Bonus

The bonus arrangements that appear in Nigerian employment are a short list.

The thirteenth month, an additional month's salary usually paid in December. Widely offered and frequently described as discretionary, though many employees regard it as an entitlement.

Performance bonuses, linked to individual, team or company targets, and either formula driven or assessed.

Sign on bonuses, paid on joining, commonly with a clawback if the employee leaves within a stated period.

Retention bonuses, paid for staying through a defined period such as a transaction or a system implementation.

Commission, which is a share of transactions rather than a bonus, though the two are often confused.

What a well drafted scheme states is: whether it is discretionary or contractual, the performance conditions if any, whether the employee must be in employment and not under notice on the payment date, how leavers are treated, and whether clawback applies and in what circumstances.

That leaver clause is the one employees discover too late.

The thirteenth month is where the Nigerian argument concentrates.

Where it is stated in the contract or the handbook, it is contractual and payable on the stated terms. Where it is not, and it has simply been paid every December for eight years, an employee who does not receive it in year nine will argue that custom and practice made it a term.

That argument is not automatic and it is not hopeless. The National Industrial Court looks at how consistently it was paid, whether it was communicated as part of the package, whether it was ever described as discretionary, and whether employees reasonably relied on it.

For employers, the answer is to be clear and consistent. If it is discretionary, say so in writing each time, and exercise the discretion visibly rather than paying the same amount automatically. If it is an entitlement, put it in the contract and state the conditions.

For employees, the practical point is the leaver clause. A bonus scheme requiring you to be employed and not under notice on the payment date means resigning in November forfeits the December payment, however much of the year you worked. That is enforceable where it is clearly stated, and it should factor into the timing of a resignation.

Bonus payments are employment income and PAYE applies, so the net figure is lower than the announcement suggests.

Three payments beyond salary, arising differently.

A bonus is a payment for performance over a period, or for a period itself in the case of a thirteenth month. It may be contractual or discretionary, and that distinction decides whether it can be withheld.

Commission is a share of transactions the employee brought about, tied to a defined trigger such as introduction, agreement or completion. It is contractual by nature, because the trigger has to be agreed.

Gratuity is a terminal payment, made on leaving, usually calculated on years of service and a defined salary component. In the Nigerian private sector it is contractual and exists only where the contract, handbook or a collective agreement provides for it.

An employee should know which they have been promised. A verbal reference to a bonus at the end of the year is the weakest of the three unless it is written down.

A discretionary bonus can be reduced to nothing, and an employee who planned around it has no remedy.

Custom and practice arguments are also uncertain. They depend on the facts, they are argued rather than assumed, and an employer who documented the discretion each year has a strong answer.

Leaver provisions are enforceable and harsh. Working eleven months and resigning before the payment date can forfeit the entire amount.

Clawback on sign on and retention bonuses can also produce a debt at the moment an employee is leaving and least able to pay it.

And the tax point is often overlooked, so the net amount disappoints even when the gross is generous.