Massachusetts employers should be careful when describing bonuses in offer letters and compensation plans. A recent court decision shows that if a bonus is not clearly defined, it may be treated as wages under the Massachusetts Wage Act.

That matters because violations of the Wage Act require employers to pay three times the amount owed plus the employee’s attorneys’ fees.

What Happened

In a recent Massachusetts case, an employee’s offer letter included four bonus payments totaling $9,000 tied to “measured objectives.”

The issue was that the company never defined what those objectives were, and the bonuses were never paid.

Because the employer did not clearly explain what was required for the bonuses to be earned, the court determined that the bonuses were not truly conditional. Instead, they appeared to be part of the employees’ expected compensation.

The result: the unpaid bonuses were treated as wages owed under the Massachusetts Wage Act.

Why Employers Should Pay Attention

Massachusetts wage laws are very strict. If wages are withheld or paid late, courts must award:

• Triple damages – required as part of the award
• The employee’s attorneys’ fees

While some bonuses can fall outside the Wage Act, they must be clearly tied to specific conditions, for example, remaining employed through a certain date or meeting clearly defined performance targets.

When those conditions are unclear, vague, or never documented, the bonus may be viewed as part of regular pay.

Steps Employers Should Consider

To reduce risk, employers should review how bonuses are described in offer letters, employment agreements, and bonus plans. Make sure that:

• The criteria for earning the bonus are clearly stated
• Any performance targets are measurable
• Employment conditions (such as staying through a certain date) are spelled out
• Bonuses intended to be discretionary are clearly described as such

Bottom Line

If a bonus plan does not clearly explain how the bonus is earned or what conditions apply, a court may treat the payment as wages under the Massachusetts Wage Act.

Clear language and well-defined criteria can help prevent bonus disputes and costly Wage Act claims.

Questions about bonus plans or Wage Act compliance?
AIM members can contact the HR Helpline for guidance on compensation policies, offer letters, and other HR compliance questions. Call 800-470-6277 or email Helpline@aimnet.org.