Discretionary and nondiscretionary bonuses are two options employers have for awarding additional pay to their employees. Understanding the differences between these strategies can help you decide whether to include an incentive pay plan for nonexempt employees., Non-discretionary bonuses, tied to measurable criteria, must be included in this calculation to ensure fair wages. For instance, if an employee earns a non-discretionary bonus for meeting sales targets, it must be distributed over the relevant period and added to their regular rate of pay., As the year comes to a close, questions inevitably arise related to year-end bonuses. It might be helpful to remind employers of certain rules relating to bonus payments made to nonexempt, General Rules Regarding Nondiscretionary Bonuses. The Fair Labor Standards Act (FLSA) defines “regular rate of pay” to include “all remuneration for employment paid to, or on behalf of, the employee” and the term “remuneration” generally includes nondiscretionary bonuses., This Compliance Overview covers the difference between discretionary and nondiscretionary bonuses, as well as whether bonuses should be included in overtime pay rate calculations., The FLSA rule defines “non discretionary” bonuses as “Promised bonuses such as those announced to employees to induce them to work more efficiently or to remain with the firm are considered non-discretionary. Examples include individual or group production bonuses, and bonuses for quality and accuracy of work..