Most employees are paid per hour or per week. However, some employees are also paid a bonus or commission based on results. A common example is when a sales assistant earns a base rate but can also be eligible for an additional commission payment based on their sales.
I’m being paid a base rate but can be eligible for bonus payments on top in certain situations. Is this legal?
In most cases, yes. If you are being paid a base rate with occasional bonus payments on top, the bonus is often called an “incentive payment”. The Fair Work Act does not prohibit incentive payments.
Further, if a registered agreement or award applies, then that registered agreement or award may regulate the manner in which incentive payments are to be paid. However, as long as the employee and employer agree that payment can include incentive payments, then such payments are usually legal.
What about when an employee is being paid via bonuses only?
Payment exclusively via bonuses can be legal in certain situations. If the federal system applies to the employee, it will be legal when a registered agreement or award states that the employee can be paid in such a way. If you don’t know whether a registered agreement or award applies to you, we can help.
If no registered agreement or award applies:
- payment exclusively via bonuses can still be legal if the employee is paid at least the national minimum wage; or
- if the employee is paid less than the national minimum wage in a bonus-only arrangement, then that will be unlawful.
Note that the national minimum wage may not be applicable (or it may be reduced) to some employees such as those who are under 21 or those who work as an apprentice or trainee
I think I’m entitled to a bonus payment under my employment contract, but my employer says the bonus is only discretionary and won’t pay it. What can I do?
Your employment contract may have bonus payment clauses. Sometimes, these clauses are drafted so that they are “discretionary” on the employer, meaning that the employer can decide whether or not to pay you the bonus and you are not automatically entitled to one, even if you have achieved your key performance indicators.
However, a discretionary clause does not necessarily allow a wide, free-wielding discretion. Cases have held that an employer cannot exercise discretion “arbitrarily or capriciously or unreasonably” to refuse a bonus payment, unless the contract explicitly allows it. Otherwise, a discretionary decision is to be exercised reasonably.
Of course, different clauses can have different interpretations. Therefore, personal legal advice is recommended. We can review your employment contract to determine if you are entitled to any bonus.