Article Summary
This guidance note provides an overview of bonus and incentive schemes commonly used by employers to motivate and retain staff. It explains key considerations in designing and operating such schemes effectively.The note covers both contractual and discretionary bonus schemes, highlighting the difference in legal entitlement. It outlines typical eligibility criteria, methods for calculating bonus pots and individual payments, and frequency of payment. Different types of bonus schemes are explained, including those linked to individual, team or business performance, and unusual examples like attendance and customer satisfaction. Commission schemes are also summarised.Key factors in creating an effective bonus scheme are listed, such as setting realistic targets and communicating the scheme clearly. Employers must ensure compliance with minimum wage legislation. Tax and national insurance implications are summarised. The note will help tax professionals advise clients on implementing or improving bonus arrangements to meet their business objectives.