Once you’ve chosen a bonus scheme that suits your company, obey your three legal obligations

Simangele Mzizi, Fsp Business, 20 Nov. 2014

Tags: bonuses, employee bonuses, bonus schemes

You want to reward your employees for their hard work. So you decide to introduce a bonus scheme that suits your company.

While this is all good and well, we want to bring to your attention the fact that introducing a bonus scheme isn’t straightforward.

This because there are three legal obligations you must comply with.

Read on to find out what they are so you can comply and, most importantly, avoid legal disputes.

Here are the three legal obligations you must comply with when it comes to bonuses

The Practical Guide to Human Resources Management says, once you’ve decided which bonus scheme option is best for your company, make sure you meet these three legal obligations:
#1: If you’ve guaranteed your employee’s bonus, you can’t decide to remove this guarantee from his contract and replace it with a discretionary bonus. If you do, it’s a breach of contract.
Here, the rule is, you must get your employee to agree to such a change.
If he doesn’t agree and you change the terms anyway, he could take you to the CCMA and accuse you of unfair labour practice or unfair discrimination.
Remember, if for example, you’ve agreed to pay performance based or discretionary bonuses but you decide not to pay them at year-end because your company didn’t do well, you must tell your employees as soon as you make that decision. You must also give business reasons why. If you don’t, your employees can bring an unfair labour practice claim.

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Two more legal obligations you must comply with when it comes to bonuses

#2: You must treat all your employees the same when it comes to bonuses.
According to the Employment Equity Act (EEA), if you treat employees who are in similar positions differently (for example, by paying bonuses to some and not to others), you could be guilty of unfair discrimination, especially if this unfair treatment relates to race, gender, or any other discriminatory ground.
To make sure you don’t discriminate when you pay bonuses, ask yourself the following questions:
  • Did I pay some employees bonuses and not others?
  • If yes, what was my reason for this decision?
  • Can I justify my reason? (Remember, your reasons mustn’t connect to race, gender, or some other discriminatory ground. You must base your reasons on objective and justifiable grounds, like non-performance and have evidence to back it up).
#3: You must record, in writing, the details of all payments your employees are entitled to, says Section 33 of the Basic Conditions of Employment Act (BCEA).
Make sure you clearly define details of the type of bonus and when you’ll pay it in your employment contracts.
Chron.com also highlights the other importance of recording bonuses correctly.
According to the site, “if you issue bonuses to your employees, one of the most important things is to record it properly in your ledger. [This because] inaccurate bonus recognition can result in inaccuracies in your financial statements.”
The site adds, you must “book the bonus payments properly and recognise accruals and taxes accordingly to ensure accurate reporting.”
PS: For more information on how to handle bonuses correctly, check out the Practical Guide to Human Resources Management. Alternatively, check out this article – it contains nine must-know points about bonuses.

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