HR Question:

It’s almost time for bonus calculations and payments, but one of my employees has been out on approved FMLA leave for the past six weeks. I don’t want to penalize the employee for being out, but it doesn’t seem fair to my other employees if I give this individual their full bonus. How should I handle performance bonuses during FMLA leave?

HR Answer:

It’s understandable that you don’t want to negatively impact your present employees or punish the team member out on leave. That being said, it’s important that however you approach this situation, you do so in a fair, equitable, and repeatable manner. You’re correct that the Family Medical Leave Act (FMLA) does provide benefit and job leave protection for leaves. However, there are some areas of total compensation that can be impacted as long as the reduction is due to the quantity of work and not the quality of work being done. That means that performance-based bonuses can potentially be impacted (i.e., reduced or not paid at all) according to the Department of Labor.

What is FMLA and who has to comply?

The Family Medical Leave Act (FMLA) is a federal leave law that applies to all companies with 50 or more employees; public agencies; and all public and private elementary and secondary schools. Under the FMLA, eligible employees can receive up to twelve (12) workweeks of unpaid leave during a 12-month period. It also requires group health benefits to be maintained during the leave as if employees continued to work instead of taking leave. Employees are entitled to return to their same or an equivalent job at the end of their FMLA leave. To be safe, many employers lean on the side of “no changes” when their employees return, but in this instance, you do have a right to adjust the bonus the employee would typically be eligible to receive.

Can I deny performance bonuses during FMLA leave?

According to the Department of Labor, an employer may deny a bonus that is based upon productivity goals as long as the calculation is applied equally to those who would be taking a non-FMLA-protected leave. For example, if you have an employee who is on a leave of absence for approved personal reasons and you prorate their bonus based on actual “time at work,” you could do the same for the employee on FMLA-approved leave.

The Department of Labor goes on to clarify that an employer could deny (or reduce) any bonus based on achieving a goal as long as they are treating employees in similar situations the same. That could be due to attendance, safety, and even productivity. The Society for Human Resource Management (SHRM) confirmed the approach, citing a Second Circuit Court ruling affirming that such a proration was “allowed,” so long as employees on FMLA-approved leave are treated like others and not penalized in ways that others are not.

How a clear bonus policy can avoid confusion

If you don’t have an established bonus program, check out our guidance on how to set up an employee bonus plan. You may also want to consider offering a bonus grant program.

Keep in mind as an employer, you can create policies and precedent that would clear up any potential confusion in the future. For example, you could create a policy that specifies employees must actively be working for the entire month to be eligible for performance bonuses. Another option would be to create a policy that allows for partial payments prorated on the number of days an employee worked in the month. These are two very different options that could be used, as long as FMLA-qualified and non-FMLA-qualified individuals on leave are treated the same.

Finally, be sure that you understand that you cannot discipline an employee for non-performance or for not meeting established productivity goals while out on leave. As an employer, you can maintain work standards, but the quantity of the standard may need to be adjusted as it is directly impacted by the employee’s ability to be present at work – which is protected under FMLA.

Thank you to Patti Dunham, MBA, MA, SPHR, SHRM-SCP, Director of Business Strategy and Quality for sharing her expertise in this HR Question of the Week.

Clark Schaefer Strategic HR has the answers to all of your tough Benefits and Compensation-related questions. Please visit our Benefits & Compensation page for more information or contact us to troubleshoot today.