{"id":177763,"date":"2022-10-26T13:05:55","date_gmt":"2022-10-26T12:05:55","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=177763"},"modified":"2024-06-25T03:52:19","modified_gmt":"2024-06-25T02:52:19","slug":"what-employers-need-to-know-about-bonuses","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/employment\/what-employers-need-to-know-about-bonuses\/","title":{"rendered":"What Employers Need to Know About Bonuses in England"},"content":{"rendered":"\n<p>As an employer, you may consider payin<span style=\"font-weight: 400\">g staff bonuses as an incentive and reward to your employees. These bonuses are additional to your employee&#8217;s existing wages or salary and, as a result, can have varying legal considerations. Notably, these implications arise primarily from how you choose to structure your bonuses, which requires you to pay attention to transparency and issues such as taxation. This article will explain what employers need to know about bonuses in England.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">What Are Bonuses?<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">Broadly, bonuses are either short-term payment schemes or a form of performance-related pay. In practice, employers pay bonuses in addition to an employee\u2019s regular salary to congratulate them for past performance and incentivise their future performance. You may choose to award bonuses based on an individual&#8217;s or team\u2019s performance.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Bonuses may be in the form of money or as a non-cash award such as :<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">time off work;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">vouchers;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">gifts; or&nbsp;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">shares in your business.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">There are other types of performance-related pay and incentives, such as:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\"><a href=\"https:\/\/legalvision.co.uk\/employment\/commission-based-payment-structures\/\">commission<\/a>;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">tips;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">gratuities; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">other incentives such as perks and rewards, for example, a holiday or a gym membership.<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Why Pay Your Staff Bonuses?<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">Paying your staff an incentive performance-related pay such as a bonus has advantages for your business. It can encourage, for example:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">higher productivity;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">staff appreciation;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">a positive working environment;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">greater retention; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">better teamwork.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">You may select a particular time of year when you pay them. For example:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">before a holiday period;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">when a large project comes to an end;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">after your employees\u2019 annual <a href=\"https:\/\/legalvision.co.uk\/employment\/performance-review-mistakes\/\">performance reviews<\/a>; or<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">if your employee referred a new employee to you.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">You may also pay your recruits a bonus to negotiate a contract to bring them on board your business called a sign-on bonus.<\/span><\/p>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div 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Your staff receive this as a bonus when your clients purchase for the first time. As your client will keep making multiple fee payments, your staff will receive a bonus each time. Therefore, it is a continuous income for your staff.&nbsp;<\/span><\/p>\n<\/td><\/tr><tr><td>\n<p><span style=\"font-weight: 400\">Annual bonuses<\/span><\/p>\n<\/td><td>\n<p><span style=\"font-weight: 400\">Annual bonuses are precisely that. A bonus you give your employees yearly based on their or the company&#8217;s performance over that year. You may provide an annual bonus every year or only for some years.<\/span><\/p>\n<\/td><\/tr><tr><td>\n<p><span style=\"font-weight: 400\">Profit-sharing bonus<\/span><\/p>\n<\/td><td>\n<p><span style=\"font-weight: 400\">You may give your employees a share of the profits as their bonus. This means that the harder your employees work, the better your business is and, therefore, the higher the amount their resulting share is.<\/span><\/p>\n<\/td><\/tr><tr><td>\n<p><span style=\"font-weight: 400\">Spot bonuses<\/span><\/p>\n<\/td><td><p><span style=\"font-weight: 400\">Spot bonuses are generally small bonuses given to employees due to hard work. For example, you may reward them for working hard on a project or working late to finish a task by a given deadline. <\/span><\/p><\/td><\/tr><tr><td>\n<p><span style=\"font-weight: 400\">Milestone bonuses<\/span><\/p>\n<\/td><td>\n<p><span style=\"font-weight: 400\">Milestone bonuses are bonuses you pay your staff when they have reached a particular milestone in their job, for example, when a project is complete or a certain amount of sales has been achieved. You can pay milestone bonuses to individual employees or a whole team.<\/span><\/p>\n<\/td><\/tr><tr><td>\n<p><span style=\"font-weight: 400\">Christmas bonuses<\/span><\/p>\n<\/td><td>\n<p><span style=\"font-weight: 400\">You may decide to gift your employees at Christmas with a Christmas bonus for their work over the year.&nbsp;<\/span><\/p>\n<\/td><\/tr><tr><td>\n<p><span style=\"font-weight: 400\">Commission<\/span><\/p>\n<\/td><td>\n<p><span style=\"font-weight: 400\">Commission pay is a type of bonus which is usually something you may offer to your staff if they work in sales. It is a payment rewarded for good performance, such as making a sale.&nbsp;<\/span><\/p>\n<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Legal and Commercial Considerations<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">When paying your staff any type of incentive payment, there are points you need to consider, such as:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">whether they are transparent;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">whether they are of value to your staff; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">what the tax implications are for your staff.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">If you do not construct your bonus schemes carefully, your staff may feel demoralised and not motivated to do their job well.