Holiday Bonuses

As the holidays approach, public employers frequently ask about the possibility of providing a one-time bonus to employees to thank and reward them for their service to the organization.  

Because district, ESC, and college employees are paid with public funds, special rules apply according to Article III, Section 53 of the Texas Constitution. Generally, the Texas Constitution prohibits increasing compensation for public employees, including one-time bonuses, after the school year begins or a contract has been entered into as this would be a “gift of public funds.” This restriction applies to both at-will and contract employees.

To comply with state law, an employer seeking a one-time holiday bonus for employees would need to approve the bonus as part of the board’s budget approval process. The board should have adopted a compensation plan and budget that allowed for a one-time holiday bonus payment during its budget adoption.

Prior to providing a one-time payment, there are some points to consider and decisions to make including the following:

• One-time payments are not added to an employee’s base salary, which means the incentive does not continue in subsequent years.
• One-time payments are not creditable for Teacher Retirement System of Texas (TRS), which may make “soon to retire” employees unhappy.
• Most one-time payments must be counted as part of a non-exempt employee’s regular hourly rate for overtime calculation purposes.
• Employers must decide which employees will be eligible for a one-time payment (e.g., full-time employees, part-time employees, substitutes, employees on leave in paid status, employees on unpaid leave).

Holiday bonuses are a nice way to say thank you to employees, but they include some important caveats prior to giving.

For more information see One-Time Payments to District Employees (for community colleges, see One-Time Payments to College Employees) in the HR Library (member login required), Mid-Year Pay Increases of School District Employees in TASB School Law eSource, Legal Concerns Regarding Holidays at School in TASB’s Member Center, and Use of Public Funds by Community Colleges in TASB College eLaw.