Everyone can use a little extra income, particularly for a job well done and additional hours worked. Oftentimes promises of bonuses can sway a potential employee when making a determination between one employer or another. However, it is important to understand the structure of bonuses as they vary depending upon your type of employment, level of expertise, and generosity and commitment of the employer.

Initially, it is smart to take the stance that bonuses are gratuitous, meaning the employer is under no obligation to pay them out. However, there are some circumstances that may create a different scenario. Oftentimes, high-level executives will have defined bonus payments or bonus structures written into their employment contracts. For example, a contract may state that the Chief Executive Officer of a corporation is entitled to a bonus quarterly to be paid out in a specified amount. Under these circumstances, and depending upon the language in the contract, the bonus is guaranteed to the employee per the language of the contract.

Other forms of employment may offer incentives for achieving bonus pay. It is possible that upon reaching a sales number, or bringing in a certain number of new clients, or attaining a certain number of work hours (above and beyond the expected), that an employee will be entitled to a bonus. However, be aware of the language used to define the final determination of such bonuses. 

If a contract indicates the “final determination of a bonus is at the sole discretion of the employer,” it is possible for an employee to meet their target and still be denied their expected bonus. In such situations, it is imperative that you speak openly and directly with your prospective employer and agree on the type of language that will guarantee you a bonus if you hit the required threshold for the same.

If you are negotiating a new employment contract and want to include a clause to protect your bonus, there are approaches you can take in writing of which can be included to define and protect an employee’s right to collect an earned bonus. Examples of these include:

  • Contractual Language – this language will specifically define the circumstances under which an employee will be entitled to a bonus. Be sure that the final determination is one that is made objectively rather than at the discretion of the employer.
  • Company Policy – this type of bonus is usually defined within the employee’s employment manual. Usually, this type of bonus agreement is generic to all employees and delivered at the discretion of the employer.
  • Award or Enterprise Agreement – These agreements tend to focus on the deliverability of annual pay raises and the standard of work/performance that will be required to meet eligibility for an annual raise.

As both employer and employee, it is important to keep in mind that there will be tax consequences to both the company and the employee when bonuses are being distributed. Both bonuses and commissions are defined as wages and, as such, will incur deductions for income taxes and possibly superannuation payments. It is important to determine these consequences based upon the amount and frequency of the bonuses or commissions earned. A bonus or commission must be qualified in accordance with the following:

  1. If a bonus or commission is below the mandated amount or frequency, it may qualify as a gift and therefore exempt from additional tax payments.
  2. Larger bonuses or commissions may invoke the need to be documented on a PAYG. A bonus or commission of this magnitude will need to be recorded by the employer as taxable income to the employee. The employee must also be aware of this type of generated income as they will be responsible for making a payment of taxes, even if the employer is negligent in doing so.
  3. Superannuation requirements must also be reviewed as large bonuses and commissions may require both the employer and employee to make their respective contributions to the designated fund.

In the event that you believe you are entitled to a bonus or commission that you did not receive there are steps you should take including;

  • Review your initial employment contract and employee manual pertaining to bonus and commission payments
  • Compare what you believe you are entitled to against the payments that have been made to you by your employer. Document the believed discrepancies.
  • Make time to speak with your employer in private to go over your concerns and expectations of receiving a bonus or commission
  • If you cannot come to a satisfactory resolution, consider having your documentation reviewed by a solicitor

While everyone enjoys receiving additional compensation for a job well done, there can be occasions where you believe you are entitled to a bonus or commission that has been unfairly withheld. Under these circumstances, it is imperative that you take the time to review the aforementioned information and your particular circumstances and be prepared to defend your claim.If you find yourself in need of assistance with this or any other legal issue, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 770 780.