strictly voluntary, it’s not a big lift for your employees, and it happens outside the workplace. The DoL goes into greater detail on all of this.
Non-Discretionary Bonuses are Predictable and Expected
If a discretionary bonus is completely up to the employer, then what is a non-discretionary bonus? Simply put, a non-discretionary bonus is predictable and expected if an employee meets certain goals. Here are a few important things to keep in mind:
It’s determined through the employee’s service, productivity, or efficiency.
- For example, perhaps your dental practice provides a bonus of $1,000 if employees have 95% attendance in a given year. If an employee has 95% attendance in a year, guess what? You must give that $100 bonus. That is an example of a non-discretionary bonus. (Notice the different structure compared to the discretionary one-off performance bonus example.)
It’s predetermined by specific criteria that are known to both employer and employee.
- Perhaps your policies state that if your optometry practice nets $100,000 in revenue in a month, then everyone on the team receives $100 in a bonus. Maybe your practice is extremely committed to patient safety, and you plan to reward your team if they hit certain QMS metrics each quarter. Some bonuses are employee-specific, but they’re still clearly defined between you and your employee.
If it’s a non-discretionary bonus, there’s no guesswork as to what’s required to earn that bonus. It’s written clearly for both employer and employee to see. These can be defined in the employment contract, employee handbook, or posted somewhere in your practice. It’s not a secret, and everyone eligible has the opportunity to work toward specific goals.
Use Bonuses to Boost Office Morale
When done properly, both discretionary and non-discretionary bonuses can be extremely useful tools. They can be used to incentivize behavior that goes above and beyond the call of duty, boost office morale, and reward employees who do excellent work. Of course, when done wrong, they can have the opposite effect.
Regardless of the type of bonus you offer, you should always make sure that you communicate when a bonus is to be expected, why it has been earned, and the rationale behind each bonus that is given.
How to Give Discretionary and Non-Discretionary Bonuses Legally
If you’re offering a bonus to your employees, it’s probably non-discretionary. Under the Fair Labor Standards Act (FLSA), very few bonuses truly count as discretionary. The reason is that most bonuses are used as motivators to achieve something specific, which inherently makes them non-discretionary.
For any type of bonus, you should always be able to clearly communicate the “why” behind any differences in the amount to avoid claims of unfair or discriminatory treatment.
And then there’s the compliance part. Non-discretionary bonuses are expected, and therefore they need to be factored into your employee’s regular rate of pay. You’ll need to know that figure when calculating overtime.
Always classify your bonuses correctly, even if that makes overtime more expensive or more complicated. It’s the law.
How HR for Health Can Help
Both discretionary and non-discretionary bonuses can be fantastic tools for employee motivation and engagement. The trick is doing them correctly. For that, you’ll need:
- A precise timekeeping system
- On-point payroll
- Clear policies and documentation
- Performance review management
- Compliance support when you get stuck
And you’re in luck! HR for Health has all these features, designed specifically for health and dental practices. These systems all talk to each other automatically, so you can always stay compliant.
