Bonuses are a welcomed addition to any paycheque, but they often lead to misunderstandings between employers and employees about entitlements, discretion, and fairness – particularly when an expected 13th cheque doesn’t arrive or a performance bonus is withheld without clear explanation. South African labour law does not automatically entitle employees to bonuses under the Basic Conditions of Employment Act unless they’re contractually agreed, included in company policies, or established through consistent past practice.
The landmark 2013 Labour Appeal Court case Apollo Tyres v CCMA fundamentally changed the legal landscape by ruling that “benefit” under Section 186(2)(a) of the Labour Relations Act includes not only contractual entitlements but also advantages or privileges granted subject to the employer’s discretion in terms of a policy or practice – meaning the CCMA now has jurisdiction to scrutinise the fairness of discretionary bonus decisions, not just contractual obligations. This means employers can no longer arbitrarily withhold discretionary bonuses or apply criteria inconsistently without risking unfair labour practice claims at the CCMA, making clarity, fairness, and proper documentation essential for both parties.
This employment guide unpacks how bonus payments are handled in South Africa – what’s required by law, what’s discretionary, and how employers and employees can manage expectations fairly and transparently.
This article provides general information only and should not be considered legal or tax advice.
Key takeaways
- Bonuses are not automatic under South African labour law – employees are only entitled to bonuses if they’re contractually agreed, included in company policies, collective agreements, or established through consistent past practice.
- Common types include 13th cheques (annual bonuses equivalent to one month’s salary), performance-based bonuses linked to KPIs or targets, and discretionary bonuses awarded at the employer’s discretion.
- The Apollo Tyres case established that the CCMA has jurisdiction to review discretionary bonus decisions for fairness under Section 186(2)(a) as unfair labour practices, not just contractual bonus disputes.
- Employers must clearly state bonus policies in employment contracts or company policies, apply criteria fairly and consistently, and provide reasons when withholding bonuses to avoid disputes.
- Bonuses are fully taxable under SARS regulations, subject to PAYE deductions in the month paid, and included in your IRP5 for the tax year – there’s no special “bonus tax rate.”
Types of bonus payments in South Africa
13th cheque or annual bonus
Often called a 13th cheque, this bonus is typically paid at the end of the year and is equivalent to one month’s salary. It’s particularly common in sectors like retail, finance, and manufacturing. Traditionally, many South African employees received 13th cheques almost as a matter of course, leading to widespread expectations that it was a legal requirement.
However, a 13th cheque is only mandatory if it’s explicitly part of your employment contract, included in a company policy or collective agreement, or established through consistent past practice that creates a reasonable expectation. If your contract states “discretionary 13th cheque,” the employer retains flexibility about whether and how much to pay, though the Apollo Tyres judgment means this discretion must be exercised fairly.
Best practice for employers is to clearly communicate whether a 13th cheque is guaranteed, subject to company performance, tied to individual performance, or truly discretionary. Ambiguous language creates disputes when employees who expected payment don’t receive it.
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Performance bonuses
Performance bonuses are based on the achievement of individual, team, or business objectives. Common criteria include meeting or exceeding KPIs, reaching sales targets, completing projects on time and within budget, or company profitability thresholds.
For performance bonuses to be fair and enforceable, they should have clear, measurable criteria communicated in advance, documented performance evaluation systems that are applied consistently, transparent calculation methods, and be outlined in writing in employment contracts or bonus policies. If performance metrics are vague, subjective, or changed retroactively, disputes are inevitable and employees may successfully challenge the fairness of withholding bonuses at the CCMA.
Discretionary bonuses
Discretionary bonuses are awarded at the employer’s sole discretion, often as gestures of appreciation for exceptional contributions, good work during a difficult year, or to reward loyalty. By definition, these bonuses are not guaranteed and employees have no automatic legal right to receive them.
However, the Apollo Tyres judgment means that even discretionary bonuses fall within the CCMA’s jurisdiction if the employer exercises discretion unfairly. For example, if an employer pays discretionary bonuses to some employees but not others in similar circumstances without objective reasons, the excluded employees may claim unfair labour practice. Consistent patterns of payment can also create reasonable expectations that transform “discretionary” bonuses into implied contractual terms over time.
