Introduction to this document

Bonus payment clause

Only include a bonus payment clause in your contract of employment if you actually intend to pay a bonus to the particular employee. It’s also always safer to make bonus payments discretionary rather than contractual entitlements, although be aware that your discretion is not absolute.

Only if necessary

If you never pay a bonus and don’t intend to in the foreseeable future, don’t include our Bonus Payment Clause in your draft contract - it could merely give staff the impression they’re due something! If you do want to insert a bonus payment clause, ours is widely-drafted and makes the payment and the size of any bonus entirely discretionary.

Irrational or perverse?

Even where a bonus payment is expressed to be discretionary, unfortunately you’re not entitled to exercise your discretion in a way that is irrational or perverse. Therefore, even if, on the face of it, you appear to have discretion, you will be acting in breach of contract if no reasonable employer would have exercised the discretion in the way you did. For example, if an employee’s performance and conduct has been excellent throughout the year and other employees have received bonuses, you will find it difficult to justify why this particular employee received nothing. In addition, if a bonus is paid on a regular basis as a matter of course, non-payment may still amount to a breach of contract because an employment tribunal could hold that the discretionary bonus has, in fact, become a contractual entitlement.

Nothing on leaving

If you want to ensure that an employee doesn’t get a bonus if they are working out their notice period - or even have left employment - when bonuses are paid (after all, where’s the benefit to you of rewarding someone who’s about to leave or has already gone?), make this clear in the clause. Otherwise, a departing employee arguably has the same rights to a bonus as everyone else in terms of the fair exercise of your discretion. Our bonus payment clause provides for this eventuality.