Bonuses are generally treated as part of an employee's wages for workers' compensation purposes, meaning they can be included in the calculation of benefits. However, the inclusion depends on how the bonus is classified and the specific state's statutes.
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How Bonuses Are Classified
Employers typically classify bonuses as either discretionary or non‑discretionary. Discretionary bonuses, awarded at management's sole discretion, are usually excluded from wage calculations. Non‑discretionary bonuses—such as sales commissions or production bonuses—are considered regular compensation and are included.
State Variations
Most states follow the principle that any compensation paid in exchange for work is a wage for workers' comp. A few states, however, provide narrow exceptions for discretionary bonuses. For example, in California, discretionary bonuses are excluded, while in New York all bonuses are counted.
Impact on Benefit Calculations
When a bonus is counted, it increases the employee's average weekly wage (AWV), which directly raises the weekly benefit amount. Because AWV is calculated over a set period (often the last 52 weeks), a large, one‑time bonus can inflate benefits for that year.
Practical Considerations for Employers
Employers should clearly define bonus policies in employment contracts and payroll records. Consistent classification helps avoid disputes with insurance carriers and state agencies. Maintaining accurate payroll documentation also supports claims processing and reduces audit risk.
Practical Considerations for Employees
Employees who receive a bonus should request a written explanation of how it will affect their workers' compensation benefits. Understanding the classification can help anticipate benefit amounts and plan recovery finances.