Employers should clarify that discretionary bonuses are genuinely discretionary to avoid creating expectations, document the criteria or factors considered when exercising discretion, apply discretion consistently, and communicate clearly when bonuses are withheld and why.
Are bonuses a legal right in South Africa
In general, bonuses are not a legal right under the Basic Conditions of Employment Act (BCEA). The BCEA sets minimum standards for remuneration, working hours, leave, and other conditions, but it does not require employers to pay bonuses. Bonuses are considered part of the contractual relationship between employer and employee, not a statutory entitlement.
Employees may have a legal right to bonuses if they’re stipulated in a written employment contract (for example, “Employee shall receive an annual bonus of one month’s salary payable in December”), included in a company policy or employee handbook that forms part of the employment contract, negotiated in a collective agreement between the employer and a trade union, or established through consistent past practice that creates a reasonable expectation.
The Labour Appeal Court in Apollo Tyres broke new ground by holding that “benefit” in Section 186(2)(a) of the LRA must be interpreted to include both legal entitlements (contractual or statutory rights) and advantages or privileges offered or granted in terms of a policy or practice subject to the employer’s discretion. This means the CCMA has jurisdiction to scrutinise the employer’s conduct in two instances: when an employer fails to comply with a contractual obligation or statutory right to a bonus, and when an employer exercises discretion unfairly under a policy or practice, including discretionary bonus schemes.
Importantly, the Apollo Tyres judgment does not create new rights to bonuses. Employees cannot use Section 186(2)(a) to demand bonuses that don’t exist in contracts, policies, or past practice. However, where discretionary bonus schemes exist, the CCMA can now review whether the employer acted fairly, consistently, and non-arbitrarily when exercising discretion.
What employers should do
Clarify bonus policies explicitly in employment contracts and induction materials. State whether bonuses are guaranteed, performance-based, or discretionary, what criteria will be used to determine payment, when bonuses are typically paid, and whether pro-rating applies for new joiners or employees who leave mid-year.
Avoid creating implied promises by paying bonuses the same way annually without written conditions. If you pay a 13th cheque every December for five consecutive years without stating it’s discretionary, employees may successfully argue that past practice has created a contractual entitlement or reasonable expectation.
Document criteria comprehensively for any performance-based or target-driven bonuses. Performance metrics should be SMART (specific, measurable, achievable, relevant, and time-bound), communicated to employees at the start of the performance period, and applied consistently across similar roles.
Apply discretion fairly and consistently. If you’re exercising discretion under a bonus policy, keep records of the factors considered, reasons for decisions, and ensure similar employees in similar circumstances are treated similarly. Arbitrary or inconsistent decisions invite unfair labour practice claims under Apollo Tyres.
Communicate reasons clearly when granting or withholding bonuses. Transparency maintains trust and reduces disputes. If company performance doesn’t support bonuses, explain why. If individual performance fell short, provide specific feedback. Silence breeds resentment and assumptions of unfairness.
What employees should know
Ask early in your employment about bonus entitlements. During job offers or contract negotiations, clarify whether the role includes bonuses, what type (guaranteed, performance-based, discretionary), how they’re calculated, and when they’re paid. Don’t assume – verbal promises made during recruitment often don’t materialise.
Get bonus agreements in writing. Verbal promises or casual mentions of bonuses rarely hold up in disputes. If your employer commits to a bonus, request that it be included in your employment contract or a written addendum.
Review past practices to understand expectations. If bonuses have been paid regularly without clear conditions for several years, this may create a reasonable expectation that could be enforceable, especially if all or most employees received them. However, past practice alone isn’t guaranteed – written agreements are always stronger.
If you believe a bonus was unfairly withheld, first use internal grievance procedures. Raise the matter with HR or management, ask for clear reasons in writing, and seek clarification on the criteria or policy applied. If internal processes fail and you believe the employer acted unfairly, you may refer an unfair labour practice dispute to the CCMA within 90 days under Section 186(2)(a).
Tax on bonus payments
Bonuses are fully taxable in South Africa and are treated as remuneration for income tax purposes. There is no special “bonus tax rate” – bonuses are simply added to your total taxable income for the year and taxed at your marginal tax rate.
