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Reducing Annual Bonus for Unpaid Time Off

We have a policy allowing employees to use a specified number of days off from work without pay. One of our supervisors wants to inform employees that because our year end bonus is calculated based on gross wages, the use of unpaid time off will decrease the amount of their bonus. Is this a good idea? My concern is if this could be seen as an attempt to discourage the use of the benefit instead the attempt to educate the employees that it is intended to be.

Whether reducing an employee’s annual bonus for unpaid time off is acceptable depends on the length of leave permitted.

If employees are given a small amount of unpaid time off a year (say 5 days or so) then adjusting their annual bonus is not a good idea for the purpose you mention. It will absolutely discourage employees from using the benefit of unpaid time off; thus, eliminating the purpose of the benefit itself. Furthermore, an employee being absent for a week or so generally doesn’t have a significant impact on business operations or the employee’s overall productivity.

Now, if employees are entitled to an unpaid leave of absence for an extended period of time (say more than two weeks or a month) then adjusting their annual bonus to account for their time off is acceptable and fairly common. It wouldn’t be fair to have two employees receive the same exact bonus meanwhile one of them didn’t work for a full month.

If it’s decided to adjust employees’ annual bonuses for unpaid time off then the guidelines should be included in your bonus and leave of absence policies.

This entry was posted on Thursday, January 28th, 2016 at 9:59 am and is filed under
Benefits, Compensation.
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