A discretionary bonus, as its name implies, is a bonus awarded at the sole discretion of the employer and is awarded without employee expectation. In other words, there’s no promise or agreement that a discretionary bonus will be paid. A surprise holiday bonus is one example of a discretionary bonus.
A nondiscretionary bonus, on the other hand, is a promised bonus that the employee expects to receive if certain conditions are met. Nondiscretionary bonuses include individual or group production bonuses, bonuses for quality and accuracy of work, retention bonuses, and attendance bonuses. These bonuses are typically used to motivate employees.
The most important thing to remember about non-discretionary bonuses is that when issued to a non-exempt employee, they must be included in the employee’s regular rate of pay when calculating overtime.