Which statement about discretionary bonuses is true?

Which statement about discretionary bonuses is true?

• A. The employer has sole discretion to determine whether to pay the bonus until near the end of the period that corresponds to the bonus.
• B. The employer has sole discretion to determine the amount of the bonus, but payment is guaranteed by contract.
• C. The bonus payment is not made according to any prior contract causing an employee to expect such payments regularly.
• D. The bonus is discretionary only if all three statutory requirements are met, including discretion to pay and amount near the end, and not promised by contract.

Answer: (D)

Discretionary bonuses are not guaranteed unless the employer truly keeps all key flexibilities intact. For a bonus to be considered discretionary, three conditions must be present: the employer has the sole discretion to decide whether to pay the bonus; the employer has the discretion to determine the amount of the bonus; and there is no contract or written promise requiring payment. Usually, these decisions are made near the end of the bonus period to ensure the bonus remains optional rather than a wage-like obligation. If any one of these elements is missing, the bonus can become non-discretionary and treated more like wages. For example, if there is a contract promising payment, or a fixed formula, the amount is no longer purely discretionary; or if the employer’s discretion to pay isn’t clear and near the end of the period, the arrangement may not fit the discretionary model. Regular, predictable payments can also create an implied obligation even without a written contract, which undermines true discretion. That’s why the statement noting that a bonus is discretionary only if all three conditions are met is the correct one.

Discretionary bonuses are not guaranteed unless the employer truly keeps all key flexibilities intact. For a bonus to be considered discretionary, three conditions must be present: the employer has the sole discretion to decide whether to pay the bonus; the employer has the discretion to determine the amount of the bonus; and there is no contract or written promise requiring payment. Usually, these decisions are made near the end of the bonus period to ensure the bonus remains optional rather than a wage-like obligation.

If any one of these elements is missing, the bonus can become non-discretionary and treated more like wages. For example, if there is a contract promising payment, or a fixed formula, the amount is no longer purely discretionary; or if the employer’s discretion to pay isn’t clear and near the end of the period, the arrangement may not fit the discretionary model. Regular, predictable payments can also create an implied obligation even without a written contract, which undermines true discretion.

That’s why the statement noting that a bonus is discretionary only if all three conditions are met is the correct one.