Must an employer pay out a bonus to a terminating or already terminated employee?

Bonuses are not required by law, so whether they are required to be paid at termination depends on the unique circumstances involved and the terms of payout included in the bonus plan. When terms of payout are defined, the employee may forfeit a bonus under certain circumstances. For example, the terms of payout may require current, ongoing employment at the time of payout or current employment as of the end of the plan year; or specify what happens when an employee is terminated for cause. Generally, this is an acceptable practice, but it should be made clear to employees, documented in writing and reviewed by legal counsel for compliance with state law, as with all terms surrounding bonus eligibility.

Without clearly defined terms of payout and forfeitures, employers are wise to pay out bonuses to employees who have met the specific goals, objectives, performance criteria and other conditions that were required for the bonus to be paid. Neglecting to pay bonuses when criteria set by an employer have been met is not a good practice and can harm employee loyalty and morale, as well as damage an employer's reputation in the community.