The HR Overload team had a query from a client last year, and it was one that we thought worth revisiting this year, along with the options for tackling this situation, as a lot of businesses are still finding themselves in a similar position:
Every year we pay staff a Christmas Bonus – it’s not always huge, depending on profits, but this year we just can’t afford to pay anything. Can we just not pay it? And how can we explain this without damaging motivation and wellbeing when our teams are struggling financially too?
We’re all experiencing the financial squeeze, businesses, and individuals. Rising rates and inflation mean that we’re unable to find budget for luxuries, and for many, even the basics for survival.
From a legal standpoint, whether you can withhold a Christmas bonus depends on any wording in your contract with your employees about bonuses and their entitlement to them. Bonuses can be discretionary or contractual, or a mixture of both. Discretionary bonuses usually mean that the employer can decide how a bonus is calculated, when it will be paid and many businesses vary this year to year. As long as they apply their criteria fairly across individuals then they are free to apply this discretion.
Contractual bonuses on the other hand, mean that the criteria will be set, and if an employee meets these criteria, then they will be entitled to payment.
Even if there’s nothing in the contract, or in writing anywhere about paying a Christmas bonus, you still need to consider custom and practice. In this instance, if a Christmas bonus has been paid every year for a significant number of years, it could become an implied term of the employee’s contract, and therefore employees would be entitled to payment.
We would always encourage employers to be very clear about bonus payments, and the criteria and rules around them even if these change regularly, such as a minimum level of business profit needed for the bonus scheme to pay out. Whilst it’s a lovely gesture to pay employees a surprise Christmas bonus, it can result in some risk.
Not paying a bonus can affect employee motivation, and some employees may have been depending on that extra payment. We would always recommend that you are honest with your teams on the why’s and if possible, find a lower cost alternative to offer as mitigation, such as:
- Giving extra holiday days (Although this is only cost neutral in businesses where roles do not need additional cover)
- Enhancing or relaunching benefits
- Putting any available additional budget towards the Christmas party (or on the other hand, you could forego the party and use the budget to pay a small Christmas bonus)
If you’re facing a similar situation, or would like to review your bonus schemes, HR Overload are here to help. Reach out via firstname.lastname@example.org.