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Bonus and incentive schemes — legal points

Produced by Tolley in association with
Employment Tax
Guidance

Bonus and incentive schemes — legal points

Produced by Tolley in association with
Employment Tax
Guidance
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Many employers operate bonus or incentive schemes in addition to paying basic salaries to their employees. Such schemes will normally make it clear whether entitlement is discretionary or contractual.

Discretionary bonuses usually give employees a contractual right to be considered for a bonus or incentive payment under the scheme, but not necessarily to receive one. In the absence of express agreement a bonus entitlement may be implied on the basis of established custom and practice, eg a right to be paid a Christmas bonus may be implied where it has been paid to all employees for a number of previous years (see Frischers v Taylor (unreported EAT 386/79)).

Any bonus entitlement should be included in the employees' written statement of employment particulars. See the Written statement of particulars or terms and conditions and Definition of wages guidance notes.

Bonus schemes are generally intended to ensure that employees focus their efforts on key objectives of their employer's business. The benefit for the employee is that he may receive greater financial reward.

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Sarah Bradford
Sarah Bradford

Director at Writetax Ltd


Sarah Bradford BA(Hons), ACA, CTA (Fellow) is the director of Writetax Ltd, a company providing tax technical writing services on tax and National Insurance, and also of its sister company, Writetax Consultancy Services Ltd. Sarah writes widely on tax and National Insurance and is the author of several books.

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  • 14 Aug 2023 12:42

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