Discretionary bonus – What are you entitled to?

Bonuses at work

Some employers may offer a bonus scheme, whereby it states in your contract that an agreed reward, a ‘bonus’, is payable on certain conditions. It is good practice that an employer differentiates whether you will be entitled to a contractual bonus, or a discretionary bonus, in your Employment contract.

Discretionary bonus

A discretionary bonus is a payment that is not always guaranteed. The same may be referenced in an Employment contract, though can specify that it is conditional. For example, common conditions that must be met before a discretionary bonus is paid is that an individual or a team meet a certain target. Failure to meet this target would result in the discretionary bonus not being earnt. Discretionary bonuses are most common in sales.

Payment of a discretionary bonus

The Employer can choose when to pay the bonus and how it is calculated. The figure payable may be specified firm wide, or indicated in an Employment contract, though it is true that the bonus can be entirely discretionary. There are some limitations on how large a discretionary bonus can be, and these differ from industry to industry. It is common that a bonus may be paid at the end of the year, or the end of the financial year, on your specified pay day, on top of your salary.

What happens if I do not get paid my bonus?

If you are entitled to a bonus, for example if a target has been met that means your employer was under an obligation to make payment, then you may have a claim against your employer for breach of contract. Claims can also be bought in the Employment Tribunal for unlawful deduction of wages, where the amount is easily quantifiable. You have a time limit of 3 months minus one day to bring a claim in the tribunal, and a 6-year time limit to bring a claim in the court.

Acting in good faith

An employer has complete discretion in calculating and awarding discretionary bonuses, though they must act in good faith whilst doing so. An employer cannot not give you a bonus just because they do not like or agree with you. The employer is under a duty to act in good faith and any decision reached in relation to the payment/non-payment of a discretionary bonus must be based on reasonable grounds.