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The Christmas bonus – Be careful what you wish for


Monday, December 9, 2019

As published in The Sunday Business Post, December 8th 2019.

Many employers have a practice of paying Christmas bonuses – partly as a reward to staff for their contribution to the success of the business during the previous year, and partly to mark the festive season itself.

A question that arises from time to time in practice is whether there are any rules or restrictions on the circumstances in which an employer can pay a Christmas bonus – and whether there are any pitfalls to watch out for?  Nobody’s going to complain about receiving a bonus, but what if my workmate receives one but I don’t?  In addition, if I receive a bonus in 2018, am I automatically entitled to a bonus in 2019?

If an employer is paying a bonus across the board – in other words, every member of staff regardless of seniority or rank receives a bonus, problems are probably less likely to arise.  The principal precaution that an employer needs to take in that case is make it clear that the payment of a bonus is purely discretionary – this is a simple step to guard against any suggestion that employees have the expectation of a guaranteed bonus in future years.

A prudent employer will have already dealt with this issue in contracts of employment or staff Handbooks – there is never any harm in referring to the fact that bonuses may be paid, but making it clear that employees have no automatic entitlement to one.

Christmas bonuses, by their nature, typically differ from performance–related bonuses, which employees may be entitled to earn during the year (although, obviously, if there is actually a performance component to a Christmas bonus, employers need to ensure that the performance criteria or KPIs they are employing are clear and fair).

An interesting question that occasionally arises is whether an employer is entitled to cancel a bonus scheme without consequences. This has been the subject of intervention by the courts and WRC and the rules are now reasonably clear.  As long as the bonus scheme is discretionary, it can usually be withdrawn on reasonable notice to staff (any kind of guaranteed bonus scheme, on the other hand, is likely to form part of the terms and conditions of employment and cancelling it will be considerably more difficult).

Even in the case of genuine discretionary schemes, employers need to tread carefully.  One very important point, that employers still occasionally fall foul of, is that if an employee has been set certain targets/KPIs, and has met those targets, the bonus will definitely have to be paid.  Putting it another way, cancelling a performance bonus scheme can have prospective effect but it can’t be retrospective: if the employees have met their side of the bargain, the employer will be expected to do the same.

In cases where an employer pays a Christmas bonus selectively, the terrain can also be difficult.  Firstly, and obviously, a Christmas bonus scheme that’s selective can give rise to disaffection in the workplace.  That’s particularly the case where disgruntled members of staff believe that the employer is playing favourites.

As well as that, a bonus scheme that is only available to senior members of staff is likely to engender an unfestive spirit in the poor unfortunates who are lower down the totem pole.  That said, unless the unlucky employees can point to a contractual entitlement, or other reason why they should be paid a bonus, there isn’t much they can do about it.  If a Christmas bonus scheme is genuinely discretionary, an employer is entitled to choose who receives one.

On this, employers need to be wary if they inadvertently breach discrimination rules. It’s a definite no–no to discriminate against certain classes of employee when paying a bonus (or conferring any other type of benefit).

An employer could not under any circumstances, for example, justify paying male employees alone a bonus.  The same applies in respect of any of the other eight categories of discrimination set out in employment equality legislation (sex, sexuality, race, family/civil status, membership of the travelling community, religion, age or disability).

However, equality cases involving Christmas bonuses are very rare – in practice, an employer that pays Christmas bonuses selectively (or only to favoured employees) is unlikely to be the subject of litigation.  In fact, in those cases, the damage to the business is more likely to arise when staff become disaffected and either lose interest in doing their best work, or decide to move elsewhere.

Probably the best approach for an employer when considering a Christmas bonus is to pay one across the board, or not at all. After all, anyone who receives a lump of coal in their work stocking is not going to feel particularly well–disposed towards that employer.

 

For further information on the above, please contact Patrick Walshe.


Author

Patrick Walshe

PARTNER


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