· Features

The perils and pitfalls of the Christmas bonus

Christmas bonuses are a good idea but bad procedures could leave your company's reputation in tatters, warns Aaron Hayward, solicitor at Douglas-Jones Mercer Solicitors.

Christmas bonuses are always a contentious issue. Is a payout really the best way to reward and motivate an employee and, if so, how much should you give them? And how do you ensure that you don’t end up paying much more than you bargained for by getting struck with a legal claim?

“Firstly, I think the idea of paying a Christmas bonus is great if you can afford it,” says Hayward. “It helps to keep staff morale high – especially during the current economic climate when things are particularly tough for families – and gives people a bit extra to spend at an expensive time of year.”

However, Donna Miller, European HR director of Enterprise Rent-A-Car, isn’t such a fan. “I prefer the idea of a bonus on a more regular basis rather than once a year. If the amount can fluctuate based on performance, that’s even better,” she notes.  “Most employees at Enterprise have the opportunity to earn a bonus each month. In this way, staff are rewarded for their work in a timelier fashion.”

Bonuses are usually either performance-related or given out in a lump sum annually. Unfortunately, while both types of reward are well-intentioned, they can also fall foul of several legal pitfalls.

“If you plan to pay every member of your team an equal amount, you must make it clear that bonuses are wholly discretionary,” Hayward advises. “This should be highlighted in both your employees’ contracts and also within the accompanying correspondence when making the payment.” This helps to ensure that you are protected against future claims. If, for example, a company pays a Christmas bonus to its entire staff for five years in a row and fails to make it clear that these payments are discretionary, workers could potentially bring a claim against their employer for this payment if it’s not paid the following year.

If you decide on a performance-related Christmas bonus you must make sure you judge each employee fairly, using clear and transparent criteria, so that workers cannot argue with the outcome if they aren’t eligible for a payment. “If this isn’t the case, you could potentially be liable for a discrimination claim, which – if successful – wouldn’t just hit your wallet; it could seriously harm your company’s reputation,” Hayward warns.