Equivalent Pay and Bonuses Under the FMLA

Equivalent Pay on Reinstatement

An employee returning from FMLA leave is entitled to return to the same position he or she held when leave commenced or to an equivalent position with equivalent benefits, pay and other terms and conditions of employment.

This means, upon reinstatement, an employee is entitled to any unconditional pay increases that occurred during the FMLA leave period, such as cost of living increases. Pay increases conditioned upon seniority, length of service or work performed must also be granted in accordance with the employer's policy or practice with respect to other employees on an equivalent leave status for a reason that does not qualify as FMLA leave.

Similarly, equivalent pay means the same or equivalent pay premiums, such as a shift differential. It also ordinarily means the same or equivalent opportunities for overtime work (and corresponding overtime pay).

Equivalent pay also includes any bonus or payment, whether it is discretionary or non-discretionary, if the bonus or payment (e.g., a holiday bonus) is given to other employees on an equivalent leave status for a reason that does not qualify as FMLA leave. The regulations specifically apply this principle to bonuses based on the achievement of a specified goal such as hours worked, products sold or perfect attendance. If the employee has not met the goal due to FMLA leave, the bonus may be denied—unless it is paid to employees on an equivalent leave status for a reason that does not qualify as FMLA leave.

Perfect Attendance Bonuses

As to the payment of bonuses, the new regulations are similar to earlier regulations. There is one significant change worth highlighting, however. Employers are now allowed to disqualify an employee from a perfect attendance bonus if the employee has not met the attendance goal due to being absent on FMLA leave—unless the bonus or payment is otherwise paid to employees on an equivalent leave status for a reason that does not qualify as FMLA leave.

For example, if employees who take unpaid leave for a non-FMLA reason are not eligible for an attendance bonus for the time period that includes their leave, an employee who took an unpaid FMLA leave would also not be entitled to an attendance bonus. However, if an employer's policy allows an attendance bonus for an employee who takes vacation leave, the employer may not deny the bonus to an employee who takes vacation leave for an FMLA purpose, i.e., who substitutes paid vacation leave for FMLA leave.

Although the new regulations do not specifically address safety awards, the commentary to the regulations states that safety awards should be treated similarly to attendance awards under the new regulations because both are appropriately characterized as being based on the achievement of a work goal.

Why the Change?

Previous FMLA regulations stated that bonuses for perfect attendance and safety did not require performance by the employee but rather contemplated the absence of occurrences of injuries and missed work time. Therefore, if an employee met all the requirements for such bonuses before FMLA leave began, the employee was entitled to continue his or her entitlement after reinstatement.

Based on these prior regulations, the Labor Department took the position that an employee could not be denied a perfect attendance or safety bonus just because of an absence for FMLA leave during some of the time covered by the bonus because this was tantamount to treating the taking of FMLA leave as a negative factor in employment decisions.

In support of its new position, the Labor Department explained the change was made to provide a "fairer result" for all employees than the previous regulation. According to the Labor Department, "[a]llowing an employer to disqualify employees taking FMLA leave from bonuses or awards for the achievement of a specified goal unless the bonus is awarded to employees on an equivalent leave status for a reason that does not qualify as FMLA leave puts employees who take FMLA leave on equal footing with employees who take leave for non-FMLA reasons."

The Labor Department specifically stated that the new regulation does not contradict the principle that employers may not use the taking of FMLA leave as a negative factor in employment actions or count FMLA leave under "no fault" attendance policies. Penalizing an employee for taking FMLA leave under a "no fault" attendance policy is distinct from disqualifying an employee from a bonus or award for attendance because the former penalizes an employee for taking leave itself whereas the latter denies a reward for achieving the job-related performance goal of perfect attendance.

Going Forward

Employers must revise their FMLA policies and forms in light of the new regulations. Employers should also review their policies and practices related to the payment (or non-payment) of goal-based bonuses under all leave statuses to ensure compliance with the new regulations.

Further details are necessary for a complete understanding of the subjects covered by this summary. For this reason, the specific advice of legal counsel is recommended before acting on any matter discussed within.