Fundamental Payroll Certification (FPC) Practice Exam

A bonus is considered not discretionary when there is a contract established for its payment. When a bonus is tied to a contractual agreement, it implies a binding obligation for the employer to pay it according to predetermined criteria or terms. This sets clear expectations for employees regarding the bonus payment, making it a non-discretionary item.

Conversely, a discretionary bonus is typically contingent upon the employer's choice; it does not stem from a contractual obligation. For instance, a bonus paid solely at the employer's discretion can fluctuate based on various factors such as company performance, individual employee performance, or other variable elements. These bonuses may vary year to year and do not guarantee payment.

Similarly, the situation where all employees receive the same amount does not inherently define the nature of the bonus as discretionary or non-discretionary. A uniform distribution among employees might still fall under a discretionary framework if not governed by a contract.

Finally, if a bonus is initially suggested by an employee, it does not directly impact its classification as discretionary. The origin of the suggestion does not determine the binding nature of the bonus payment or its dependence on employer discretion. In summary, for a bonus to be classified as not discretionary, it must be bound by contractual terms or agreements.