Commission and Bonus Schemes

Remuneration schemes such as commission payments or bonuses often increase motivation at work due to rewarding good performance. However, problems can arise if the terms of such schemes are unclear.

What are commission and bonus schemes?

Commission schemes involve part or all of an employee’s remuneration being paid as a commission rather than basic pay and are typically operated in sales roles.

Bonus schemes are traditionally money paid to an employee in addition to their normal remuneration as a reward for good performance. However, a bonus may not be linked to performance.

Contractual versus non-contractual schemes

Contractual schemes are usually included in an employment contract or a separate bonus/commission agreement. These may state that an employee:

• Is entitled to participate in the scheme and/or
• is entitled to X amount of payment, which is calculated in accordance with a formula.

Non-contractual schemes are also typically included in an employment contract or a separate agreement but state that an employer has absolute or partial discretion in awarding payment.

Repayments and clawbacks

Many schemes include repayment/clawback provisions, meaning an employee is required to repay the payment they may receive under certain circumstances. However, an employee may successfully argue that a requirement to repay is a penalty clause.

Potential effects of termination

Commission and bonus schemes often become an issue on termination.
The provisions included in an employee’s employment contract or such scheme determine whether an employee will receive payment on termination.

Potential Employment Tribunal claims

An employee may be able to bring various claims in an Employment Tribunal concerning a commission or bonus scheme, including:

• Wrongful dismissal;
• Unfair dismissal;
• Unlawful deduction from wages;
• A discrimination claim.

We can assist with queries related to commission and bonus schemes, including drafting.

Get in touch

Please get in touch with our Employment Litigation team for friendly advice and support. You can contact us on 023 8063 9311 or email enquiries@warnergoodman.co.uk.