Total and Partial Unemployment TPU 460.15
It is well established under Code Section 926 that bonuses are wages. Section 926 states:
"Except as otherwise provided in this article 'wages' means all remuneration payable to an employee for personal services, whether by private agreement or consent or by force of statute, including commissions and bonuses, and the reasonable cash value of all remuneration payable in any medium other than cash."
In Benefit Decision 6047, the Board defined "bonus" as an extra consideration given in addition to what is ordinarily received by or strictly due, the recipient.
The Board considered this in Benefit Decision 6509. The claimants were employed as warehousemen for a feed mill which ceased operations on November 21, 1954. Prior to the closing of the mill, the union discussed the question of severance or termination pay with the employer. The employer rejected the union's request for such payments. In February 1955, the employer's executive committee decided on a severance payment for certain employees and mailed those employees a check for $500. The Board held that these checks were bonuses despite the employer calling them severance pay, and said:
"With respect to the payments of $500 made to the . . . claimants, employer designated them 'severance' pay. However, this designation did not necessarily establish them to be severance pay . . . . Unlike severance pay which is paid at the termination of an employee's services in order to tide him over a period of unemployment, these payments were made some weeks following the severance of the employment relationship . . . . Additionally, the employer had rejected the union's solicitation for severance pay but thereafter, on its own initiative and without any legal obligation, had decided to give $500 to certain selected employees because of their years of service with the organization. Based on these facts, we hold that the payments were bonuses earned during the claimant's periods of employment and as such were wages allocable to the respective periods prior to termination of their employment . . ."
The Board again considered the question of bonuses in Tax Decision 673. The petitioner in this case paid $175 in "Christmas bonuses." The question before the Board was whether the "Christmas bonuses" constituted "wages." The Board said:
"The payments of $125 and $50 were reflected in the petitioner's books of account as 'Christmas bonus' and were treated on his income tax report for the year 1945, as a deductible expense of the business.
In the instant case it is apparent that the payments in question, which were treated as an expense of the business, were of a substantial amount and were based in part upon the length of service of the employee, the prosperity of the business and of the employees' loyalty to the business. Under these circumstances, although the petitioner was not bound by contract to make such payments, nevertheless, in our opinion, such payments constituted remuneration for personal services rendered in connection with the petitioner's business and as such constituted 'wages' . . ."
The Board has consistently held that bonuses are earned prior to the time of the termination and thus are allocated back to the period before termination.
In Benefit Decision 6134, the claimant, upon her involuntary termination, was presented with an accrued bonus on her yearly salary in the sum of $200. The Board held that this bonus was allocated to the Period Prior to termination and said:
"The record discloses that the claimant received the $200 payment as an 'accrued bonus on her yearly salary.' Therefore, since it had accrued during the period of employment, it was properly allocated to a period prior to the cessation of such employment . . ."
Allocation of Bonus Payment
In Precedent Benefit Decision, P-B-357 (formerly Benefit Decision 6379), the Board considered the question of the allocation of a bonus payment. In this case the claimants were temporarily laid off by their employer, on December 9 and December 10, 1954, because of a lack of work.
On December 15, 1954, the company paid all employees who were on the payroll as of December 1, 1954, a Christmas bonus equal to three percent of their earnings from December 1, 1953, through November 30, 1954. The company had previously announced to the employees in November that it would pay the bonus.
When the claimants filed their claims for unemployment insurance benefits, they did not report the bonus payment since the Department had not in past years considered it to be wages allocable to the period of layoff. The Department paid the claimants' benefits.
Subsequently, when the Department received notice that the company had paid the Christmas bonus, it determined that the bonus was wages and was allocable to the period following the layoff in December. The claimants and the employer appealed the Department's determination.
No one questioned that the bonus was wages. What was in question was the Department's allocation of the wages to the period of layoff in December.
The Board cited its decision in Benefit Decision 6303 in which it had held that a bonus was wages as it was something extra paid for an employee's services with respect to the period in which the services were performed. The Board, in that case. held that the payment for a bonus should be allocated to the period in which it was earned and not to the period in which it was paid.
The Board in P-B-357 held that the bonus which was paid on December 15, 1954, was earned between December 1, 1953 and November 30, 1954, and therefore should be allocated to that period of time and not to the period following payment.
Thus, whenever a bonus which is based on an employee's work is paid, the wages are allocable to the period in which the wages were earned.
As indicated above, a bonus which is based on an employee's work is additional compensation for the employee's services. An employer can offer a number of different types of bonuses. For example, a company can offer a "good attendance" bonus or a bonus for accuracy of work or for exceeding production goals.
The plan might provide that if an employee has perfect attendance in a quarter or for a six-month period, the employee will receive one day's pay, $100, $500, etc. The plan might provide that if the error rate is less than two percent in a quarter, or if production in a quarter exceeds production goals for the quarter, the employees will receive an amount equal to a certain percent of their gross earnings for the quarter.
Some companies do not allow employees to take vacations but the employees earn vacation pay. A plan might provide that employees earn vacation pay from January 1 through December 31 of the calendar year or from July 1 of one year through June 30 of the following year. The plan might provide that the company will pay eligible employees a specified percentage of their gross earnings in the "vacation year." The percentage may be based on length of service with the company and job classification.
The Board has held that where an employee cannot take vacation time off, the vacation pay received is considered to be in the nature of a bonus and is wages provided in Section 926.
In all the examples discussed above, the bonus is considered to be wages because the employee must perform services to receive the bonus payment. The payment for the bonus would be allocated to the period when earned, i.e., the quarter or six-month period in which the employee had perfect attendance; the quarter in which the employees exceeded production goals; the "vacation year" in which the employee earned the vacation pay, etc.