Conditions of Employment

      
Due to the unexpectedly huge response to the article published in our newsletter in December 2003, it has been decided to publish a follow-up article to deal with the many questions raised by employers on this issue of bonuses.

          

Some of the questions raised were:

          
[a] we wish to split the bonus payment – 50% in December and 50% in March 2004. How do we do this and avoid disputes of unfair labour practice?

[b] we wish to delay payment of the annual bonus until March 2004 – how do we do this without disputes being declared?

[c] we cannot afford to pay a bonus this year - what do we do ?

[d] we wish to withdraw the payment of bonuses completely – how do we go about this?

[e] we traditionally pay a 13th Cheque (or 10% of annual salary ) as a bonus – we now wish to split this into two payments per year – one in January and one in June. How do we go about this?

[f] (This one came from an Employee's Committee ) Our company has a bonus policy that lays down the payment of bonuses according to the employee's performance. Performance reviews are carried out annually. However, over the past 8 years the company has simply paid every employee an annual bonus of 10% of annual salary, irrespective of the results of any performance interviews.


Our staff have therefore developed a right of expectation regarding the payment of the annual bonus. We now have new management who have informed the staff that bonuses this year will be paid strictly according to the Bonus Policy, which means that quite a lot of employees will not get a bonus because they have not scored high enough in the performance review. Can we go to the CCMA to force the employer to pay the usual 10% to everybody as in the past?

 

Lets try to answer some of these questions.

 

Firstly. Let me state that November or December is a bit late for the employer to suddenly decide that he wishes to change the annual bonus policy in respect of anything other than what has been the case previously.


1. Never make the payment of any bonus a condition of employment.

In other words, do not include in the employee's Contract of Employment, any reference to the payment of a bonus. Every employer should have in place a "Company Policy regulating the Payment of Bonuses."

At every employment interview which I have conducted, the applicant has never failed to ask "do you pay bonuses?"


The answer should always be "We do not pay bonuses as a matter of course and the payment of bonuses is not guaranteed. Bonus payments in this company are regulated by our Company Policy Regulating the Payment of Bonuses. Whilst we have in the past usually paid a bonus, this is not guaranteed and is strictly regulated by our Policy. If you are employed here, you will be given a copy of that policy."

Perhaps the most important clauses to be embodied in the Policy would be:

  1. that the payment of bonuses is not a right, and is not a term or condition of employment , but is solely at the discretion of the Board of Directors.
  2. that employees will be notified in writing not later than (say 1st October) each year of the decision of the Board of Directors regarding the payment or non-payment of bonuses for that year.
  3. that employees are advised that until such written notice is received, employees are to assume that no bonus will be declared for that year.
  4. that employees should not assume that bonuses will be paid for the current year simply because bonuses were paid in previous years or because the company "has had a good year"
  5. it is repeated that the declaration of bonuses payable in any year is solely at the discretion of the Board of Directors.
  6. employees must not to rely on custom and practice as a reason to expect the payment of a bonus in any year.
  7. employees are strongly advised not to include the amount of any bonus or expected bonus into household budgeting calculations.


In this way, employees can be left in no doubt about company policy regulating the payment of bonuses. The Policy can then proceed to lay down the method/s of calculation, payment dates etc. A good policy is to pay bonuses in December of each year, when the majority of employees are on leave and most families require money to pay for holidays, school uniforms, school books etc.


We do not recommend that December salaries be paid early, except in the case where hourly paid employees receive their so-called "holiday pay" which is in fact their wages for the 3 weeks that they will be on annual leave.

        

With monthly paid staff, we recommend that the bonus can be paid out say on 15th December, and the December salary should be paid on the normal payday. This ensures that the employee still receives his/her salary at the end of December, and they are therefore prevented from "blowing the lot" in early December, and thus landing themselves in financial difficulty for the month of January (and beyond??).


2. Splitting the Bonus or postponing payment.


So this year you have decided to split the bonus – paying 50% in December and 50% in March 2004,or you wish to postpone payment of the entire bonus until sometime in the first quarter of next year. In our view, to make such a decision any later than say 30th September is, to say the least, very unfair.


