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To pay or not to pay: do my employees have a right to an annual bonus?

Published on Friday, April 05, 2013 3:36:00 PM

As an entrepreneur just starting up your business, it’s important to save as much money as possible. It’s equally important however, to play by the rules.



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Does an employee have a right to an annual bonus? Firstly, you need to understand that there is no statutory requirement in labour law to pay bonuses of any sort, and any bonuses paid are not regulated by labour legislation. The paying of bonuses is therefore a company policy issue rather than a labour law issue.

However, if your business falls in an industry or area where a bargaining council agreement applies, there may be a provision obliging you as the employer to pay an annual bonus. In this case, you may be contractually bound to pay a 13th cheque or bonus, unless it has been specifically stated that it is subject to the employer’s discretion. In some instances, paying out a bonus may depend on certain factors, these could include:

  • the employee’s hours of work
  • their performance
  • the performance of the company
  • the department in which the employee is employed

Such bonuses are normally referred to as a performance bonus or a production bonus. A production bonus refers to production targets in terms of quality or quantity. Meeting sales targets are also common criteria used in the calculation of bonuses. These bonuses are usually referred to as a 13th cheque. Whether or not the bonus is paid, depends on the terms and conditions of the individual Contract of Employment, or it may be dependent on Company Policy.

Many companies use performance appraisals to decide whether an employee deserves a bonus. To avoid any false allusions, it should be spelled out to employees when they join a company that payment of bonuses is not guaranteed, and they cannot rely on the payment of these discretionary bonuses simply because the bonus was paid last year or over the past three years.

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