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Bonuses: A right or a privilege?

Estimated reading time: 4 minutes

  • The payment of bonuses is an issue that often leads to friction between employers and employees.
  • Under what circumstances is the payment of bonuses mandatory and what are the different types of bonuses that employees can qualify for?
  • In the context of labour law, a bonus is defined as a financial incentive paid to employees in addition to the regular salary or wages they receive or can expect. Typically, employers pay bonuses to motivate their employees or reward them for their work performance.
  • There is no statutory requirement in labour law to pay bonuses. An employee can only claim a bonus when it is prescribed by the sectoral determination or bargaining council agreement applicable to a particular industry or sector.
  • If an employer frequently paid bonuses to employees in the past, there might be a reasonable expectation among employees that bonuses will also be paid in future.

The payment of bonuses is an issue that often leads to friction between employers and employees. Under what circumstances is the payment of bonuses mandatory and what are the different types of bonuses that employees can qualify for?

In the context of labour law, a bonus is defined as a financial incentive paid to employees in addition to the regular salary or wages they receive or can expect. Typically, employers pay bonuses to motivate their employees or reward them for their work performance. This makes employment very attractive to prospective employees.

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A bonus as part of a competitive compensation package and other benefits, gives the employer an advantage over other employers while allowing the business to retain valuable employees in the process. 

There is no statutory requirement in labour law to pay bonuses. An employee can only claim a bonus when it is prescribed by the sectoral determination or bargaining council agreement applicable to a particular industry or sector.

Different types of bonuses

The most common types of bonuses are the following:

  1. Discretionary bonus

This type of bonus is paid solely within the discretion of the employer. Such a bonus may be awarded to an employee for exceptional work performance as a way of rewarding the employee. Note, though, that there need not be a specific reason for awarding such a bonus as it is within the employer’s discretion.

  • Performance bonus

This type of bonus is linked to an employee’s performance and/or the performance of the employer. Performance bonuses are set out in the employee’s contract of employment, stipulating specific goals or targets the employee must meet before the bonus is payable.

  • Guaranteed bonus

A guaranteed bonus or so-called thirteenth cheque is typically paid at the end of the year or on an employee’s birthday. This type of bonus is stipulated in the employee’s employment contract and forms part of the employee’s terms and conditions of employment.

The payment of a guaranteed bonus to the employee is therefore mandatory and the employer cannot choose whether or not to pay such a bonus as it is a contractual obligation. The employment contract usually stipulates the date on which this bonus is payable.

A guaranteed bonus is also payable in industries or sectors where a bargaining council agreement or sectoral determination prescribes the payment of such a bonus. Two examples of mandatory bonuses payable to employees are the restaurant industries in the Pretoria and Johannesburg area, as well as the contract cleaning industry.

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An existing expectation

If an employer frequently paid bonuses to employees in the past, there might be a reasonable expectation among employees that bonuses will also be paid in future. It could lead to uncertainty and dissatisfaction if the employer decides not to pay a bonus to employees.

Whereas labour law does not contain a statutory requirement for the payment of bonuses, the employer must include a stipulation in the contract stating that the payment of bonuses is within the sole discretion of the employer. This will ensure that there is no obligation on employers to pay bonuses to employees.

If paying bonuses is already an established practice or part of the workplace policy, the employer cannot unilaterally decide not to pay bonuses. This will constitute an amendment to employees’ terms and conditions of employment. The employee may even refer the matter to the Commission for Conciliation, Mediation and Arbitration (CCMA). Employers are advised to consult with the employees concerned before taking such a decision. – James Pretorius, legal advisor, LWO Employers Organisation

For enquiries, send an email to James Pretorius at james@lwo.co.za or info@lwo.co.za, or visit www.lwo.co.za.

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