Bonuses 'a much broader category than I think a lot of human resources managers are aware of'
There are correct and incorrect ways to pay out bonuses, and many employers and HR professionals are doing it wrong – especially when it comes to properly assessing when bonuses are considered wages and when they’re not, according to a legal expert.
“There are obviously public relations considerations whenever bonuses are being given to executives,” said Micah Fysh, employment lawyer with Filion Wakely Thorup Angeletti in Toronto. “Managers, executives and companies should consider the economic climate at the time when making decisions about bonuses.”
“There are some types of bonuses, and arguably quite common bonuses, especially at lower levels, that would be considered wages under employment standards legislation, and that have carry-on effects to the calculation of various other entitlements under employment standards legislation.”
A common misconception of HR professionals is failing to include bonuses in employee annual wages, he said. This can result in underpayment of overtime, public holiday premiums, vacation pay and termination pay, for example.
“If there is any relation to productivity, efficiency or hours in terms of the bonus plan, then the bonus would be still considered wages, at least under the Ontario Employment Standards Act, and would have to be included in the calculation of all of these other entitlements,” said Fysh.
“And that's a much broader category than I think a lot of human resources managers are aware of or really practice.”
The main risk of miscalculated or missed statutory bonus payments is systemic underpayment, Fysh said, which could result in Ministry of Labour claims or even lawsuits.
For example, in a 2022 case, a class action lawsuit was filed against Medcan Health Management by a group of former employees who said they hadn’t been paid vacation and public holiday pay they were entitled to based on commission earnings, he said.
Upon investigation, Medcan discovered it had been underpaying upwards of 700 employees for over 15 years because of assuming commission was a discretionary bonus award and not actual wages. That case has still not been decided in court.
Since payouts of this type can be relatively small and tend not to be high profile, rules around bonuses can remain murky and mistakes are “not uncommon,” Fysh said.
This means employers should ensure that HR and payroll are on board with where bonuses are being counted, including making sure that discretionary awards such as end-of-year bonuses are “completely divorced” from any aspects of production, efficiency or hours.
“This can add up over a period of time, or over many employees, to have quite a significant impact in terms of amounts that could be owing to employees because of miscalculations,” said Fysh.
“So I think this is something that probably should be talked about more, so that more human resources individuals and professionals can spot these issues before they become issues with a capital ‘I’.”
