An employer’s guide to Christmas bonuses

One question often asked by employers at this time of year is whether they are obliged to pay its employees a Christmas bonus if they have done so in earlier years.

Are employers legally obliged to pay their staff a Christmas bonus?

Each case is different – In the first instance, employers should check the documentation that forms the employment relationship, i.e., the contract of employment, employee handbook, offer letters etc.

In the event that the employment documentation states that the employee will receive a bonus at Christmas, the employer must do so accordingly. Should the employer fail to provide its employee with a Christmas bonus in this instance, he/she will be in breach of contract. For example, the employee’s contract/handbook states that on Christmas Eve they will receive an additional week’s wage, then the employee can expect to receive this on the 24th of December each year.

What if the contract is silent?

The employer should then proceed with checking over the employee handbook and company policy. For example, there is a company policy that states employees will receive a Christmas bonus if certain targets are achieved or if the business does especially well that year.

If the handbook/policy do not form the employment relationship, then it is usually at the employer’s discretion whether staff get a bonus at Christmas time or not. Employers should approach Christmas bonuses with caution and review the exact wording to confirm they are discretionary and not contractual.

Can an employer withhold a bonus?

If the provisions of a discretionary bonus scheme are clearly set out an employer can withhold the bonus as long as he is not acting irrational on doing so.

In contrast to this, if a bonus has been agreed to under contract and is not paid, despite the criteria being achieved, an employee may then apply to the Employment Tribunal for unlawful deduction of wages. When setting out the criteria for a bonus, it is important that expectations are not discriminatory.

Get the written documents right

If an employer wishes to ensure they are not legally obliged to pay its staff a Christmas bonus every year then they must make it clear from the start that bonuses will be paid at the employer’s discretion, every situation should be considered on facts. It is therefore recommended that employers seek legal advice before embarking on any action.

How can Employment Law Services (ELS) help?

If you require employment law advice on any of the issues raised in this article, or any other employment issue give us a call today on 0370 218 5662.  You can also find out more about our fixed fee HR packages here and fixed fee employment law packages here, or get in touch.