I Resigned Before My Bonus Was Paid. Can My Employer Keep It?

Earned versus discretionary

A discretionary bonus is one the employer decides whether to pay and how much, with no fixed formula. Because you have no right to it until it is awarded, employers can generally make it conditional on still being employed when it is paid.

A nondiscretionary bonus is one promised in advance under set criteria, such as a percentage of sales or a fixed amount for hitting defined targets. Once the criteria are met, many states treat it as earned wages. Whether it can still be forfeited on resignation depends on the plan wording and state law.

The “employed on the payment date” rule

Most bonus plans include a condition that you must be employed on the date the bonus is paid, or on the last day of the bonus period. Courts generally enforce these conditions for discretionary bonuses. For bonuses that operate like earned compensation, courts in some states look more closely, particularly where the condition would let an employer avoid paying for work already fully performed.

What have courts and regulators said about forfeited bonuses?

New York's highest court addressed this in Truelove v. Northeast Capital & Advisory, Inc. (2000). The bonus came from a pool tied to the firm's financial results, was allocated at the chief executive's discretion, and was paid in installments conditioned on continued employment. The court held it was not wages under the Labor Law, so withholding the remaining installments after the employee resigned was not an unlawful deduction. Later New York decisions distinguish bonuses like that from pay tied to the employee's own work, which is more likely to count as wages.

California's Supreme Court reached a related result in Schachter v. Citigroup, Inc. (2009). An employee who had chosen to take part of his pay in restricted stock forfeited it when he resigned before it vested, and the court held that no earned, unpaid wages remained at termination under the plan's terms. In both states, the plan's definition of when pay is earned does much of the work.

Federal overtime rules use a similar test for a different purpose. Under 29 C.F.R. § 778.211, a bonus is discretionary only if the employer keeps discretion over both whether to pay it and how much until at or near the end of the period, with no prior promise. A bonus announced in advance to encourage steadier or faster work is not discretionary, and for non-exempt employees it must be included when overtime pay is calculated. Calling a bonus discretionary in the plan does not by itself settle how the law treats it.

Commissions are treated differently

Commissions are usually closer to wages than bonuses are. Many states require commissions to be paid once earned under the terms of the commission plan, even after you leave, and some require commission agreements to be in writing. If your “bonus” is really a commission on sales you closed, the rules may favor you. Our guide to commission and bonus clawbacks covers the reverse situation, where an employer tries to recover money already paid.

How to read your bonus plan

• Is the bonus described as discretionary, or tied to a formula?
• What is the performance period, and has it ended?
• Is there a condition to be employed on the payment date?
• Does the plan address resignation, termination without cause, and layoff separately?
• Is there any proration for partial years?

A worked example

Ravi’s plan pays 10% of salary if company revenue grows by 8% in the calendar year, payable in March, “provided the employee remains employed on the payment date”. Revenue grew 9%. Ravi resigns on 15 January.

Although the performance period is complete and the formula is met, the plan contains an explicit employed-on-payment-date condition. In many states that condition will be enforced, and Ravi will not receive the bonus. In some states, and particularly if the bonus is treated as earned wages, he may have an argument. The clearest lesson is about timing: had he waited until the March payment, the question would not have arisen.

When should you resign if a bonus is due?

If you have the choice, check the payment date and any employment condition before you resign. Many people give notice a few weeks too early and forfeit a bonus they would have received by staying until the payment date. A new employer will often agree to a later start date, or offer a signing bonus to replace what you forfeit, if you explain the timing.

Sample wording you can send

To a new employer: “My current annual bonus pays on [date], and leaving before then means forfeiting it. Could we set my start date after that, or include a signing bonus to cover it?”

To HR after resigning: “Please confirm in writing the basis on which the bonus for [period] is not being paid, and send me a copy of the bonus plan terms that apply.”

Common mistakes

• Resigning weeks before a bonus payment date without checking the plan.
• Assuming a bonus is earned just because targets were met.
• Treating commissions and bonuses as if the same rules apply.
• Not asking a new employer to compensate for a forfeited bonus.

What if you are laid off before the bonus is paid?

The position is often better for employees who are let go than for those who resign. Many plans pay a prorated bonus on termination without cause, and courts are more sympathetic to an employee who lost a bonus through a decision they did not make. If you are laid off, check the plan for a termination-without-cause provision and raise the bonus in any severance negotiation before signing a release.

Deferred bonuses and retention awards

Some bonuses are paid in instalments over several years, or awarded specifically to keep you through a date. These almost always carry a continued-employment condition for each instalment, and unpaid instalments are usually forfeited on resignation. They are designed to make leaving expensive, so they are worth factoring into any decision to move.

What if the bonus plan is not in writing?

If a bonus was promised verbally or described only loosely, the question becomes what was actually agreed. Emails, offer letters, performance reviews and any past pattern of payment all help establish whether the bonus was discretionary or promised. Gather them before you resign, while you still have access to your work email.

How bonus timing interacts with your final paycheck

State final-paycheck laws set deadlines for paying wages after you leave, which can be as short as your last day in some states when you are dismissed, or the next regular payday in others. Where a bonus counts as earned wages, it may need to be paid within those deadlines or on its normal schedule. Where it is discretionary and conditioned on employment, the deadline does not help. Knowing which category your bonus falls into tells you whether a missed payment is a wage issue or simply a forfeiture under the plan.

Negotiating a replacement with a new employer

When a move means forfeiting a bonus, the new employer is often the best source of recovery. Present the numbers plainly: the expected bonus, its payment date, and the value you give up by starting sooner. A new employer may offer a signing bonus to match, which carries its own repayment terms, or agree to a start date after the payment. Get either commitment in the offer letter rather than relying on a conversation.

Quick checklist before resigning

• Find the written bonus plan and read the payment conditions.
• Note the performance period and the payment date.
• Check whether the bonus is discretionary or formula-based.
• Check whether your state treats earned bonuses or commissions as wages.
• Gather emails, offer letters and reviews describing the bonus.
• Consider timing your resignation after the payment date.
• Ask a new employer to cover any forfeited bonus in writing.

Key terms explained

These are the terms you are most likely to meet in the clause itself and in any correspondence about it, explained in plain English so you can read your own contract with confidence.

• Discretionary bonus: a bonus the employer decides whether and how much to pay.
• Nondiscretionary bonus: a bonus promised in advance under set criteria.
• Payment-date condition: a requirement to still be employed when the bonus is paid.
• Commission: pay calculated on sales or revenue you generate, usually treated closer to wages.
• Proration: paying part of a bonus for part of a period, often on termination without cause.
• Deferred bonus: a bonus paid in instalments over future years, usually conditioned on staying.

Get the plan read

ClauseAudit reviews bonus and commission terms in your employment agreement, flags employment-on-payment-date conditions, and distinguishes discretionary bonuses from earned compensation.