G 5 things to know about your bonus

You may have earned this windfall but here’s how it works and how to use it sensibly

ETTING a bonus at the end of the year is great – it helps cover extra expenses over the festive season. Many employees assume that a bonus is something they’re automatically entitled to. If you’re unsure whether you should get a bonus or not, read on.

1 ARE YOU ENTITLED TO A BONUS?

According to the Basic Conditions of Employment Act, no employer is obliged to pay a bonus. Whether employees get a bonus or not depends on three factors: whether the company has a policy of paying bonuses, whether your employment contract explicitly states that you are paid a bonus and if it’s common practice for your employer to pay bonuses.

If it’s your employer’s policy to pay bonuses and it doesn’t happen, you can take legal action against them. If it’s stated in your contract that you’re entitled to a bonus and you don’t receive one, you can also take legal action.

Lastly, if your employer always pays bonuses, even if it’s not in your contract or part of their official policy, it automatically becomes part of the employer’s practice.

Should our employer then suddenly cease paying bonuses, it’s defined as non-payment within the framework of what’s considered unfair labour practice.

The reason is that it’s considered to be a change in the terms and conditions of your employment, since the employee has a reasonable expectation that the employer will continue paying the bonus as it has done in the past.

Past behaviour has led the employee to come to expect the payment of a bonus as a right or entitlement.

But you can’t expect a bonus or take legal action if bonuses aren’t part of your company’s policy or your contract.

An employer who never pays bonuses can continue not to do so, because they can’t be accused of unfair labour practice.

So, if you’re considering taking up employment with a new employer and you’re promised a bonus or 13th cheque in the interview, make sure it’s in your contract before you sign.

2 CAN IT BE A SPECIFIC AMOUNT?

Bonus amounts usually depend on your or the company’s performance. If you work in sales you’ll have to meet certain targets to earn a bonus, while a specific production performance may also be expected from your department and/or the company as a whole. The amount you receive as a bonus depends on the extent to which these goals were reached.

Your contract must stipulate the performance requirements and conditions for a bonus.

If you’re unsure, the company’s HR department or your line manager should be able to explain it.

3 IS A BONUS THE SAME AS A 13TH CHEQUE?

No, even though it’s also an extra payment. A 13th cheque is usually equal to your monthly take-home salary and is part of your cost-to-company remuneration. If a 13th cheque is part of your contract, you’re entitled to it.

4 HOW IS IT TAXED?

Your bonus amount is part of your total taxable income for the year. The amount of tax you pay depends on your tax bracket (what percentage of your income is subtracted for tax).

Bear in mind that your bonus can affect your tax category, because the higher your income, the higher your tax.

It can push you into a higher tax bracket than your basic monthly salary. Have a look at websites such as justmoney. co.za and taxtim.com for examples of how bonuses are taxed.

5 HOW SHOULD YOU SPEND YOUR BONUS?

A bonus is typically treated as a reward for a year’s hard work. That’s why most of us reckon we should spend it on treating ourselves.

Of course you can spoil yourself, but think twice before your blow it all on luxuries in a few days. This windfall can be of great value by helping you to settle your debts.

If you can partially or fully pay off a clothing account or credit card, that will mean a smaller portion of your monthly salary has to go towards your debts.

If you pay a portion into your home loan, that can reduce the total interest over time and also reduces the loan period. You can also save a portion of it, for example for next year’s holiday or a nest egg.

Then you can use your savings for unexpected expenses rather than incurring more debt.

One of the most important things you can do with your bonus is to hold onto it for your January expenses.

January is usually when there are extra expenses relating to your children’s education, and you’ll want to avoid fresh debt at the start of a new year.