EMPLOYEE BONUSES- ARE THEY COMPULSORY?
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EMPLOYEE BONUSES- ARE THEY COMPULSORY?

 

As we approach the year end an important issue on both Employers’ and Employees’ minds is the subject of Bonuses. Most Employees are expecting that bit of extra money which they have already budgeted for. Large and prosperous businesses budget well in advance for bonus payments. However, due to financial difficulties, some small to medium sized businesses may not have the means to do so.

 

The first of the three preferred types of bonuses is the year end bonus, also known as the “13th cheque”, which is given to employees as a reward for going the extra mile.

 

The second type of bonus is generally paid for good performance. This means the employee is achieving their targets and is consistently exceeding the required standards of the company. A performance bonus is generally based on a percentage of the employee’s salary or wages.

 

The last type of bonus is the production bonus. This is not based on performance but on production measured against targets. Quality of production may also be a factor with this type of bonus. In other words, if the company sets a target for an employee or department to produce a certain number of units per day and the units produced are above that number, then a production bonus may be justified.

 

Over the years employees have come to expect this type of bonus as a right or entitlement. Therefore, it is becoming increasingly important for employers to decisively deal with this issue in their employment contracts and company policies. Employers need to be wary of consistently paying this type of bonus every year, whether a contractual obligation exists or not, as this may create a strong expectation by the employee of receiving that bonus. The problem arises in the absence of a contract when the employer decides that this year he will not be paying bonuses – the employee may be able to take action against the employer in such circumstances.

 

The labour law is relatively silent on the aspect of bonuses unless a business is a member if a bargaining council. This means that the law leaves the decision to the employer. The best way to ensure that there is no confusion in respect to bonuses is for the employer to ensure that it is correctly set out in the employee’s contract of employment or the business’s policy document.

 

Generally speaking, employers who do not normally pay bonuses are not in breach of the law. There are however two exceptions to this. The first is if the employer’s business falls under a specific sector which stipulates that it is compulsory to pay an annual bonus to employees and the other exception is if a legitimate expectation of receiving an annual bonus has been created by the employer.

 

In the absence of a contract of employment, employers need to communicate with their workforce to let them know that bonuses should not be expected every year and that it is at the discretion of the employer. This is important as the financial situation of a business often varies year on year and in some cases a bonus simply cannot be budgeted for. This is just one reason why having a written employment contract or a company policy document is essential. An employment contract and company policy will clearly stipulate the terms and conditions of the employment relationship and avoid any misunderstandings or labour disputes.

 

In our next article we will deal with an issue that affects almost every household and office– what you need to know about domestic workers and the recent increases in their minimum wages. (The hourly rate as of 1st December 2015 shall be R11.44)

 

 

Labour Specialists Employer Solutions

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