A one-off bonus to help with the cost of living
A helping hand
In April 2022 it was reported that the law firm, Irwin Mitchell (IM), had decided to pay most of its staff a one-off bonus of £900 to assist them with the cost of living crisis.
You might be considering paying a similar type of one-off bonus. Regardless of the amount, what should you make clear to staff about this type of payment?
Reason for the bonus
The first thing to spell out is why the bonus is being paid. In this case, it would be to help with the rising cost of living. Bonuses can also be paid for seasonal reasons, e.g. Christmas, or because your company has performed well.
The next point to make clear is the period that the bonus payment covers. For example, it might be made in respect of a tax year, such as 2021/2022, or it may be to cover a performance period, which could be the first or last two quarters of a financial year.
Tip. You should also advise employees when the one-off bonus will be received, i.e. in which pay packet it will appear.
At your discretion
Most importantly, you should spell out that this one-off bonus is being made entirely at your discretion. If you don’t do this, there are a couple of risks. Firstly, your employees could assume that they will receive this type of bonus payment every year on an ongoing basis.
Contracts and tax
Secondly, if you make a similar type of bonus payment in consecutive years, without spelling out that they are being made at your discretion, it’s possible they could become a contractual entitlement through custom and practice.
Where you make a one-off bonus payment to an employee, it will almost certainly be subject to income tax and National Insurance deductions in the usual way.
Thus, when being paid a one-off bonus, most employees will see a lesser amount in their pay packet. The amount received will depend on the employee’s tax code, salary and amount already earned in a tax year.
Tip. It’s equally important to point out this tax deduction issue to staff, otherwise some employees might think that they’ve been paid an incorrect bonus which could result in unnecessary queries.
Put it in writing
For the avoidance of doubt, it’s advisable to put the terms off a one-off bonus payment in writing to your employees. We’ve created a letter which you can use (see The next step ).
Tip. Where you decide to make a one-off cost of living bonus payment to your employees, it should also be paid to any employee who is off sick or away from work on any type of family related leave.
For a bonus payment letter, visit https://www.tips-and-advice.co.uk , Download Zone, year 24, issue 10.
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