Employment
Bonus: When is it owed?
Many employment contracts contain clauses on additional payments, which may be referred to as bonuses, gratuities, premiums or special payments. Irrespective of the terminology, however, the actual entitlement to additional remuneration must be assessed on the basis of various criteria and actual common practice. By being aware of these differences, some legal disputes can be avoided - whether by means of a declaration at the time of payment or by using the correct wording in the employment contract.
Whether a bonus payment is owed and can be claimed by the employee depends on three main criteria: The employer's discretion, the regularity of the payment and the accessory nature in relation to the basic salary. The question of entitlement to payment arises not only at the end of the year, but also if the employment relationship begins or ends during the year or when the claimant becomes incapacitated for work.
Discretion
If the amount of the payment is at the full discretion of the employer and is voluntary, there is no entitlement to a payment per se or to a specific amount (so-called “genuine gratification”). Typically, this gratification varies from year to year and is not specified in the employment contract or it is worded in such a way that the employer actually has a great deal of discretion. If, on the other hand, the employer has no discretion because the employment contract specifies objective criteria (e.g. business results or metrics) for determining the amount of the bonus, it is no longer a gratification but a variable salary component that is owed regardless of the employer's discretion. If, on the other hand, personal, non-objectively measurable performance targets are decisive for determining the bonus, the achievement of which depends on the subjective assessment of the superior, the payment is again at the discretion of the employer and there is generally no entitlement.
Regularity
If the amount of a bonus is at the discretion of the employer, but the employer pays it out unconditionally each year, a claim to it may also arise in practice. Case law has assumed an entitlement if the bonus is paid unconditionally for three consecutive years (so-called “non-genuine gratificatoin”). A mere reservation of voluntariness in the employment contract is not sufficient to prevent this. If the bonus is to remain voluntary and at the discretion of the employer, this must be declared with each payment, ideally with an explicit declaration on bonus the notification.
Accessory nature
Finally, it should be noted that a bonus is a voluntary fringe benefit in addition to the salary and is therefore secondary in importance. If this is not the case because the bonus is regularly higher than the fixed salary, according to case law, it also qualifies as a salary component that is owed - again with the exception of very high salaries.
Practical advice:
We recommend that the wording in the employment contract be carefully chosen, depending on whether there is to be an entitlement to a bonus payment or not. If the bonus is to remain voluntary and at the discretion of the employer, this must also be communicated at the time of payment. For example:
After considering your commitment over the past year, in particular your initiative regarding project XY, we decided to pay you a bonus of CHF XY for this year. Please note that this payment is entirely voluntary. We re-evaluate each year whether we can pay you a bonus or not. Thank you for your valued contribution.
Pro rata temporis / incapacity to work
If the employment relationship ends during the year, the question then arises as whether there is a pro rata temporis entitlement to the bonus payment. This can be answered in the affirmative if it is a variable salary component. In the case of gratifications, however, this requires a contractual agreement. The same applies to sick pay, where the variable salary component is taken into account but the gratification is not, unless this has respectively been agreed in the employment contract.
