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November 2, 2017

Salary Bonus, pay, don’t pay, delay?

salary bonus Andrew Butters

Can an employer simply decide not to pay a salary bonus at all?

To pay it at a different time in the year?

Or to spread payment of any bonus awarded to an employee over a few months to assist it in its cash flow?

South African Labour Law is silent on the question of salary bonus. This means that the payment or non-payment of bonuses is a matter for the employer to determine, and to negotiate with employees.

In order to deal with the original questions posed, one must understand that a bonus can take various forms and structures such as a Christmas bonus or 13th cheque as it is known, usually paid in the month of December, the performance bonus usually paid monthly, quarterly or annually to an employee  or  the production bonus paid usually monthly, quarterly or annually to either an individual employee or an entire team of employees.

The 13th cheque or Christmas Salary Bonus

This bonus is normally a payment of gratitude by the employer to the employee in recognition of a job well done and is based on a gratitude extended to an employee for the year’s work and contribution.  Over the years most employees have come to expect the payment of the 13th Cheque as a right or entitlement, or as a condition of employment based on the practice of payment by an employer which has now become customary.  In other words, they expect to be paid a 13th cheque irrespective of whether the job is done well or not as the payment of such a bonus is hardly ever done against a particular performance evaluation of the employee or well laid out qualifying criteria but is somewhat more based on a “gut-feel” by an employer leading to a historic payment of a 13th cheque to all employees irrespective of what they have delivered to the employer.   This bonus, in terms of its quantum literally equals the monthly salary of the employee.

There may come a time, when after a bad trading year and poor company results, an employer is unable to pay a 13th cheque despite having paid one consistently for the last number of years.  Sound Employee Relations practice dictates that the employees be informed several months in advance that the 13th cheque will not be paid the bonus in that particular year.  Some employers may argue that they don’t know well in advance that they will be unable to pay the bonus, but surely by midyear or during the third quarter of that fiscal year employers would have a good idea of what the company performance would be like at the end of the year.  The point is that employees must be advised well in advance of any decision not to pay a bonus.  Any such decision cannot be made at the end of November or in the early part of December with no track record of communication to the employee at any earlier time.  The employee would have built a legitimate right to expect the payment of that bonus in December and the failure to do so by the employer could result in an unfair labour practice dispute being referred to the CCMA or a bargaining council by an aggrieved employee/s.

Employers must carefully peruse and review any policies and contracts of employment which may deal with and lay out the rules attached to the payment of any 13th cheque and must clearly stipulate the rules of eligibility as well as the criteria that would qualify deserving employees for the payment of any such bonus.

Performance Based Bonus 

A performance bonus is normally paid for performance which falls beyond that which is expected by the employer, and should, usually, be based as a percentage of the employees’ salary or wage.  A team/departmental performance bonus can also be paid as a lump sum to a department, and split up into equal amounts to each employee in that department based on the theory that all “players in the team” contributed in equal amount to the attainment of some or other targeted level of performance.

Where performance bonuses are paid, policies utilised by employers need to very clearly spell out the eligibility criteria as well as the conditions to be achieved to ensure that a performance bonus is paid to an employee/s.  A decision cannot be made by an employer at the time that any performance bonus is due to be paid to an employee or expected to be paid, that it will no longer be paid.   This would amount to a blatant unfairness from a labour practice perspective and would do immeasurable harm to the relationship of trust expected between employer and employee.

Production Based Bonus

The production bonus is based, not on a broad category of performance measured against company standards, but rather on production units produced and measured against predetermined production targets set by the responsible Management.   Measurement may also be based on the quality of production and could even include some or other aspect of attendance at work as a criterion.   In other words if the company has set a target for one particular employee or, for that matter, for an entire department to produce 10 production units per hour, and the employee or department consistently produces 15 per hour, then a production bonus would be justified.   Similarly, if the company rule is that a rejection rate of 5 percent is acceptable, but the department consistently achieves a rejection rate of only 3%, and that the team are to ensure that attendance at work must not be less than 99% of available production time and the employees achieve 99,4%, then a production bonus would be in order.

Again, one would say that employers should ensure that rules of any such bonus scheme are clearly documented and that they administer any payment in terms of these rules and consistently so.

What About Payment of these Bonuses, then? 

In the case of the employer who presently does not pay bonuses of any sort, it is entirely up to the employer to decide whether it wishes to pay bonuses or not.   Any such decision ought to be taken with due regard to whether there are adequate tools and systems in the organisation to support the defence of any decision made about whether to pay a bonus or not, as well as the impact on staff morale, should a decision be paid in favour of either paying or not paying a bonus.

Where an employer pays bonuses or has historically done so, employees would have come to expect the payment of the bonus as a right or entitlement and would interpret this practice to be a condition of employment.   Therefore, those employers who wish to change the status quo regarding the payment of bonuses, by paying at the different time of the year than has traditionally and historically been the case in the past or by paying a lesser amount, or by spreading what was an annual bonus into two or more monthly payments  to employees, will have to consult with the employees, explain the problems and the triggers for any such requirement, and seek to get them to accept the new payment proposal.   Should employees fail to do so, and a dispute is declared, an employer would not, necessarily, be required to prove that they had agreement from employees to do so but rather that employees were consulted as part of such a decision and that the employer had a justifiable commercial reason to change the status quo.

The decision by employers to host a salary bonus scheme, the type of scheme and then how to pay such must be carefully considered and consistently applied to add real value to the lives of employees and to maintain high levels of staff morale.

Andrew Butters, motivational speaker, Inspiring Performance

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