Recovering a sign-on bonus: Here are some legal guidelines for employers

Q       A new hire was given a $5,000 sign-on bonus but has been a no-show for numerous days, and we haven’t been able to contact them. Can we withhold and/or deduct from this employee’s final paycheck to recoup some of the sign-on bonus?

Whether you can deduct from this employee’s final check to recoup some of the sign-on bonus depends on whether the bonus is structured as a discretionary or nondiscretionary bonus. Under the Fair Labor Standards Act (FLSA), discretionary bonuses are excludable from the regular rate of pay.

The Department of Labor has stated that a bonus is discretionary if it satisfies these criteria: (1) The employer has the sole discretion, until at or near the end of the period that corresponds to the bonus, to determine whether to pay the bonus; (2) the employer has the sole discretion, until at or near the end of the period that corresponds to the bonus, to determine the amount of the bonus; and (3) the bonus payment isn’t made according to any prior contract, agreement, or promise causing employees to expect such payments regularly. If the bonus fails any of these prongs, it’s considered nondiscretionary.