Is a bonus or 13th cheque a legal right?

December arrives and the bonus does not. Or it arrives at half last year's amount, while a colleague in the same team gets the full figure. Or you resign in October and your employer tells you the 13th cheque you have earned for ten months has gone. Each time the same question follows: is a bonus actually a right, or a gift the employer can withhold whenever it likes?

This guide is part of our Your rights at work: pay, contracts, resigning and retrenchment, which links every guide on the topic.

The honest answer is that it depends almost entirely on what was agreed. This guide explains when a bonus becomes enforceable, how far a discretionary bonus can be challenged, what happens to a bonus when you leave, and how bonuses are taxed.

There is no statutory right to a bonus

The Basic Conditions of Employment Act 75 of 1997 (BCEA) sets minimums for hours, leave, notice and severance pay. It says nothing about bonuses. Neither does the National Minimum Wage Act. So an employer with no bonus in its contracts, policies or practice does not have to pay one, however profitable the year.

The one exception is sectoral. Some bargaining council agreements require an annual bonus for employees in their sector. If a bargaining council covers your employer, check its main agreement. Your contract should name the council, because section 29 of the BCEA requires the written particulars of employment to describe it. Our guide on what must be in an employment contract explains those particulars.

When a bonus becomes a legal right

A bonus is enforceable when the employer has bound itself to pay it. That happens in four main ways.

The contract. "You will receive a 13th cheque equal to one month's basic salary, payable in December" creates a right. A guaranteed 13th cheque is not really a bonus at all. It is part of your annual package, paid in an uneven instalment, and an employer cannot simply decide not to pay it.

An incorporated policy or scheme. Many contracts say the employee "will participate in the company bonus scheme". If the scheme sets a formula, for example a percentage of salary when defined targets are met, and you meet the targets, the bonus is owed.

A collective agreement. A bonus agreed with a trade union binds the employer for the employees it covers.

Practice. If an employer has paid the same bonus every year for many years, without ever saying it is discretionary, it may have become a tacit term of the contract. These claims are harder to prove, because the employee must show that both sides understood the payment had become an entitlement. An employer that writes "this bonus is discretionary and creates no entitlement for future years" in each letter makes such a claim very difficult.

If a contractual bonus is not paid, it is a claim for money owed. An employee earning below the BCEA earnings threshold can refer a claim for an amount owing under a contract of employment to the CCMA under section 73A of the BCEA. Employees above it can claim in the Labour Court or the civil courts, subject to their limits. Our guide on what to do if your employer does not pay you sets out the routes.

Discretionary bonuses and unfair labour practice

Most performance bonuses are described as discretionary. That word does not make them unchallengeable.

Section 186(2)(a) of the Labour Relations Act 66 of 1995 (LRA) defines an unfair labour practice to include unfair conduct by the employer relating to the provision of benefits. In Apollo Tyres South Africa (Pty) Ltd v CCMA, decided in 2013, the Labour Appeal Court held that a "benefit" includes not only rights that already exist under a contract or law, but also an advantage the employee has been offered or granted under a policy or practice subject to the employer's discretion. A discretionary bonus scheme falls into that second category.

The practical effect is this. The employer keeps its discretion, but must exercise it fairly. A commissioner will not decide what bonus you deserve. The commissioner asks whether the employer's decision was rational, consistent and in line with its own scheme. Common grounds of challenge are:

• employees with the same performance rating treated differently without a reason
• a bonus withheld as punishment for something that was never the subject of a fair disciplinary process
• the employer ignoring the criteria in its own scheme
• a bonus refused because the employee was on parental or sick leave, which may also raise discrimination issues

There are limits. The unfair labour practice route cannot be used to demand a new benefit the employer has never offered; the courts drew that line before Apollo and it still holds. And pay differences based on race, gender or another listed ground may be better framed as unfair discrimination under the Employment Equity Act 55 of 1998.