Your employees have always, for the past (xx) years, received a bonus in December every year. They depend on this bonus to pay for a well earned holiday, Christmas gifts for family and friends, perhaps to pay off a few debts, and to finance school uniforms, school books and school fees for the following year.   Very few employees these days manage to save money during the year towards financing these heavy seasonal requirements. Never mind that they should save money. Never mind that they should "cut their cloth." Never mind that they should "live within their means."

 

Never mind all these fancy financial principles and clichés.The fact is that they don't. To put it bluntly, without the bonus the employee is as good as dead. So yes, it is very unfair to suddenly change what has been a traditional payment made every year, and a payment that, by custom and practice, the employee now has a right to expect. I can only suggest that, should there be absolutely no other alternative to splitting or delaying the bonus payment, that all employees should be called to a meeting and then the position must be carefully explained to them.

 

It is further suggested that the Company seriously consider, and indeed should, offer to the affected employees such interest-free financial assistance as can be considered reasonable under the circumstances, by way of staff loans. These loans can be repaid (with the employee's written consent) by means of deducting the amount advanced from the employee's bonus when it is paid out.


Similar assistance could be offered to employees in those instances where the employer is simply unable to pay a bonus for the current year – employees can repay the loan in affordable monthly installments. It must of course be made clear that the financial assistance offered is a definite once-off facility for this particular instance only and does not in any way imply that future requests for financial assistance will be favorably entertained. That would be fair.


Secondly, the employer must immediately and without delay proceed to amend his Company Policy Regulating the Payment of Bonuses (if indeed the employer does have such a Policy in place) to cater for the new circumstances, and provide each employee with a copy of the amended policy. It further strongly recommended that, every year, each employee is given a letter together with his bonus cheque, explaining that the payment of a bonus this year is not to be construed that a bonus will be paid next year, and emphasizing that Management reserve the right to withdraw the payment of bonuses at any time by giving the employee say 2 months written notice of any intention to withdraw the payment of future bonuses.


3. Implementation of a Policy where this has been traditionally ignored by the employer.


The employer has a policy in place, but has not enforced the conditions of the policy for a number of years. He has simply paid a 10% bonus to everybody, ignoring the terms and conditions of the company policy regulating the payment of bonuses.


Suddenly now, the employer decides to strictly apply the terms and conditions of the policy, which means in effect that some employees will receive no bonus at all, and others will receive less that the 10% received every year for the past (xx) years. The employees have, by custom and practice, developed a right of expectation and the have the right to continue to expect a 10% bonus annually.

     

What does the employer do?
     
Firstly, one of the fundamental principles in labour law is that the employer must follow his own procedures. If he does not follow his own procedure, this, by implication, may be construed by employees that the procedure in question has been rescinded by the employer, and especially in the absence of any advice to the contrary from the employer to the employees.

 

In such an instance, the employer would be out of line and grossly unfair to suddenly declare in the second week of December that "from now on the policy will be strictly applied." In view of the fact that the employer failed to or ignored to apply his own procedure in the past does not now suddenly give him the right to resurrect that policy.


To all intents and purposes, that policy is dead. Should the employer now wish to resurrect it, then he must consult with all employees, advise them of the decision to now revive the Policy, and advise employees that the terms and conditions of that policy will apply from 1st January 2004.

 

Our view is that bonuses for 2003 should be paid out as normal, otherwise employees may have a right of action in terms of unfair labour practice with respect to the payment of benefits. The bottom line is that, with a performance based bonus, the employee must be advised NEVER to depend on receiving a bonus – the payment of a performance bonus depends 100% on the employee himself. If he doesn't perform, he gets no bonus. The fact that the declaration of a bonus depends bonus entirely on the employee must be carefully explained to all employees, because they always seem to be convinced that the bonus will be paid regardless, and that it is their right to receive a bonus.


Nothing could be further from the truth.

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