Can you justifiably withhold your annual bonus?

Many employers choose to reward their staff at the end of the business year with a monetary bonus as recognition of their hard work and those with an April-March leave year could face this prospect over next few weeks. However, this added cost can present an issue at certain times and whilst it is unlikely to do down well with staff, scrapping your bonus scheme can sometimes be a necessary way to save money and avoid having to consider a redundancy procedure.

Whether or not you can remove your bonus scheme will depend on a number of factors and you will first need to consider whether the scheme is contractual or discretionary. In most instances, this can be determined by reviewing the wording used in employee contracts or any existing bonus policy. If these documents do not refer to a bonus scheme, or if they state that bonuses are issued at your discretion, then the scheme is likely to qualify as being discretionary. This means you are not legally required to pay staff and should be able to proceed without fear of tribunal proceedings.

However, under certain circumstances, staff may be able to argue that the bonus has become an implied contractual term, which would make withholding payment significantly more difficult. For it to qualify as an implied term, employees will need to show that bonus payments had been made regularly over some time and it has, therefore, become a term of the employment relationship. Going ahead and revoking your bonus scheme in these circumstances could lead to claims for breach of contract; however, this is not a foregone conclusion and will depend on the specific facts of the case.

Alternatively, if the bonus scheme is a contractual entitlement then you have less freedom to remove it immediately and will need to enter into a consultation period with staff on the basis of amending their contractual terms. During this consultation, you should explain to staff exactly why you wish to remove the bonus scheme with a view to obtaining their agreement to this change.

You could struggle to get employees to agree to give up their contractual bonus and in these situations, you may be faced with no option but to enforce the change by dismissing employees on their current terms and re-engaging them with the change enacted. If you choose to proceed in this way, then you must be able to present a valid business reason for removing the bonus to avoid claims of unfair dismissal.

Once existing employee contracts have been successfully amended you should ensure continuity by reflecting this change in workplace policies and providing future new starters with updated contracts that outline your new stance on employee bonuses.

Ultimately, although staff may argue the contrary, it is possible to make changes to an existing bonus scheme even when this is included in contracts of employment. However, when doing so it is imperative that you proceed with caution and follow the correct procedure at all times.

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