Are companies required to pay staff annual bonuses?

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The financial year end has come and gone, and accountants are by-and-large finished with calculating how much profit they’ll be reporting to shareholders, and how little they’ll be reporting to SARS. But what about the staff bonuses? Every year employers find themselves facing the same old challenge: employees demanding “their” annual bonuses. Companies find themselves asking “Must I pay my staff a performance bonus? Profit bonus? Ad hoc bonus? Is the payment of a bonus legally required in South Africa?” Meanwhile, employees are asking “I didn’t get a bonus this year – aren’t I entitled to one?”

 

There is often confusion around this, with many employees expecting payment of a profit bonus, and even believing that they’re entitled to the payment of an annual bonus in terms of South African labour law. Many a hapless employer feels strong-armed into paying staff a bonus. But with the economic constraints of late, many companies are finding the payment of a bonus to be financially unviable.

 

So right off the bat, here’s the short answer: there is no legal requirement in South African labour law for an employer to pay its staff an annual bonus or a thirteenth cheque.

 

To answer the above-questions, and in particular, the all-important question of “Is a company obliged to pay its employees an annual bonus?” you would need to look, not in our labour law statutes and regulations, but in the company’s own HR paperwork:

  • What does the employment agreement say about the employee’s right to a bonus? Has any subsequent update in the employee’s terms of remuneration / package deal changed the terms of the employment contract, eg. by way of a remuneration schedule or increase letter?
  • What do the company’s general policies & procedures say about bonuses? (Whether they’re profit bonuses, performance bonuses, ad hoc bonuses or thirteenth cheques.)
  • Is there any collective agreement in place that deals with bonus payments?

The company would need to pay bonuses and thirteenth cheques in accordance with whatever agreement or arrangement has been reached and is recorded in these documents.

 

If the company’s documents are silent on the matter, then see above: employees have no statutory entitlement to a bonus or thirteenth cheque. However, tread carefully here. If the company has historically paid its staff annual bonuses / 13th cheques each year then the company needs to think twice, and preferably consult a labour specialist, before terminating this practice. If the regular payment of bonuses has become entrenched as a company practice, the company cannot unilaterally change it without consulting with its staff. This could be viewed as an unfair labour practice.

 

Please note that this information is supplied for general information and does not constitute legal advice. It is advisable for you to contact a legal practitioner for guidance in respect of your unique requirements.

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