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Contract of Employment

Christmas bonuses

Some organisations normally give employees a Christmas bonus. However, this year business my not be in a position to pay out a bonus – could employers be at risk of claims if they don’t?

Employers will have to be cautious before implementing potential cost saving measures, otherwise they may find themselves defending costly employment tribunal claims.

If you choose to withhold or reduce Christmas bonuses, or pay them indiscriminately, employers may face an equal pay or a discrimination claim under the Equality Act 2010. This is a particular concern to employers given the uncapped nature of discrimination awards.

When deciding whether or not to pay an employee a Christmas bonus, employers should initially

establish whether or not employees have a contractual right to be paid a bonus and, if so, the nature of that right. If an employee's contract states that they have a right to a Christmas bonus at a defined amount, employers must comply with this term, or they will be in breach of the employee's contract.

 

If an employee's contract entitles them to a Christmas bonus but payable only at the employers discretion, or if the amount is discretionary, then there is greater scope for avoiding or reducing the payment. Consistency across all staff is key, and employers should make their reasons for not paying a bonus clear to avoid any allegations of discriminatory treatment.

If an employee's contract does not give them a right to a Christmas bonus or the right is purely discretionary, employers may still face an argument from the employee that there is an implied contractual right to a bonus payment. This could be due to an established custom and practice of receiving annual bonuses and, therefore, a reasonable expectation that the employee will receive one this year.

Best practice would be for employers to speak with employees and fully explain why bonuses are not being paid, or are only being paid to some employees this year.

Tips

•    Review contracts to establish whether or not employees have a contractual right to a Christmas bonus.
•    Understand that the payment of previous Christmas bonuses may provide the employee with a contractual entitlement to continue to receive one.
•    Avoid refusing to pay a bonus impulsively or in bad faith, and always justify the reason for exercising discretion.
•    Carefully consider how to avoid discriminatory practices if paying bonuses to some employees and not others.

At Prestige we want to wish you a very Merry Christmas and ensure you have suitable Contracts of Employment in place to help you with this subject.

 

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