Chair Hogan Lovells South Africa
Payment of Bonuses Not Guaranteed
17 December 2013Sowetan
Apart from looking forward to a long break, most employees are excited about receiving bonuses. But what is a bonus? Is every employee in South Africa entitled to receiving a bonus? What happens when your employer does not pay you a bonus?
Chapter 1 of the Basic Conditions of Service, Act 75 of 1997 describes bonuses as "any payment in money or in kind, or both in money and in kind, made or owing to any person in return for that person working for any other person, including the State, and 'remunerate' has a corresponding meaning".
In the South African job market, there are three common types of bonuses, namely, Christmas bonus or 13th cheque, annual performance bonus, and production bonus.
The 13th cheque is usually paid by the employer as a gratuity in acknowledgement of a job well done and for going the extra mile in the performance of work by its employees. The second type is a performance bonus, which is normally paid for good performance and is based on a percentage of the employee's earnings. The payment or non-payment may be influenced by a score obtained by an employee in a performance appraisal.
Lastly, there is the production bonus, which is based on the assessment of whether the employee or a particular department within the employer's enterprise has met its targets and the quality of performance in meeting those targets. Such a bonus will be paid where the joint efforts of that team are responsible for the consistent outstanding performance in a department and it meeting its targets. This amount can be paid as a percentage of the profit made by that department.
There is no requirement in our law for an employer to pay bonuses. Payment of bonuses can be contractual. That means they will be recorded in the terms of a contract of employment.
A bonus may be paid arising from an established custom and practice of the employer. The employer must have, in previous years or occasions, habitually paid out the bonuses for it to be regarded as an "established custom and practice". In such cases, the payment of a bonus becomes a term or condition of employment, and therefore, the bonus must be paid because of an expectation that it will be paid.
In the case where an employer fails to pay out a bonus, the employee can refer an unfair labour practice dispute relating to the provision of benefits to the CCMA. Where the payment of a bonus has become an established custom or practice, the failure to make payment could constitute a unilateral change of the terms and conditions of employment by the employer, or could result in a breach of contract.
It is important for employees to be mindful of the fact that the payment of bonuses is not guaranteed.
The employer has a duty to consult with its employees or their representative trade unions to inform them of any possibility of bonuses not being paid or being reduced, or if absolutely no bonuses will be paid for a particular year. Where an employee is unlikely to receive a bonus due to performance or production related issues, the affected employee has to be informed within a reasonable period and should be afforded the opportunity to make representations.
Chair Hogan Lovells South Africa