Payment of bonuses

Due to the fact that Labour Law is silent on the payment of bonuses, the payment thereof is entirely at the discretion of the employer and can be negotiated with employees.

If for example an employer has not paid bonuses to employees in the past, they are under no obligation to do so. It is however important to note that some Bargaining Councils and Collective agreements make provision for bonuses to be paid and employers are obliged to adhere thereto.

The most common types of bonuses are the following:

  • 13th Cheque: this is seen as a bonus of gratitude to the employee after a year of hard work. The employer normally discusses the payment of a 13th cheque with employees at the start of their service.
  • Performance bonus: this is a bonus paid to employees after their performance had been higher than expected or agreed upon and is calculated as a percentage of the employee’s wages or salary.
  • Production bonus: a bonus paid to employees who performed over certain targets given to them. When the employee exceeds a certain target set to them the bonus gets paid as a gratuity.

If employees are currently paid bonuses, an expectation is set that they will get paid a bonus upon a certain event. The best route for employers is to clarify and stipulate the issue of bonuses in the contracts of employment to avoid any issues that may arise.

In the matter of Aucamp v SA Revenue Services (2014) 35 ILJ 1217 (LC), the Labour Court held that if an employer exercises their discretion unfairly in terms of paying bonuses, it constitutes an unfair labour practice. The Court held:

“Even if a benefit is subject to conditions and the exercise of a discretion, an employee could still, as part of the unfair labour practice proceedings, seek to have instances where the employee then did not receive such benefit adjudicated. So, therefore, even if the benefit is not a guaranteed contractual right per se, the employee could still claim same on the basis of an unfair labour practice if the employee could show that the employee was unfairly deprived of same. An example would be where an employer must exercise a discretion to decide if such benefit accrues to an employee and exercises such discretion unfairly.”

Should an employer be unable to pay guaranteed bonuses (as expected by the employees) due to financial constraints, the employer cannot simply opt not to pay such bonus as it will be viewed as a unilateral change to the working conditions and an unfair labour practice in terms of section 185 of the Labour Relations Act.

In such instances, the employer will be required to consult with the employees through the guidance of a labour law professional in an attempt to find consensus on the non-payment of bonuses, with the possible alternative thereto being retrenchments.

An employer should also safeguard against the payment of bonusses for certain staff and not others especially if the employee/s not receiving bonuses are in a similar position as other employees that do receive bonuses, as this may amount to unfair discrimination as well. To safeguard against this, the employer should have a performance appraisal system in place to fairly determine allocation of said bonus/not.

Do not hesitate to contact Invictus on 0861 737 263 for assistance with employment contracts and matters relating to bonuses.