Christmas bonuses: key things to remember

With Christmas almost upon us, organisations may wonder if they are under a duty to pay out a bonus to staff.

The issue of pay is typically a sensitive topic in the workplace and this tends to be the case even more around the notoriously expensive Christmas period. Christmas bonuses can be a successful strategy to improve employee engagement, keep morale high or even attract the most talented applicants for a particular position. As giving employees a bonus can be a great way to reward them for their work over the past year, this frequent practice can turn into a tradition which the workforce comes to expect.  That said, the size of an organisation or current profit levels may make paying a bonus difficult for some.

The first thing an organisation should establish is whether they are under any duty to provide such a bonus. Fundamentally, there is no statutory requirement to pay staff a bonus at any time. However, if bonuses are a contractual benefit included in the terms and conditions of employment or in the employee handbook, then employees will have an expectation of the payments and management are under a legal obligation to pay it. Non-payment in this situation could result in a claim for breach of contract.

Much will depend upon the wording of the contract. Many organisations choose to include a clause which reserves the right to withhold any bonus if they see fit. This will help to prevent it being considered ‘mandatory’. Nonetheless, they should still be cautious. If they have paid a Christmas bonus to all their staff for a number of years without any changes or interruptions, adjustment of the practice can give employees a ground to make a claim. In an event such as that, an employee can claim that the annual payment has transformed into a custom or tradition through the consistent conduct of the organisation.

It is advisable for all bonuses to be marked as discretionary within contracts and the employee handbook. As an extra precaution against potential claims, employees should be given advanced notice as to whether the criteria is going to be met for them to claim their bonus. For example, if it was a condition to hit a pre-determined sales level and this has not happened, then it need not be paid. By providing advanced notice, this can also serve as an incentive to staff to improve upon their current productivity levels.

It is always important that, even if a bonus is to be paid, it is fairly calculated. Organisations should have a fair and reasonable criteria to refer to in order to calculate the allowance for each employee. Remember if a staff member feels they have not received as much due to a protected characteristic, they may pursue potentially costly discrimination claims.

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