Warning about end-of-year bonuses for employees in South Africa
With the festive season just around the corner, South African workers have been warned that receiving a year-end bonus is not a guarantee.
Ayesha Karjieker, Associate in Employment Law at Cliffe Dekker Hofmeyr, noted that times are incredibly tough, with the cost of living crisis seemingly never-ending.
Many South Africans are thus expecting a year-end financial bonus to help fund what feels like a very long and financially draining festive season.
However, Karjieker warned that employees shouldn’t assume they will receive a bonus.
Under South African law, employers are not required to pay a year-end bonus. Any obligation to do so arises from the terms of the employment relationship.
If the employment contract expressly provides for a bonus, such as a guaranteed “13th cheque,” the employer has to honour the provision.
A similar obligation can also arise from a company policy, staff handbook, or collective agreement that outlines the right to a bonus or discretion subject to stated criteria.
Moreover, a consistent and long-standing practice of paying a bonus on the same terms each year can result in a reasonable expectation regarding the payment of a bonus.
Whether such an obligation exists depends on the facts, especially the consistency, clarity, and intention behind the practice.
When the bonus is described as discretionary, the employer’s discretion must still be exercised lawfully and fairly.
Bonuses are generally regulated via employment contracts, company policies or handbooks, and collective agreements within the framework of the Basic Conditions of Employment Act and the Labour Relations Act.
A bonus can also be a guaranteed entitlement or a discretionary benefit, often linked to performance.
The wording of the relevant contract or policy is crucial in determining whether an employee is entitled to a bonus.
If the employer retains discretion, it must exercise that discretion rationally, consistently, and in good faith, in accordance with any stated performance criteria or scheme rules.
Employers may not ignore or unfairly change published criteria once employees have relied on them.
Bonus decisions must also comply with the Employment Equity Act. Withholding or reducing a bonus for a prohibited ground, such as race, gender, or pregnancy, would amount to unlawful discrimination.
When it comes to tax, bonuses, including 13th cheques, are considered part of an employee’s remuneration and are subject to PAYE in the month they are paid.
A 13th cheque is not a bonus
A 13th cheque is not a guaranteed additional payment; it is usually equal to one month’s basic salary or cost to company.
While a 13th cheque forms part of an employment contract, it is not performance-based and simply functions as an additional component of annual remuneration.
A bonus, on the other hand, is usually variable and linked to performance at an individual, team, department or company level.
It is often expressly stated to be discretionary, meaning that the employer may determine whether and how much to pay based on the relevant performance outcomes.
“In short, a 13th cheque is a guaranteed contractual payment, while a bonus is typically variable and contingent on performance or business results,” said the group.
Depending on their claim, employees may have a valid claim or may lodge a dispute when it comes to their bonuses.
If a 13th cheque or specified bonus is contractually guaranteed, or where the employer has acted unlawfully or unfairly, failure to pay can constitute a breach of contract or an unfair labour practice.
“Bonuses and 13th cheques are a welcome financial boost, but it’s crucial that employers and employees are on the same page when it comes to expectations around these financial injections,” said Karjieker.
“Employers should ensure the nature, discretionary or guaranteed, is clearly communicated to staff, and where bonuses are variable, that employees understand what is required of them to qualify.”
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