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November 26, 2015
I cannot afford to give everyone a bonus. Can I only give a bonus to some of my employees?
Employers are not obliged to pay bonuses to employees.
Employees have an obligation to perform their duties to the best of their ability at all times, and in return for their hard work they are provided with a salary or wage. However, bonuses are a great way to motivate employees to achieve their best and thank them for their contribution to the business. If you are going to offer a bonus, it is important to consider any contractual obligations in relation to bonuses and ensure that bonuses are issued in a way which does not expose you to any risks.
From a contractual perspective, we generally recommend that bonuses do not form a contractual entitlement, so there is no absolute right to receive a bonus. It should be made clear that any bonus is discretionary. If you want to set out the details of any discretionary bonus scheme (including any conditions around payment of the bonus and eligibility criteria) these should be provided in a separate document, which clearly states it does not form part of the contract of employment and the scheme can be withdrawn or amended at any time by the employer.
In terms of issuing bonuses to some employees and not others, it is important to ensure an objective criteria is applied. If criteria is not adhered to, an employee may be able to argue that they did not receive a bonus because of an unfair reason, such as their age, race, family or caring responsibilities, or any other characteristic protected from discrimination. In the worst case scenario, this could result in an adverse action or discrimination claim.
When setting your objective criteria around eligibility for bonus payments, ensure the bonus does actually motivate your staff to get the right results and that the criteria provides justification for your decision. Eligibility criteria should be linked to objective matters of key importance to your business, such as key performance indicators (KPIs), adherence to company values and a hitting a set profit margin for the business. Eligibility to receive a bonus payment is then conditional upon all criteria being satisfied. For example, if an individual employee did not meet their KPIs, this could justify non-payment because they did not meet the eligibility criteria.
When it comes to managing employees who are eligible for bonus payments, it is important that employers provide ongoing feedback to their employees about performance. If employees have KPIs, let them know what they are and how to achieve them. If they are not tracking towards achieving their KPIs, provide suggestions as to how this may be rectified. Transparency and ongoing feedback is key to great performance and will help to limit any potential grievances that may arise in the event employees do not receive a bonus. Essentially, try to eliminate any surprise and and/or the level of dissatisfaction that may be expressed in the event of non-payment.
Please note, even if a bonus is discretionary employers should ensure their discretion is exercised in a way that is not in bad faith or for a discriminatory reason.
Finally, it is worth remembering that bonuses and incentive tools do not have to be monetary or have a significant cost. Gift vouchers, movie tickets, or an afternoon off are all ways to say thank you and reward staff for their hard work or a job well done.
If you would like any further advice on contractual terms around bonuses and commission schemes or to discuss any employee performance issues you have, please call our advice line on 1300 651 415. Or if you have a curly question you would like to ask me click here.
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