Do I have to pay year-end bonuses?

Do I have to pay year-end bonuses?

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We’ve had a really tough 2013 and I can’t really afford to pay my staff 13th cheques but I may be able to afford a small bonus for everyone. What does the law say my obligations are?

The festive season is looming, bringing with it the promise of a bonus or 13th cheque for many South Africans in formal employment. But, before your staff count on having that cash in your holiday budget, make sure that it is guaranteed to them under the terms of employment as stated in your contract.

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 they received a bonus last year, doesn’t necessarily mean they will get one this year or that it will be as large as it was in earlier years. Study your employment contract and company policy to understand what is expected before your staff spend money they may not be getting.

Bonus or 13th cheque, what’s the difference?

The terms 13th cheque and bonus are used interchangeably, but 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 to determine whether to pay bonuses and how big these should be

You will usually look at two major factors, depending on your employment contract:

1. Performance

You might look at your staff’s performance appraisals or whether they have met targets such as a sales target to decide whether to award a bonus.

 

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2. The organisation’s performance

The company’s management team may look at how well a branch, department, or the organisation as a whole has performed to decide how much any bonus should be. For example, managers might look at whether income or production targets were met.

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.

Whether or not a bonus is paid or not is governed by the following:

  • Your individual contract of employment might specify that your staff is entitled to a 13th cheque or a bonus that depends on their performance or that of the company.
  • 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.