If the holiday season in your workplace usually comes with an expectation of a holiday bonus, you’re not alone. According to a survey compiled by HR Dive, 60% of employers in 2024 planned to give holiday bonuses to their employees. This is an obviously great way to boost morale, but when does this extra little bit of holiday cheer turn into a burden for the employer?

As a starting point, Maryland law is clear – it does not require employers to pay any bonuses. A bonus is an optional benefit, just like vacation or holiday pay. An employee’s right to a bonus only exists if the employer creates it through a contract, policy, or practice.

If that obligation is created, though, Maryland law is also quite clear – the bonus becomes part of the employee’s wages. Maryland’s Wage Payment and Collection Law (MWPCL) defines wages broadly to include any remuneration for work performed (i.e., not just base salary),including bonuses.

That begs the core holiday question: is your company’s year-end “bonus” really a gift, or has it crossed the line into an obligation?

A truly discretionary bonus is synonymous with a gift – a benefit provided with no strings attached. This is something the employer can decide on at the end of the year, including whether to pay it at all, to whom it should be paid, how much should be paid, etc. Amounts can and do vary widely and are not tied to any specific metrics. When that’s the case, Maryland courts treat the payment as a gift and not subject to Maryland’s wage statutes.

A non-discretionary bonus is a different beast. If an employer tells its employees in advance that, for example, they will receive five percent of their salary at year’s end if they (or the company) hit certain performance or profitability targets, that becomes promised compensation. Maryland law holds that when an employee does everything required to earn that payment, it becomes “wages” under the MWPCL. This means that not only can employees make claims for it under the MWPCL (including the liquidated damages and attorneys fees that go along with that), but the compensation becomes part of the employee’s regular rate used to properly determine their premium for overtime compensation.

Accordingly, for recurring “yearly” or “holiday” bonuses, past practice and communications matter. Regular, formula-based payments announced in advance are likely to be treated as wages. One-off, surprise checks handed out at year’s end or the holiday party, with no prior promise and no set criteria, are more likely to remain as gifts.

If you’re planning on spreading some holiday cheer for your employees at the end of 2025, contact an RKW employment attorney to make sure your gift doesn’t come with strings attached.

‍