How should you handle production bonuses and other variable pay plans when someone misses work under FMLA?
Here’s the short answer: Absences under FMLA cannot have an adverse impact on eligibility for a variable pay plan and must be treated the same as other achievement levels.
Here’s a summary of what the Department of Labor’s opinion letters and non-administrator interpretations say about production bonuses.
- You cannot use FMLA leave as a factor in qualifying for a production bonus.
- You can prorate the amount of the bonus for absences under FMLA, but only if you would prorate it for other types of absences.
- You cannot use the failure to attain a full bonus due to FMLA leave as a factor in other employment decisions, such as disciplinary action, promotional opportunities, etc.
Here are some examples.
Example 1: Your company pays a production bonus to employees who produce at least 500 widgets per week. If they produce at least 500 widgets, the full bonus is paid. If they produce less than 500, no bonus is paid.
- An employee produces 430 widgets in a week. The employee would not receive their bonus.
- An employee produces 550 widgets in a week. The employee would receive their bonus.
- An employee produces 430 widgets in a week but missed 8 hours of work under intermittent FMLA which directly impacted their ability to produce 500 widgets. The employee would receive their bonus.
- An employee produces zero widgets because they were on a continuous FMLA leave and were not at work during the entire week (i.e. the entire bonus period). The employee would not receive their bonus.
Example 2: Your company pays a production bonus with a goal of 500 widgets per week, prorated for the achievement level.
- An employee produces 430 widgets in a week. The employee would receive 86% of their bonus.
- An employee produces 550 widgets in a week. The employee would receive 110% of their bonus.
- An employee produces 430 widgets in a week but missed 8 hours of work under intermittent FMLA. The employee would receive 86% of their bonus.
- An employee produces zero widgets because they were on a continuous FMLA leave and were not at work during the entire week (i.e. the entire bonus period). The employee would receive 0% of their bonus.
Example 3: Your company has a sales team with annual sales targets for each sales person. Last year, individual targets were set at $1,000,000 in sales. They earn quarterly commissions based on actual sales and meeting the annual sales goal weighs heavily in their annual performance review and ongoing employment status.
- A sales employee took 12 weeks of maternity leave. Her annual target must be lowered to $750,000 to account for the time she missed that was protected under FMLA.
- A sales employee had intermittent FMLA to care for a parent. They used a total of 8 weeks of FMLA time during the year. Their target must be lowered to $864,000 to account for the FMLA time.
Here are our recommendations . . .
Production Bonuses: First, make sure the production bonus is necessary. If not, you may be creating unnecessary risk for your company. Talk with your compensation staff or a consultant regarding the effectiveness of your variable pay plan. You should be confident that the plan is driving the behavior that you need from employees to reach the company’s goals . . . and that there is no other way to reach the goals absent of that variable pay plan.
If you do need a variable pay plan, create bonuses that are prorated for all employees, regardless of the types of absences and that do not base eligibility on attendance (like the bonus program in Example 4).
Sales Commissions: Case law has clearly indicated that employers must lower quotas for sales employees. Make sure your leadership team is trained on this topic.
Also, related to variable pay plans, and employee performance in general . . . always evaluate employees on their quality of work instead of their quantity of work.
Having trouble sleeping? Here are the links to the DOL opinions referenced for this article:
Hope you enjoyed reading our article on FMLA and Variable Pay Plans!
Leave Solutions is based in Milwaukee, WI and helps employers with their FMLA and leave of absence processes from a Human Resources perspective.
Contact us today at firstname.lastname@example.org if you have questions on variable pay plans or other topics.