Guide to drafting bonus clauses
TIPS ON DRAFTING BONUS CLAUSES IN EMPLOYMENT CONTRACTS
State the bonus terms clearly
Make sure you are clear on whether the bonus scheme is contractual, discretionary or a mixture of two.
Your bonus provisions must expressly specify any restrictions you wish to impose in terms of eligibility for payment of a bonus.
If you do not wish bonuses to be payable where an employee has left, has resigned or is working his/her notice then this must be clearly and expressly stated. Consider inserting a clause stating it is agreed that any bonus due will only accrue annually at the end of the bonus year and not a monthly basis.
The Courts have made it clear that they will not imply in such terms where they are not expressly stated in the employment contract.
Superb, realistic, jargon-free, employment law advice. I’d have no hesitation to recommend David Greenhalgh to employees or employers, and indeed have done with other colleagues benefiting from his specialist employment law experience. He is commercially-focused and gives practical advice to solve employment issues. He’s professional, responsive and works quickly.
Sarah Williams
For immediate assistance from David please call 0203 603 2177 or Click To Make A Free Online Enquiry.
Communicate the bonus terms
The employment contract should include a reference to any applicable bonus scheme. You can have a bonus scheme which sits separately from the employment contract but care needs to be taken around this is stated to interfaces with the employment contract and also the contractual status of such a document.
Secondly, you should advise your business against making any statement to staff potentially in line for a bonus about the possible value of any bonus pool for distribution in advance of formal bonus awards as the Courts have indicated that such a statement can be used as evidence where the business later decides not to pay a bonus.
Describing a bonus scheme as discretion is not enough – that discretion also needs to be exercised fairly. If discretion is not exercised fairly entitlement to a bonus has successfully been challenged on that basis.
If you need advice or have any questions in relation to drafting bonus clauses or schemes or in defending demands for a bonus payment, please call David on 0203 603 2177 or Click To Make A Free Online Enquiry.
Common Questions Answered
Why do I need a lawyer to review my settlement agreement?
UK law requires independent legal advice to be taken before a settlement agreement can become legally binding. Without it, the agreement is unenforceable. An experienced employment lawyer will ensure you understand every clause and that your interests are fully protected.
How much does it cost to get a settlement agreement reviewed?
Your employer will usually pay for you to get independent legal advice on the terms and effect of your agreement. This is standard practice and is typically written into the agreement itself as a contribution towards your legal costs.
Can my settlement agreement be improved?
Often, yes. David regularly negotiates for increases in value, better exit terms and stronger protections for his settlement agreement clients. Even where an employer presents a figure as “final”, there is frequently room to negotiate.
How long does the process take?
With David, many clients get to sign-off in a matter of days if all they need is advice and sign-off. On urgent agreements David provides a same-day service, so a tight deadline is never a barrier to getting the right advice.
