Employment law: Bonus needs advice

• Employment Law
• Private Clients
• SME

The “bonus” enjoys great popularity in the world of work as an incentive system and motivation tool. But what is the legal framework? Bonuses offer many opportunities, but also legal challenges.

What exactly is behind this term and what legal aspects need to be considered?

Three types of bonus in employment contracts

Colloquially, the term “bonus” is used as an umbrella term for remuneration that is paid in addition to the basic salary. The law does not use the term “bonus”. It only refers to salary and gratuity. There are basically three types of employment contracts:

• Genuine bonus: the remuneration is at the sole discretion of the employer.
• Non-genuine bonus: the remuneration has been agreed in principle, but the amount paid is at the discretion of the employer.
• Salary component: the amount of remuneration can be determined according to objective criteria and is not at the discretion of the employer (e.g. share of the business result).

To avoid disputes, bonus regulations should be formulated as clearly and transparently as possible. In addition, it is advisable to reiterate the voluntary nature/discretionary nature in writing in the relevant agreements.

Legal pitfalls with bonus payments

A bonus can have a motivating and performance-enhancing effect, but it also harbors legal pitfalls. Employers should therefore proceed carefully when designing bonus regulations and define clear, transparent criteria. Employees, on the other hand, should know their entitlements and rights and seek dialog with the employer or seek legal advice if anything is unclear.

Bonus claim

In practice, legal disputes over bonuses occur time and again. This is particularly the case when employees leave their employer. Typical conflicts arise in particular from unclear contractual provisions, different interpretations of target achievement and subsequent changes to the bonus conditions by the employer.

The extent to which a bonus entitlement exists when employees leave during the year depends in particular on the relevant employment contract and/or separate bonus regulations. In principle, there is no pro rata entitlement in the case of a genuine or non-genuine bonus, unless otherwise agreed. If the bonus qualifies as a salary component, there is a pro rata entitlement to it if someone leaves during the course of the year.

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