All you need to know about year-end bonuses

But, before you count on having that cash in your holiday budget, make sure that it is guaranteed to you under your terms of employment as stated in your contract, says Benjy Porter, chief executive officer at Legal & Tax.

He says that with many South African companies battling to be profitable in a tight economy, employees can no longer take their bonuses for granted unless they are specifically entitled to a 13th cheque. “Just because you received a bonus last year, doesn’t necessarily mean you will get one this year or that it will be as large as it was in earlier years,” says Porter. “Study your employment contract and company policy to understand what you can expect before you spend money you may not be getting.”

Bonus or 13th cheque, what’s the difference?
The terms 13th cheque and bonus are used interchangeably, but Porter informs us that they are not exactly the same. A 13th cheque is a bonus that the employee can expect with certainty if this is part of his or her employment contract. A bonus is a reward based on the employee’s performance and the performance of the business.

How do organisations determine whether to pay bonuses and how big these should be?
Your employer will usually look at two major factors, depending on your employment contract: Your performance – Your boss might look at your performance appraisal or whether you have met targets such as a sales target to decide whether you should get a bonus. The organisation’s performance – The company’s management team may look at how well your branch, department, or the organisation as a whole has performed to decide how much your bonus should be. For example, managers might look at whether income or production targets were met. “So, to increase your chances of getting a good bonus, you must know your deliverables and key performance areas, and of course work hard to achieve and exceed them,” says Porter.

What rules must the company follow in deciding whether to grant bonuses or not?
No employee has a right to a bonus under South African labour law, unless it is stated in your employment contract, says Porter.
Whether or not a bonus is paid or not is governed by the following: Your individual contract of employment might specify that you’re entitled to a 13th cheque or a bonus that depends on your performance or the performance of the company you work for. The company’s policy might outline which employees are given bonuses and how the value of the bonus is determined. Bonuses might be paid because of established practice, or “custom and practice” as lawyers might call it.

What does this mean if you are not granted a bonus this year?
If you are taking a new job and you are promised a bonus or 13th cheque as part of your package, be sure that this condition is in your employment contract before you sign, Porter says. If your company has followed the company policy or the terms of your employment contract, you will not be able to contest its decision not to give you a bonus.
But if your employer breached your employment contract when it paid no bonus or a low bonus, you may be able to take legal action. If bonuses are paid
because they have become “custom and practice”, the non-payment of the bonus may fall under the definition of Unfair Labour Practice. The reason for this is that it might be seen as a change to terms and conditions of employment.

How should you spend your bonus?
“With South Africa’s culture of easy credit and consumerism, many South Africans blow their bonuses on a new TV, gifts for the family or a holiday,” says Porter. “By all means, treat yourself, but also save most of your bonus to service debt, especially if it is high interest debt like a personal loan with a bank or to pay for expenses such as school fees and clothes that are due in the month of January. If you get rid of interest-bearing debt now, you’ll be in better
financial shape to enjoy the holidays in years to come.”

*For more information on Legal & Tax, visit https://www.legalandtax.co.za, call 0860 LTS LTS (587 587) or email info@legalandtax.co.za. Follow them @LegalandTax on Twitter or join us on Facebook to keep up with Legal & Tax news and views.