The payment of a bonus to employees is a common occurrence in many businesses across Australia. Tied to individual and/or company performance, a bonus is typically a method for a business to reward individuals or teams for their direct contribution to company growth.

Superannuation obligations and bonuses

A bonus paid to an employee, whether monthly, half-yearly or annually, will nearly always attract superannuation contributions. The one exception is where the bonus does not relate to “ordinary time earnings” such as a bonus paid to an employee for a project completed wholly in overtime hours.

Contractual obligations and bonuses

Employers are well advised to set out the details of any bonus scheme in writing within the employment contract or referenced as a separate policy. It is also important to clearly specify in these documents how bonuses operate when employment is terminated – for example, does the employee lose all of the bonus entitlement or is it payable on a pro rata basis?

Along with outlining the construct of the bonus program, additional areas to cover include whether the bonus amount is intended to be calculated inclusive or exclusive of superannuation and to make clear whether the payment of a bonus is at the company’s discretion or not.

Disputes often arise where an employee has got used to receiving a bonus and the employer wants to alter the arrangements for paying the bonus (or to stop paying it altogether!). An employee might in some circumstances be able to establish they have a contractual right to a bonus payment, which could lead to a breach of contract claim.

Need help?

A properly drafted bonus policy or schedule to an employment contract can help avoid these issues. If you need help with employment contracts, workplace policies or advice regarding bonuses or other employment issues, please contact us today or phone 1300 724 500.