An unfair labour practice dispute must be referred to the CCMA or bargaining council within 90 days of the act or omission, or of the date you became aware of it. The CCMA deadline checker works out the date. Read our guide on unfair labour practices for the process and the remedies.

Pro rata bonuses when you leave

This is where most bonus disputes arise, and the answer turns on the wording of the scheme.

A condition of being employed on the payment date. Many contracts and schemes say you qualify only if you are in service, and not serving notice, on the payment date. Where that condition is clear and you resign before the date, you are generally not entitled to any part of the bonus. Courts usually enforce such clauses as written.

A scheme that accrues over the year. Some contracts say the 13th cheque accrues monthly or is paid pro rata on termination. Then you are owed the proportion for the months you worked.

A contract that is silent. If a guaranteed 13th cheque is described as part of your annual package and says nothing about leaving mid-year, there is a reasonable argument that it accrues pro rata, but the position is not settled and the outcome depends on the facts. Get advice before giving up the claim.

Retrenchment and dismissal. Many schemes pay a pro rata bonus on retrenchment even when they do not on resignation. Severance pay under section 41 of the BCEA is separate and does not replace a bonus you are owed. Our retrenchment package calculator shows the statutory severance. An employer that dismisses or retrenches an employee shortly before the bonus date in order to avoid paying it invites a finding that the dismissal was unfair.

Serving notice or facing discipline. Some schemes exclude anyone who is serving notice, or who is the subject of a pending disciplinary process, on the payment date. A clause like that is usually enforceable, but the employer must apply it as written. It cannot invent a disciplinary charge in November to avoid paying a December bonus, and a bonus withheld because of an allegation that was never fairly investigated is a strong unfair labour practice claim.

Whatever happens to the bonus, your accrued annual leave must still be paid out. The leave payout calculator shows what is due. If you are about to resign, our guide on resigning with immediate effect explains what else you are owed.

How bonuses are taxed

A bonus or 13th cheque is taxable income. Your employer deducts PAYE from it in the month it is paid. Because the bonus sits on top of your normal salary, PAYE on it is usually calculated at your highest marginal tax rate, so the deduction looks heavy compared with an ordinary month. This is not an extra tax: your total income for the year is taxed on the normal tables, and your annual assessment sorts out any difference. Employers who pay bonuses should budget for the employer's UIF and skills development levy contributions on top; the employee cost calculator helps.

Worked example

This example is illustrative. Ayanda is a sales consultant at a furniture retailer in Gqeberha earning R18 000 a month. Her contract says: "A 13th cheque equal to one month's basic salary is payable in December to employees in service on 1 December." She resigns at the end of September to take another job.

Because the clause clearly requires her to be in service on 1 December, she is not entitled to any part of the 13th cheque. She is still owed her September salary and her untaken leave.

Change the facts: suppose the contract says only "a 13th cheque equal to one month's basic salary, paid annually in December", and the retailer's payroll shows it has always been calculated pro rata for new starters. Ayanda has a reasonable argument for nine twelfths of R18 000, which is R13 500. The point is arguable rather than certain.

Change them again: Ayanda stays, receives an "exceeds expectations" rating, and is paid no performance bonus while two colleagues with the same rating get 10% of annual salary. The scheme is discretionary, but she can ask for written reasons and, if none is rational, refer an unfair labour practice dispute within 90 days.

What to do

1. Find the source of the bonus: your contract, the bonus scheme rules, any collective agreement, and the letters that accompanied past bonuses.
2. Check for a payment-date condition before you resign. If the bonus is close, ask whether an earlier release still qualifies you, and get the answer in writing.
3. If a discretionary bonus was withheld, ask in writing for the reasons and the criteria applied.
4. Diarise 90 days from the decision for an unfair labour practice referral.
5. For an unpaid contractual bonus, demand payment in writing and then refer it to the CCMA, the Labour Court or a civil court.
6. Employers: put the bonus rules in writing, state clearly whether the bonus is guaranteed or discretionary, and apply the criteria consistently.