Make Sure Year-End Bonuses Don’t Haunt Your Workers’ Comp Liability

Christmas bonus, holiday bonus, year-end bonus—what’s the difference? It could make a difference in the calculation of workers’ compensation benefits. You can take steps, however, to ensure that it’s not a gift that keeps on giving more than you intended.

Issue: Your company distributes a bonus to employees at the end of the year in consideration for service during the previous year. Does it matter whether the bonus is a “Christmas bonus,” “holiday bonus,” or “year-end bonus”? What are the consequences to your company in regard to workers’ compensation benefits?

Answer: If the bonus is based on an injured worker’s tenure at the company throughout the previous year, the bonus may be prorated over the entire year, not just the quarter in which it was paid, for purposes of calculating the injured worker’s average weekly wage.

Yearly bonus or holiday bonus?
An employee injured at work received workers’ compensation benefits of $451 per week based on an average weekly wage that included a $1600 bonus paid at the end of the year. Less than a year after the payments began, the employer sought a recalculation of benefits, contending that the yearly bonus should have been allocated over the entire year, not just in the quarter in which it was paid. The employee appealed, arguing that the payment was a Christmas bonus that should have been credited to the fourth quarter of the year.

The court concluded that the bonus, which was based on the employee’s tenure at the company for one year, should have been prorated as wages over the entire year based on the time in which it was earned. The employer was allowed to recoup $4,678 as overpayment, a difference of more than $50 per week in benefits.

What you should do.
If your year-end bonus is based on employment throughout the prior year, make that clear to employees. You may be able to prorate the bonus over the entire year for the purpose of calculating workers’ compensation benefits.

Cite: Kiebler v. Workers’ Compensation Appeal Board (Specialty Tire of America), Commonwealth Court of Pennsylvania, No. 2113 C.D. 1998, June 16, 1999.

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