USERRA BRIEF
Bonuses
Is the Returning
Servicemember Entitled to Bonuses?
A recurring issue raised by returning servicemembers and their employers is whether a returning
servicemember is entitled to a bonus missed because of the employee’s military service. The answer is, “it
depends.”
Initial Considerations
As many employers know, USERRA is considered “the floor,” and an employer is always entitled, indeed
encouraged, to go above the minimum requirements of USERRA. For instance, many employers who have
been nominated for the Secretary of Defense’s Freedom Award give some measure of pay to an employee
while on military service even though it is not required under USERRA. Therefore, an employer may choose
to award such bonuses as acknowledgement of the service and sacrifice of the servicemember employees.
Another consideration that may require the payment of bonuses under USERRA for periods the employee is
on uniformed service is when the employer has a leave of absence policy granting such bonuses to other
non-military employees on a comparable leave of absence. We have discussed previously the fact that
servicemembers are entitled to the “most favorable leave of absence” policy offered by the employer for a
comparable leave of absence.
Is the Bonus a “Seniority” or “Non-Seniority” Benefit?
The determination of whether the employer owes a returning
servicemember a bonus for the period the employee was on uniformed
service depends upon how the bonus is structured—is it a “senioritybased” benefit or a “non-seniority based” benefit? A bonus is “senioritybased if it accrues with or is determined by seniority and depends primarily
on whether the benefit is a reward for length of service. If a bonus is based
on seniority, it must be included in the escalator position and provided upon
reemployment.” Such bonuses are typically awarded to all employees based
upon the number of years employed and does not depend upon hours worked or
other performance prior to or after being awarded by employer.
By far most bonuses are considered a “non-seniority” based benefit, and therefore a form of compensation
under USERRA. Thus, an employee, or the company overall, must reach some performance goal in order to
participate in the bonus pool. In this regard, the non-seniority bonus is considered a form of compensation
to the employee for contributing to the performance of the company during the bonus period. In those
circumstances, the returning servicemember is not entitled to that portion of the bonus attributable to the
period the employee was on uniformed service.
One qualification, however, is that “If a bonus is non-seniority-based and is provided to similarly situated
employees on comparable non-military leave, it must be provided to employees on military leave.”
For more information, contact Mathew Meyer, ESGR Minnesota Ombudsman Director
at 612.741.4732 or mathew@mathewmeyerlaw.com
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An Employee Must Not be Disqualified From Receiving a Bonus Because of
Uniformed Service
Often the employee’s military leave of absence will not perfectly coincide with the bonus period established
by the employer. For example, a servicemember is absent for uniformed service a total of six months during
the calendar year, which is the employer’s bonus period. In order to participate, the employer requires an
employee to work a certain number of hours, which the servicemember fails to meet because of the military
absence. Under USERRA, the employer must determine whether the servicemember would have qualified
for the bonus had he worked the entire year. If so, then the servicemember may not be precluded from
participating in the bonus. However, the bonus will be pro-rated for the period the employee actually
worked—which would be six months in this hypothetical.
Don’t Forget! Bonuses and Pension Issues
Finally, servicemembers and their employers should be aware of the
employee’s pension rights upon return from uniformed service. Under
USERRA, if the employer has a defined contribution pension plan, which
includes most 401(k) plans, the employee has three times the length of
uniformed service, up to five years, to make up contributions to trigger the
employer’s contribution obligations. (Note that failure to make those
contributions within those deadlines will result in loss of this right to make up
those pension rights lost during uniformed service.)
The returning servicemember’s rights to makeup contributions to a defined contribution plan depends upon
the details of the 401(k) and the limits established by the IRS for the contributions. Nevertheless, USERRA is
intended to put servicemembers in the position they would have been had they remained continuously
employed. Therefore, in calculating the compensation upon which the contributions are based consider any
bonuses not received if the employer’s plan allows some or all of these bonuses to be contributed to the
plan. The servicemember should consult a financial adviser as to whether this is an option, and the extent to
which the servicemember should contribute. However, the bonus missed because of the employee’s
uniformed service should be considered if the plan allows it to be contributed to the pension plan.
Conversely, if the employee is part of a defined benefit pension plan, the pension rights are typically
calculated by the employer upon the employee’s return from uniformed service. USERRA requires the
corresponding contribution by the employer to be made within 90 days of the employee’s return, or when
normally made, whichever is later. Those employer contributions are based upon what the employee would
have been reasonably certain to have earned had she remained continuously employed. If that would have
included any bonuses, even if the employee was not entitled to it because she was on uniformed service,
the amount of the bonus must be included in the calculation.
Conclusion
Servicemembers returning to their civilian employer should be aware of the issues regarding their potential
bonus compensation. They may be entitled to a bonus missed during their leave of absence, a portion of
that bonus, or even use that bonus as “compensation” to determine how pension rights are restored
following uniformed service. Consult with your financial adviser or a representative of the Employer Support
of the Guard and Reserve to learn more.
For more information, contact Mathew Meyer, ESGR Minnesota Ombudsman Director
at 612.741.4732 or mathew@mathewmeyerlaw.com
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