Notification of no bonus payable letter template

UK employment law and best practice

This template is designed to support the process, but the document should be used alongside the relevant HR procedure and applied to the circumstances of the individual case.

Employers should take care when communicating a decision that no bonus is payable because the legal position depends heavily on the wording of the employee's contract and bonus scheme. A bonus may be contractual, discretionary or contain a mixture of contractual and discretionary elements.

Check the bonus terms

Before issuing the letter, the employer should review the applicable bonus scheme and the employee's Contract of Employment. The employer should identify the relevant performance criteria, conditions for payment and any discretion reserved to the Company.

Contractual bonuses

Where a bonus is contractual and the employee has satisfied the relevant conditions, the employer may have an obligation to make the payment. An employer should therefore avoid stating that a bonus is simply "discretionary" unless the contractual arrangements genuinely support that position.

Discretionary bonuses

A bonus described as discretionary does not necessarily give an employer unlimited freedom to decide whether to pay it. The discretion should be exercised consistently, rationally and in accordance with the relevant contractual wording and circumstances.

Performance criteria

Where the bonus depends on individual, team or Company performance, employers should ensure that the assessment is based on the criteria communicated to employees. Changes to targets or criteria during the relevant period should be considered carefully, particularly where the bonus arrangements are contractual.

Discrimination and equality

Employers should ensure that bonus decisions are not discriminatory. Particular care may be required where an employee's absence, family leave, disability or other protected characteristic affects the assessment of performance or eligibility. The employer should check that any adjustments required by law or the applicable scheme have been considered.

Employees leaving the business

Some bonus schemes contain provisions concerning resignation, notice, dismissal or employment on the payment date. Employers should apply these provisions carefully and ensure that they are consistent with the contractual terms and applicable employment law.

Written records

Employers should retain evidence of the bonus assessment, including the relevant targets, results, calculations and decision-making process. A clear record can be particularly important if an employee later challenges the decision.

Payment and deductions

Where a bonus is payable, employers should ensure that it is processed correctly through payroll. Where no bonus is payable, the employer should be able to explain the contractual or scheme basis for that outcome rather than simply recording a zero payment.