Workplace Bonuses and Employer Gift Giving

During high stress and peak periods in the workplace, employers may wish to find ways to show their appreciation for their employees’ hard work.

However, firm-wide or company bonuses are usually contractual and tend to be paid out once specific targets are hit. This means an employer has less flexibility around how much or who is entitled to one. Employees’ entitlement to a contractual bonus should be recorded in their written statement of employment particulars and the criteria for the employee to obtain a contractual bonus should be clearly explained and set out.

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What is a discretionary bonus?

Discretionary bonuses are sometimes known as voluntary bonuses or non-contractual bonuses. A discretionary bonus provides much more flexibility for an employer as it provides the option of potentially granting a bonus one year, but not necessarily the next year, and setting the amount to reflect current conditions. This means it could be used to provide financial support quickly and discreetly, should the need arise.

If a contract says a bonus is discretionary, the employer must still act fairly when deciding whether to pay it. If the employer does not act fairly and reasonably then they may leave themselves open to legal claims.

What factors should employers consider when granting discretionary bonuses?

• Confidentiality: Employers should handle sensitive information about employees discreetly, especially if assessing personal circumstances that may influence bonus decisions.
• Fairness: Bonuses should be distributed fairly, ensuring that employees in similar roles or circumstances receive similar treatment.
• Awareness of employee needs: Employers and managers who are familiar with their teams can better understand who might need extra support, though this should be done respectfully and without making assumptions.
• Committee oversight: Forming a bonus committee can help mitigate unconscious bias and ensure that decisions are balanced and consistent.

How should employers document discretionary bonus decisions?

Employers should keep a record of the decision-making process, including criteria considered, committee notes, and approvals. This helps protect against claims of unfair treatment and ensures transparency. It also provides a clear reference for future bonus decisions, helping maintain consistency and fairness across the organisation.

What are the alternatives to providing discretionary bonuses?

Discretionary bonuses might go a long way to help struggling employees, however, they are not the only method of assistance available. Employers may wish to consider other options available, such as providing short-term crisis loans that could then be paid back through salary deductions over a set period of time.

Another option is to explore whether any reasonable salary increases can be made. However, for businesses which are unable to provide salary increases, a one-time discretionary bonus could seem like the best way forward.

It is important for employers to seek professional advice, where necessary, to ensure that they have addressed factors such as fairness, unconscious bias and how to ensure the support will remain confidential before they go ahead and set up any discretionary bonus schemes.

What’s the difference between a contractual bonus and a discretionary bonus?

• A contractual bonus is tied to specific performance metrics or targets and is often outlined in employment agreements. Once the criteria are met, employees are entitled to this bonus.
• A discretionary bonus is optional and gives employers flexibility, allowing them to decide whether or not to provide it each year based on current business performance, needs, or other considerations.

Can gifts or bonuses create tax implications for employees?

Yes, typically bonuses are considered taxable income. Certain types of gifts, such as non-cash items below a specific value threshold, may not be taxable, depending on the tax laws in each country. Employers should consult tax professionals to understand how to handle gifts and bonuses compliantly.

Thoughtful planning helps employers show appreciation for their employees creating a fair and supportive workplace. If you have any further questions or require any assistance with managing employee bonuses and their tax implications, then reach out to a member of our team today.