Discretionary Bonus

Caragh Bailey
01/03/2021
209
6 min read
Discretionary Bonus from Employment Law Friend

How does bonus pay work?

Some employers offer bonus pay on top of your regular pay and any commission. They are usually based on company performance, but could be based on individual performance as well. Any bonus that you are entitled to will be either a contractual or a discretionary bonus.

What's the difference between bonus payment and commission?

Commission is a fixed amount or percentage which your employer may pay you on every sale you make. This makes up part of your pay. Bonus payments are an additional payment which is usually paid as an incentive for certain achievements or targets.

Commission is paid on sales that are expected within your job role. Bonus payments are made to reward higher achievements.

Contractual bonuses are agreed rewards. For example, your employer pays you an agreed amount for every sale you make over your target sales per week. This may be considered to be contractual even if it does not appear explicitly in your contract of employment.

What does discretionary payment mean?

Discretionary pay, or a discretionary bonus, is pay from your employer which is not guaranteed or expected. The requirements for awarding the bonus are flexible, but will usually include certain criteria. For example, the company will only offer a bonus if individual, team and or company wide targets are met, or a combination of all three. They get to decide how much the bonus will be and who will receive it.

Your employer must be fair when deciding your discretionary bonus.
While they can decide whether they grant a discretionary bonus, how much they pay and who gets it, your employer must exercise their discretion in good faith and on reasonable grounds.
If they have withheld your bonus unreasonably, or simply because they don't like you, you may be able to claim for unlawful deduction of wages, even if the bonus scheme is 'discretionary'

Our employment solicitors can tell you if your bonus payment dispute is worth making a claim

What are examples of bonus in the workplace?


Contractual Bonus
Discretionary Bonus
  • Your target is to make 10 sales per week. For every sale you make over 10, you receive a £10 bonus.
  • You and your team have been told that if your store beats it's sales targets for the year by 8%, you will receive a Christmas bonus of 1 week's wages.
  • At the end of the year, all employees receive a bonus payment. It is understood that this is because the company has done well this year. However, the criteria for whether they pay bonus, and how much each employee gets, is unknown to the employees until after the bonus payments have been made.

How is discretionary bonus calculated?

Because discretionary bonus is at your employers discretion, they can calculate it using any criteria they choose, as long and they are being fair and reasonable.

However, if it is custom and practise for your employer to pay a regular bonus to employees who have met a similar standard each year, this bonus might be considered to be an implied term of your employment contract. This means a commonly understood term of your employment, where it does not appear in your contract.

Most of the time you will only get your bonus if you have been employed for the whole year and you are still employed when the bonus is payed. Most contracts will state that you will not be eligible to receive a bonus payment if you are working on notice. However, you may still be eligible if you are on garden leave. Generally the criteria that employers choose to calculate discretionary bonus will be based on performance over a year long period.

Can I sue my employer for unpaid bonus pay?
Yes. You can make a claim against your employer if:
  • You have not been paid contractual bonus pay (as long as you have met any clauses included such as having worked the full year)
  • You have not been paid discretionary bonus pay in bad faith (other employees who performed similarly got a bonus but you did not, for personal or discriminatory reasons)
  • You have not been paid a bonus because you spent 6 months of the year on maternity leave


You have a few options:
    1
    Claim for unlawful deduction of wages at the employment tribunal. - Where the amount is ascertainable and easily quantifiable.
    You have a time limit of three months (minus one day) from the day the bonus was due to be paid.

    2
    Make a claim for damages due to breach of contract. - If the amount is not easily calculated by a referred set of formula.

    Breach of contract claims can go to tribunal or to court, here's the main differences:
    Tribunal
    Court
    Discretionary Bonus from Employment Law Friend
    The award for breach of contract is capped at £25 000 at the employment tribunal.
    No limit.
    Discretionary Bonus from Employment Law Friend
    You have a time limit of three months (minus one day) from the day the bonus was due to be paid.
    Six year time limit.


    Frequently Asked Questions
    Yes. Any money paid as bonus (or vouchers which are exchangeable for cash) are taxable. They will be added to your other earnings and PAYE tax and National Insurance contributions will be deducted from the total amount.
    Yes. Discretionary bonuses are legal. However, they may be capped. For example, bankers bonuses are now capped at 100% of their salary, or 200% with shareholder approval. A discretionary bonus of more than this would be illegal.
    If you have been employed since the beginning of the bonus year, but were on maternity leave for some of it, your employer has to pay you a bonus. However, they only have to pay you a bonus based on the time you were at work, including two weeks compulsory maternity leave, but not any statutory maternity leave beyond two weeks.
    For a discretionary bonus, they should do this too. Not doing so may be considered to be unfair or 'in bad faith', meaning you could make a claim to the employment tribunal

    Has your employer withheld your bonus payment?

    There is much more to winning your case than simply being in the right, our specialist employment solicitors know all the laws and tactics, to make sure you get the best chance at a fair settlement. Get in contact with us and see how we can help.

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    This content is provided free of charge for information purposes only. It does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of our company. For employment law advice please get in contact and speak to your employment law solicitors.

 
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