Introduction to this document

Bonus payment letter

Where you decide to pay a discretionary bonus to an employee, use our bonus payment letter to notify them of this and the amount.

Fair exercise of discretion

Where the payment of a bonus is expressed to be discretionary, you still have to exercise your discretion fairly and not irrationally, arbitrarily or perversely. Your discretion isn’t absolute, and this applies not just in deciding whether to make a payment but also in calculating the amount of that payment. You will also need to ensure you’re acting consistently in how you have treated other comparable members of staff. Finally, comply with any applicable bonus scheme rules.

Contractual entitlement

If you’ve paid a discretionary bonus on a regular basis, an employment tribunal could, in fact, hold that it’s now hardened into a contractual entitlement by custom and practice. The longer you’ve been paying it as a matter of course, the more likely it is this will be the case. You’d only then be able to withhold all or part of it if the terms of the bonus scheme specifically permit you to. Otherwise, you risk an unlawful deduction from wages or breach of contract claim.

Notification of payment

Our Bonus Payment Letter notifies the employee that, having exercised your discretion in respect of the relevant assessment period, you have decided to pay them a bonus of the amount you specify in the letter. It’s normal to include this within the next salary payment. You may need to tailor our letter to conform with whether your bonus scheme depends on Company performance, individual performance/conduct or a combination of both. It is also drafted to cover the payment of either a one-off discretionary Christmas bonus or a one-off discretionary “cost of living” bonus which falls outside the terms of your bonus scheme.