Employers must deduct PAYE (Pay As You Earn) tax when paying bonuses. The SARS tax tables apply, and the deduction may be calculated using either the annualisation method (spreading the bonus across the year, which often results in higher withholding) or the aggregation method (adding the bonus to that month’s salary and applying the relevant rate).
Because bonuses are typically paid in a lump sum in December, the PAYE deduction in that month can be significantly higher than usual, sometimes leaving employees with less take-home bonus than expected. However, if too much tax is withheld, you can claim a refund when you submit your annual tax return to SARS. Bonuses are included in your IRP5 certificate, which summarises all income and tax for the year.
Who should avoid this and safety notes
For employers
Avoid promising “discretionary” bonuses informally without documenting the discretionary nature in writing. If managers hint at bonuses during recruitment or performance reviews without written caveats, employees may successfully argue the bonus became contractual or that a reasonable expectation was created.
Do not use bonus withholding as informal punishment or pressure. If an employee’s performance is unsatisfactory, use proper performance management processes. Withholding bonuses without clear, documented reasons related to agreed criteria creates unfair labour practice risk under Apollo Tyres.
Never apply bonus criteria inconsistently. If two employees in similar roles with similar performance receive different treatment, the disadvantaged employee can challenge fairness at the CCMA. Consistency is key to defending discretionary decisions.
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For employees
Avoid assuming bonuses are automatic or legally required. Check your contract, company policy, and past practice to understand your actual entitlement. Assumptions lead to disappointment and weaken your position in disputes.
Do not rely on verbal bonus promises alone. Always seek written confirmation in your employment contract, an addendum, or at minimum an email from someone with authority to make such commitments.
If you receive a bonus you believe is incorrect, raise it immediately rather than accepting it and disputing later. Accepting payment can be construed as acceptance of the terms, making subsequent challenges harder.
FAQ: Bonus payments in South Africa
Is my employer allowed to withhold a bonus that was promised?
It depends on the nature of the promise. If the bonus is contractually guaranteed or clearly stated in a policy, withholding it without valid reason is a breach of contract. If it’s performance-based, the employer can withhold it if performance targets weren’t met, provided criteria were clear and applied fairly. For discretionary bonuses, employers have flexibility but must exercise discretion fairly—arbitrary or discriminatory withholding can be challenged as unfair labour practice under Apollo Tyres.
Can I challenge a bonus decision legally?
Yes, if there’s a contractual or policy-based entitlement and the employer breached it, or if the employer exercised discretion unfairly under a bonus policy or established practice. Following Apollo Tyres, the CCMA has jurisdiction to hear unfair labour practice disputes about benefits including bonuses. You must refer the dispute within 90 days of the unfairness occurring.
Are bonuses paid during maternity or sick leave?
It depends on the type of bonus and your contract or policy terms. For annual 13th cheques typically paid if you’re employed for most of the year, being on maternity or sick leave shouldn’t automatically disqualify you. For performance bonuses tied to achieving specific targets, employers may argue targets couldn’t be met due to absence, but this must be applied consistently and fairly. Check your bonus policy for provisions about absences.
Do I have to pay tax on my bonus?
Yes. Bonuses are fully taxable and subject to PAYE deductions by your employer. There is no special tax-free bonus allowance. Your employer will withhold tax when paying the bonus, and it will be included in your IRP5. You may receive a refund when filing your annual tax return if too much tax was withheld.
Can my employer change bonus terms unilaterally?
Not without your agreement if bonuses are contractual terms. Unilaterally changing employment contract terms requires mutual consent. If bonuses are included in a policy that explicitly reserves the right to amend, employers have more flexibility, but changes must still be applied fairly and communicated clearly. Retrospective changes to performance criteria or eliminating guaranteed bonuses mid-year without consent would breach the contract.
Sources
- Basic Conditions of Employment Act 75 of 1997: Governs employment terms including remuneration structures
- South African Revenue Service: Guide for employers on PAYE and tax deduction tables for all remuneration including bonuses
- Apollo Tyres SA (Pty) Ltd v CCMA [2013] 5 BLLR 434 (LAC): Landmark case establishing CCMA jurisdiction over discretionary benefits and bonuses
- CCMA: Unfair labour practice guidelines including disputes about benefits and bonuses
- Labour Guide South Africa: Analysis of Apollo Tyres and what constitutes benefits under Section 186(2)(a)