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">You should also consider whether you offer discretionary or contractual bonuses. Bonuses are usually discretionary, which gives you flexibility as an employer. However, you must show that you:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">honour the implied trust and confidence, which is a legal requirement between you and your employees; and&nbsp;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">do not exercise discretion \u201cin an arbitrary, capricious or irrational way.\u201d<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">A contractual bonus is where the bonus is part of your employee\u2019s terms and conditions. This means that you have little flexibility and are obliged to pay it. If you do not, an employee could claim against you for breach of contract.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Tax Considerations&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">As an employer, you should also know that you have tax and National Insurance reporting obligations if you pay your staff bonuses. This applies regardless of whether the bonus is a cash one or a non-cash bonus. Where it is a cash bonus, it is considered the earnings of your employee, so Pay As You Earn (<a href=\"https:\/\/legalvision.co.uk\/employment\/paye-scheme\/\">PAYE<\/a>) tax and Class 1 National Insurance contributions need to be paid through your regular payroll. For non-cash bonuses, the rules vary depending on what the bonus is.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Key Takeaways<\/span><\/h2>\n\n\n\n<p>Bonuses can be an effective way of encouraging productivity from your employees and rewarding them for their efforts. As an employer, you should be aware of the different types of bonuses, as well as whether they will be monetary or in the form of non-cash awards. Furthermore, successfully and lawfully paying bonuses involves a proper understanding of your obligations. These include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>being transparent and honest with your employees;<\/li>\n\n\n\n<li>exercising your discretion in good faith; and<\/li>\n\n\n\n<li>considering any tax implications when paying bonuses and following these rules.<\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">If you need help understanding bonuses in England, our<\/span> experienced <a href=\"https:\/\/legalvision.co.uk\/employment-lawyers-lp\/\"><span style=\"font-weight: 400\">employment lawyers<\/span><\/a><span style=\"font-weight: 400\"> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our<\/span>&nbsp;<a href=\"https:\/\/legalvision.co.uk\/membership\"><span style=\"font-weight: 400\">membership page<\/span><\/a><span style=\"font-weight: 400\">.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Frequently Asked Questions<\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1667256306125\"><strong class=\"schema-faq-question\"><strong>What is a bonus?<\/strong><\/strong> <p class=\"schema-faq-answer\">A bonus is a financial payment you give your staff to reward them for good work and incentivise future performance. It may be a cash or non-cash bonus, such as time off work or a holiday.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1667256316697\"><strong class=\"schema-faq-question\"><strong>Does an employer have to pay staff a bonus?\u00a0<\/strong><\/strong> <p class=\"schema-faq-answer\">You are not under an obligation to pay your staff a bonus. However, where you do, you can structure it as a contractual or discretionary bonus. Where it is contractual, you must honour the terms of the agreement.<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"9eb4f72322\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/177763\" \/>            <input value=\"https:\/\/legalvision.co.uk\/employment\/what-employers-need-to-know-about-bonuses\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"What Employers Need to Know About Bonuses in England\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>As an employer, you may consider paying staff bonuses as an incentive and reward to your employees. These bonuses are additional to your employee&#8217;s existing wages or salary and, as a result, can have varying legal considerations. Notably, these implications arise primarily from how you choose to structure your bonuses, which requires you to pay<a href=\"https:\/\/legalvision.co.uk\/employment\/what-employers-need-to-know-about-bonuses\/\">Continue reading <span class=\"sr-only\">&#8220;What Employers Need to Know About Bonuses in England&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13326,"featured_media":3173,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"1976,176036,172478,4587,176320,173073","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[35],"tags":[1132,1149,1150,1151],"class_list":["post-177763","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-employment","tag-medium-businesses","tag-employee-bonuses","tag-employee-compensation","tag-bonus-structures"],"acf":[],"yoast_head":"<!-- This site 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Prior to her freelance writing work, Clare worked for UK central government in policy and communication roles. She has also run her own businesses where she founded a magazine and was editor-in-chief. She is currently studying part-time towards a PhD predominantly in international public law. Qualifications: PhD, Human Rights Law (underway), University of Bedfordshire, Post graduate diploma, Law, Middlesex University.","sameAs":["https:\/\/www.linkedin.com\/in\/ms-clare-susannah-f-4a243545\/"],"url":"https:\/\/legalvision.co.uk\/author\/clarefarmer\/"},{"@type":"Question","@id":"https:\/\/legalvision.co.uk\/employment\/what-employers-need-to-know-about-bonuses\/#faq-question-1667256306125","name":"What is a bonus?","acceptedAnswer":{"@type":"Answer","text":"A bonus is a financial payment you give your staff to reward them for good work and incentivise future performance. It may be a cash or non-cash bonus, such as time off work or a holiday.","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/legalvision.co.uk\/employment\/what-employers-need-to-know-about-bonuses\/#faq-question-1667256316697","name":"Does an employer have to pay staff a bonus?\u00a0","acceptedAnswer":{"@type":"Answer","text":"You are not under an obligation to pay your staff a bonus. However, where you do, you can structure it as a contractual or discretionary bonus. Where it is contractual, you must honour the terms of the agreement.","inLanguage":"en-GB"},"inLanguage":"en-GB"}]}},"_links":{"self":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/177763","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/users\/13326"}],"replies":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/comments?post=177763"}],"version-history":[{"count":12,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/177763\/revisions"}],"predecessor-version":[{"id":188892,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/177763\/revisions\/188892"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/media\/3173"}],"wp:attachment":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/media?parent=177763"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/categories?post=177763"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/tags?post=177763"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}