Payment of Bonuses

Dec 16, 2020

It is that time of the year when many employers pay bonuses to their employees or employees expect to be paid bonuses. Since there is no statutory requirement to pay any bonus, any such payments that are made are not regulated by labour legislation. This therefore is a contractual issue (or an employer policy issue) rather than a labour law issue

However, please note that in some industries, i.e. MIBCO, MEIBC, Road Freight, etc. it is possible that there are guaranteed bonus clauses included for certain classes of employees and the main agreements are all subordinate legislation.

Performance bonus

In some instances, the payment of a performance bonus and the amount of the bonus may depend on or relate to the employee’s hours of work, or to the employee’s performance or to the performance of the company, or the branch, or the department in which the employee is employed. Such bonuses are normally referred to as “performance bonus” or “production bonus.” The attaining of production targets in terms of quality or quantity, and the attaining of sales targets are common criteria used in the calculation of such bonuses.

Another factor deciding the payment or non-payment might be the employee’s score in a performance appraisal/assessment. It follows therefore that the payment of such bonuses is seldom guaranteed, and employees would be foolish to rely on the payment of these discretionary bonuses simply because the bonus was paid last year or over the past 3 years and so on.

13th cheque bonus

In other instances, a “Christmas” bonus is paid which bears no relation to the employee’s hours of work or job performance, but is related solely to the overall performance of the company or the branch. These bonuses are usually referred to as “a 13th cheque.” Whether or not the bonus is paid, is dependent either on the terms and conditions of the individual contract of employment, or it may be dependent on company policy, or it may be dependent on certain targets being reached in terms of production or sales, or it may be dependent upon company performance in terms of gross profits or any other criteria stipulated by the employer.

Customary bonus

It may also be a bonus that is paid simply because of established practice or “custom and practice” as it is sometimes termed. Because of the consistent “established practice” or “custom and practice”, the bonus payment becomes a term or condition of employment. The important thing to note here is that the declaration of bonus payments by the employer is a contractual issue and not a labour law issue, except where the non-payment of the bonus may fall under the definition of unfair labour practice with respect to the provision of benefits, or may be construed as a unilateral change to terms and conditions of employment

In the main, these complaints concerned cases where, in past years, the bonus had been consistently paid, but at the last-minute employees are informed that this year there would be no bonus. In some instances, employees had not been informed at all, but only discovered that no bonus had been paid when they visit the bank to withdraw funds. Some of the bonuses were a 13th cheque, others were annual performance bonuses, others were termed “anniversary bonuses.” or even “ex gratia payments”. In many cases, the payment of the bonus was a contractual requirement, some being a guaranteed payment in terms of the contract, others being a discretionary payment

Bonus payment principles

Whatever the case, employers should note that where a bonus is a contractual condition embodied in the employee’s contract of employment, or a contractual condition embodied in a company policy, or where the payment of the bonus has become a condition of employment through established practice, then the bonus must be paid.

A unilateral failure to pay the bonus may amount to an unfair labour practice (section 186 and also section 191 of the Labour Relations Act), or it may be seen as a unilateral change to terms and conditions of employment, or indeed may be seen as breach of contract, where the employee would be entitled to sue for damages, or (more likely) would sue for specific performance.

It is essential that in every employment contract, the terms and conditions applicable to the payment of bonuses must be specifically and clearly stated, even to the extent that if it is a company policy not to pay bonuses of any sort, this fact must also be stipulated in the employment contract.

It is certainly unfair of the employer to decide unilaterally not to pay bonuses, and in addition to either not advise the employees at all, or advise the employees at the last possible minute.

Whilst the right of expectation does not actually afford the employees the absolute right to demand and to be paid the bonus, it certainly does afford them the right to be heard before the decision not to pay the bonuses is made by the employer.

This would imply then that the employer should consult with employees if it is found that, for any legitimate reason or sound commercial rationale, the bonuses cannot be paid in a particular year, or if the amount of the bonus is to be less than the amount consistently paid in the past, or less than the contractual amount. Remember that company policy is invariably construed to form part of the employment contract.

Employees are entitled to put their side of the story, and it cannot be denied that this opportunity is a fundamental requirement of  “fair procedure.” It cannot be accepted, by any stretch of the imagination, that an employer suddenly discovers only on shut-down day that company profitability disallows the payment of bonuses for this year, or the employer suddenly discovers on shut-down day that employees have not been performing and therefore the payment of bonuses this year is not justified and so on.

To make matters worse, after suddenly discovering these hitherto completely unknown facts, the MD of the company goes on an extended overseas holiday or obtains a brand new luxurious company car.

The message is that the management of any company must surely be aware by the middle of the year whether or not profitability, staff performance, or whatever other criteria exist, may endanger or even prevent the payment of the relevant bonuses for that year.

It is the duty of management (and it is only fair) to consult with the employees at the earliest possible moment, to warn them of this possibility that bonuses may not be paid or may be reduced this year, or if necessary take the extreme precaution of informing employees categorically that no bonuses will be paid for that year. If it is later proved that payment can be proceeded with, then it will be a pleasant surprise for all employees. The “thinking” – if it can be termed such – of management is that if the non-payment of bonuses is only made known on shut-down day, or if management remain silent and let the employee discover the non-payment for himself, there is nothing the employees can do until the company re-opens in January. It is a pretty dumb thing to do as it does not solve the problem, it only postpones it until next year.

Author:

Wallace Albertyn

Wallace Albertyn is a Senior Associate and Legal Advisor at LabourMan Consultants.

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