Can An Employer Legally Withhold My Bonus in California?

Many employees in different industries in California earn a significant portion of their living from bonus pay, sometimes referred to as “incentive compensation.”

But few employees have a clear understanding of their rights and legal options when disputes over unpaid bonuses arise with their employers. 

On this page, we’ll walk through what rights and protections California’s state law offers around employee bonuses.

We will also address some common questions that employees have about their rights to this kind of compensation, and describe the avenues for legal action if a dispute over unpaid bonus pay arises.

If you have questions, please contact us online or call 213-204-8002.

What Does California Wage Law Say About An Employee’s Right To A Bonus? 

California law groups bonuses into two different categories: “earned” bonuses and “unearned” bonuses. The law takes a very different stance on an employee’s right to a bonus depending on which type the payment falls under. 

According to California Labor Code, an “earned” bonus is a payment promised to an employee by their employer as compensation for achieving certain performance goals.

The amount of the bonus payment can be variable, but the method of calculating it should be known by the employee in advance.

This is often detailed in a clause in an employment contract, as a percentage of your base salary with an additional multiplier linked to stated performance objectives: e.g., closing a certain number of sales, or reaching set production benchmarks. 

Beyond the employment contract, the terms of a bonus could also be lined out in a separate document or “bonus agreement” given to you by your boss. 

What’s important here is that the bonus is based on an agreement between you and your employer: if you achieve certain outcomes, you’re entitled to compensation for it.

For this reason, earned bonuses are often referred to as “non-discretionary bonuses.” They’re based on known factors — whether subjective or non-subjective — not the whim or generosity of your boss.

What Kinds Of Bonuses Are Not Protected Under California Law? 

Bonuses that are considered “unearned” or “discretionary” are not protected by California labor law in the same way (as earned bonuses).

That’s because these types of bonuses are issued entirely at your employer’s discretion and are not considered an integral part of your earned compensation. 

A holiday gift is a common example of a discretionary/unearned bonus. It might be traditional or expected for employees to receive a little extra pay at the end of the year, but this type of bonus is nonetheless entirely up to your boss’s generosity.

Even when it comes to certain special occasions — e.g., a celebration bonus when the company has a particularly successful year — these payments are still considered unearned.

Ultimately, the decision to offer the bonus, as well as when and how much employees are paid, is totally at the discretion of the employer.

Because of this, employees who leave their company (willingly or unwillingly) before a discretionary bonus is paid aren’t entitled to that money.

If you know your boss is generous with Christmas gifts, but you still quit your job in November, you don’t have a legal claim to that bonus as unpaid compensation.

When Are California Employees Entitled To Unpaid Bonus Payments?

In California, all “earned” bonuses are effectively treated as part of an employee’s wages. Legally, this means that employers must follow the same rules and regulations that they do for an employee’s regular earned wages or salary. This includes that:

  • Bonuses must be paid in a timely manner.
  • Bonuses should appear on your pay statement. 
  • Bonuses are subject to tax withholding. 
  • All unpaid earned bonuses should be paid within 72 hours after your last day of work.

Importantly, employees who are terminated or leave their positions do have the right to recover promised but unpaid non-discretionary (earned) bonuses.

For example, if a software company holds layoffs in November, the engineers expecting earned bonuses to be paid out in December could still be entitled to a prorated portion of their annual earned bonus payment.

To be eligible to recover that payment, though, those employees must demonstrate that they’ve met their company’s stated performance objectives during the 11/12 months of the year that they worked.

What Do I Need To Prove That I’ve Earned My Non-Discretionary Bonus? 

If there’s a dispute between you and your employer about an outstanding bonus payment, the burden will fall largely on you to show:

  1. A bonus was agreed upon.
  2. The bonus was linked to a measurable performance outcome.
  3. You achieved that performance outcome.

This can be challenging, though, when there’s ambiguity around the terms of the bonus agreement, especially if it’s not laid out clearly — or even in writing. 

Although these agreements are often written into employment contracts, they can also take the form of oral promises.

For example, when you were hired, maybe you and your boss verbally agreed that you’d receive a substantial annual bonus for producing a certain benchmark revenue each year.

Even if the agreement wasn’t put in writing, if you’ve met that goal and been paid for it for the past 10 years, you could have grounds for demonstrating that the earned bonus agreement was based on an implied contract. 

In cases where there’s ambiguity around the existence of a bonus agreement, or its terms, it’s best to seek the advice of an employment attorney.

An expert in California’s labor law can assess a written or oral agreement and advise you on how to demonstrate that you’re entitled to a legitimate non-discretionary bonus.

What Happens If My Company Refuses To Pay My Earned Bonus After I Leave?

Since earned bonuses are considered wages under California law, it’s illegal for employers to withhold payment or make unauthorized deductions from them.

Doing so is considered a form of wage theft, and companies that perpetrate it can be liable for civil penalties under California law. 

Employees who have not received promised bonus payments in accordance with California’s wage payment regulations can file a wage claim with the Labor Commissioner’s Office.

This administrative complaint initiates an investigation, followed by a settlement conference held between you and your employer.

If the issue of unpaid wages can’t be resolved at that time, the Labor Commissioner’s Office will hold a hearing to review the evidence and make a decision about payment.

You can also recover unpaid bonus payments in civil court with the aid of an employment attorney. Unfortunately, sometimes employers will allege that you didn’t earn your bonus or that it was “discretionary.”

In these cases, an experienced lawyer can help you show evidence of an implied promise by your employer and that you’re owed legitimate compensation for your work. 

Get in Contact with a California Bonus Dispute Lawyer Today

Ottinger Employment Lawyers have been advocating on behalf of employees for over 20 years. We’ve helped California employees across industries navigate the wage claim process and seek just compensation in civil suits.

If you work in California and are concerned about an unpaid bonus or wage violation, contact our office today to discuss your case and how we can help you.