Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Bonus definition

What does Bonus mean? In employment practice, a bonus is an additional payment over basic salary, typically linked to performance, profitability, recruitment or retention, and paid under a contract or scheme. The term is descriptive rather than defined in statute, but in England & Wales, Scotland and Northern Ireland (under employment rights legislation) and in Ireland (under payment of wages legislation), many bonuses are treated as “wages” for protections against unlawful deductions and for payment on termination. Usage is broadly consistent across these jurisdictions. Key features: - Contractual vs discretionary: A contractual or guaranteed bonus is enforceable according to its terms (often formula-based). A discretionary bonus...

Design, operation and disputes in employee and director bonus schemes: discretionary and contractual bonuses, tax, termination, regulatory and discrimination issues

Published by a LexisNexis Employment expert

Practice notes

Practice Note: Bonus plans for employees and Directors

This Practice Note explores how bonus arrangements operate for employees and directors. It considers the two principal forms of scheme: discretionary and contractual. It looks closely at discretionary awards, covering eligibility, the exercise of discretion, limitations and expectations. The Note also addresses tax aspects of bonus plans and what follows when they are ended. It sets out points relevant to scheme design, drafting issues and regulatory matters, including compliance with the UK Corporate Governance Code. Finally, it considers how pregnancy or maternity leave, part-time or fixed-term status, long‑term sickness and linked discrimination concerns affect bonus schemes and payments, available remedies, and the routes for bringing bonus claims in the employment tribunal or the court. Bonuses can strongly motivate and help retain staff while enabling employers to manage wage Costs. In some sectors and industries (eg the financial sector), they are a major component of an employee’s reward package. Directors’ overall pay commonly includes variable, performance‑linked bonuses, which are often vital to recruiting and keeping key people...

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Web page updated on 21/05/2026

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