Annual bonus payments can be a source of dispute. For example, when an employee’s role is made redundant in the course of the year, is there a pro-rata entitlement to the end of year bonus? 

Consider a situation in which a business terminates an employee because their position becomes redundant. 

They are paid out all their entitlements on termination, without any recognition of the usual annual bonus. 

The employee’s contract of employment provides for a base salary plus a bonus, which is paid annually subject to the annual sales figures. 

The bonus option is written into the offer of employment, and it states that performance objectives will be reviewed annually and paid out only on successful achievement of the annual agreed objectives. 

The employee then contacts their employer claiming a pro-rata amount of the bonus for the period of the year they were employed, as well as an adjustment to his termination pay which includes an average of the bonus. 

Does the employee have an entitlement to a pro-rata of the amount of bonus under these circumstances? 

 

Pro-rata bonuses and redundancy

There are a number of issues in this situation. 

The employee’s entitlement to a proportion of the annual bonus post-employment is dependent on the provisions of the individual contract of employment. 

It may be that there are no conditions in the contract that refer to post-employment payments; therefore, no payment is explicitly payable. 

The ex-employee could take legal action seeking a court’s interpretation of the contract, although the outcome of such an action, from the employee’s perspective, would be uncertain. 

 

Awards

A modern award may refer to bonus payments, such as the Commercial Sales Award 2020, which defines ‘commission’ to mean ‘any financial incentive payment, financial bonus or financial reward… but will not be deemed to include any incentive payment, bonus, or reward periodically made by the employer on the basis of profitability or performance of the employee…’ 

 

The National Employment Standards  

In the case of termination pay, entitlements under the National Employment Standard (NES) (such as pro-rata annual leave and redundancy pay) are payable at the employee’s ‘base rate of pay’, which excludes any bonus payments. 

 

What about long service leave? 

In the case of long service leave, the inclusion of bonus payments into an employee’s ordinary pay is determined by the applicable state or territory long service leave statute, although a bonus paid annually may not be regarded as ordinary pay under some statutes because the bonus is paid only annually.