Year end performance reviews and bonuses are often sensitive. Bad performance reviews are always tricky. They are particularly tricky when the employee having performance difficulties is a member of a protected class. Though risks cannot be completely eliminated, there are a few key ways to handle those situations and minimize risk.
First, any negative feedback contained in a performance evaluation should be supported by a manager's documentation of the issue when it arose. Second, negative feedback should be based on objective criteria, not subjective factors that may be easily influenced by prejudice and discriminatory intent. Third, if an employer is concerned that an employee may interpret a negative review with salary or other material implications as employment discrimination, it is always helpful to involve an attorney experienced in employment law to review the situation with fresh eyes and provide advice as to how to proceed.
Bonuses can also provide a host of employment law risks but if handled properly, can be a great way to motivate staff and earn employee loyalty. One consideration with bonuses is to ensure that employees in protected classes are generally treated like those who are similarly situated to them in rank and duties. If there is a discrepancy, there must be a very good reason for it other than the class status. In addition, the reasons for the differential treatment should be well documented and based on objective criteria.
Bonuses can also have wage and hour law implications. If a non-exempt employee receives a bonus that can be interpreted as non-discretionary (meaning that they earned it based on performance goals, productivity or other criteria), then the employee will be entitled to an adjustment to his or her base rate for overtime calculations made over the period in which the bonus was earned. If the bonus is earned over a year, then, the bonus would need to be pro-rated into the employee's hourly rate over that time period. Any overtime worked would have to be adjusted accordingly and a small additional amount of overtime pay should be paid. There are programs that assist employers with such calculations. If a bonus is entirely discretionary, however, an employer will not need to engage in that calculation. If an employer is not sure about whether a bonus meets the "discretionary" criteria, they should obtain legal guidance.
A final area that can cause trouble with bonuses arises when an employee leaves at bonus time and an employer doesn't want to pay the bonus. If the bonus is "earned" at the time of the departure, then it must be paid. Clear policies regarding bonuses that require employment as of the date a bonus is paid can address this issue and protect employers.
If navigated properly, the year end Holiday Season may be a time of joy and prosperity for employees and employers. However, this often requires the assistance of preventative counseling with an experienced employment law attorney to avoid potential pitfalls.
