Bonuses at work

A guaranteed bonus is one that is guaranteed under a contract. Sometimes referred to as a 'golden handshake', this type of bonus provides certainty of a bonus regardless of the company or individual’s performance. Provided the employment contract is properly drafted, there should be no issues in receiving this bonus as an employee. 

If an employer fails to pay a guaranteed bonus by the due date, you can make a claim for the recovery of the amount owed. Note that some contracts contain a clause that says that a guaranteed bonus will not be paid if the employment is terminated due to situations such as gross misconduct. 

Some bonuses are entirely discretionary. Often they are based on an employee reaching targets or key performance indicators. Employers have the discretion to decide which employees will be eligible to receive a bonus, the amount payable and even whether to pay any bonuses at all. It is an implied term of any bonus scheme that employers are expected to exercise their discretion rationally and cannot discriminate.

If there is a dispute over whether a discretionary bonus has been adequately paid, this may proceed to court. In deciding whether the bonus has been justifiably withheld or sufficiently paid out, the court will look at various factors. These can include the performance of the department, the employee’s own performance and industry custom. 

There can also be a claim for unlawful deduction of wages where a determined bonus is not paid. This claim must be brought within three months of the failure to pay. For more information about the overpayment of wages, you can read our legal guide Overpayment of wages.

There are two main types of performance based bonuses:

• short-term schemes, like bonus payments or sales commission

• long-term schemes, like company shares (for more information on this, read Employee share schemes)

Many employers offer bonuses to people based on either their own performance throughout the year, the company’s performance, or a combination. When offering performance related bonuses, it is important to define performance criteria (eg what level of performance will result in what bonus) from the outset.

Most employers determine performance based bonuses are usually based on the following factors.

Personal performance 

You may receive a bonus if you meet or exceed your key performance indicators (KPIs) or other goals set by management. Other skills such as leadership, communication and problem solving may also be rewarded. 

Pay grade 

Generally, if you’re on a higher salary (ie in a higher pay grade), then you’ll be eligible for a higher bonus. Bonuses are usually a percentage of your overall salary, with more senior employees receiving a higher percentage. This sort of bonus pay recognises that senior employees normally will have an impact on the company’s overall performance.  

Company performance

A company may only financially be able to award bonus pay if the company reaches its own financial goals. Therefore, even if you as an employee meet all your KPIs, the company may not pay you a bonus unless they meet their goals as well. 

Employers often choose to incentivise employees, especially those working in sales, through commission payments. Commissions from sales can become a large portion of your pay. Commission pay can sometimes be referred to as bonus pay as well, but commission pay is different as it is directly linked to the amount of sales you make. Like bonuses, commission schemes may be contractual, guaranteeing employees a certain level of commission and providing a mechanism or formula by which the amount is calculated, or they may be discretionary.

Depending on the company you work for, you may receive a bonus on top of your sales commission. You may also receive extra pay based on your team’s performance. For more information, read Pay and benefits.

If you think you are owed a bonus or commission but have not been paid, you should first speak to your employer to see if there’s been a mistake or misunderstanding. You should ask them to set out their reasoning in writing of how they have calculated your pay. You should keep copies of any letters or correspondence where you were promised bonus pay. 

You should also check your contract to see whether bonus pay is guaranteed. If it is, and you have not been paid, then this could constitute a breach of contract. You can get help with making a complaint.Non- payment of bonuses may also be an unlawful deduction from wages or unlawful discrimination.