bonus payments and giving notice

anonnymouse15

hi 
im interested to hear peoples opinions of the following, 

as part of my employment contract i receive a bonus payment of 2.5% of audited company profit. the contract does not state when or how this is payable. over the last few years with my agreement the md has paid out of his pocket an amount per month until the overall amount owed is paid off. 
the accounts for 2019 have been audited and signed off this month.
i am considering seeking new employment.
if i hand in my notice my intention is to request the bonus payment in full prior to my notice period ending as obviously i wouldnt be employed in the company for monthly payments to be made. 

my question is, legally, is the bonus payment owed if i hand in my notice? my view is that as its a bonus of audited profit, as soon as that audit is signed off, then its due as long as i was employed on the date the accounts were signed off which i was/am. although its been custom and practice for it to be paid over a period of time in instalments i think legally i should be able to request it in one payment. 

what do you think?

JReacher1

Is this bonus guaranteed in your contract? Often things like this are discretionary and if it is you may not get the bonus paid. 

If you are guaranteed the bonus then I suppose it depends how much 2.5% is as to whether you can get it in a lump sum. 

anonnymouse15

JReacher1 said:

Is this bonus guaranteed in your contract? Often things like this are discretionary and if it is you may not get the bonus paid. 

If you are guaranteed the bonus then I suppose it depends how much 2.5% is as to whether you can get it in a lump sum. 

hi 
it does not expressly say "guaranteed" but it does say that " A bonus of 2.5% of profits in a calender year will be paid based on the audited accounts which are normally produced in april of the following year"
the amount is likely to be around £4650 gross. 

thanks

General_Grant

anonnymouse15 said:

hi 
im interested to hear peoples opinions of the following, 

as part of my employment contract i receive a bonus payment of 2.5% of audited company profit. the contract does not state when or how this is payable. over the last few years with my agreement the md has paid out of his pocket an amount per month until the overall amount owed is paid off. 
the accounts for 2019 have been audited and signed off this month.
i am considering seeking new employment.
if i hand in my notice my intention is to request the bonus payment in full prior to my notice period ending as obviously i wouldnt be employed in the company for monthly payments to be made. 

my question is, legally, is the bonus payment owed if i hand in my notice? my view is that as its a bonus of audited profit, as soon as that audit is signed off, then its due as long as i was employed on the date the accounts were signed off which i was/am. although its been custom and practice for it to be paid over a period of time in instalments i think legally i should be able to request it in one payment. 

what do you think?

Though the written contract doesn't say how or when payment is made, it could be argued custom and practice (with your agreement) is that it is paid over a period.  (It sounds as though this may be more per month than 1/12th of the total.) 
[I was surprised by "out of his pocket" as it is surely the company's money.  Given the amount of the annual profit it must be a small company and perhaps the MD is also the major or only shareholder or it may not be a limited company.  That probably makes little difference.]
Regarding the question of legality - I would say it is legal to request but not that he has to agree to the lump sum and could make payments after you had moved to a new job.

TELLIT01

anonnymouse15 said:

hi 
it does not expressly say "guaranteed" but it does say that " A bonus of 2.5% of profits in a calender year will be paid based on the audited accounts which are normally produced in april of the following year"
the amount is likely to be around £4650 gross. 

thanks

If that is the only reference to bonus payment it would seem that you would be entitled to payment.  The vast majority of bonus payments are discretionary, plus they require the recipient to be in the company employment on the date payment is made.  None of  that seems to be included in your contract of employment.

Comms69

Is the company really only making circa £180k profit?

anonnymouse15

to answer a few points,
the company made circa £186K last year, it was a tough year that included paying staff to leave and a number of maintenance problems and breakdowns. profit should have been around £250K ish without these. t/o is around £10-£11mil per year. 

out of his pocket - he doesnt want the company to pay it directly to me, i guess because the accountant would tell others in the company that i have a bonus and they dont (im guessing). it is a limited company and the md owns around 98% of shares. 

that is the only reference to the bonus payment in contract.

thanks for advice/replies 

General_Grant

anonnymouse15 said:

to answer a few points,
the company made circa £186K last year, it was a tough year that included paying staff to leave and a number of maintenance problems and breakdowns. profit should have been around £250K ish without these. t/o is around £10-£11mil per year. 

out of his pocket - he doesnt want the company to pay it directly to me, i guess because the accountant would tell others in the company that i have a bonus and they dont (im guessing). it is a limited company and the md owns around 98% of shares. 

that is the only reference to the bonus payment in contract.

thanks for advice/replies 

You were originally concerned that it would be difficult to pay you after you left employment but now you are suggesting that, for however long it is, the 2.5% has not been going through the company accounts.  So how do you pay tax and NI on it?  What appears on your payslips?

jonnygee2

my question is, legally, is the bonus payment owed if i hand in my notice?

Yes, it looks to me like it would be legally owed even if you resigned in January. From what you have said, it is a contractual payment, so it's owed. The audit seems to just determine the amount, but not whether it's owable or not - as written (and it's not great wording for a contract clause imo, but that's how I read it).

The matter of when it's owed is a bit different. It's normal for employers to settle all payments before or soon after employment ends, for everyone's sake, so I think your request to do that in this case is reasonable. If the MD doesn't want to do that, though, a continued monthly payment plan seems a reasonable compromise. Your fallback would be to chase the payment through the courts as an owed debt, but that would seem a bit disingenuous (and potentially risky) when there's a payment plan in place for it already. 

nicechap

General_Grant said:

anonnymouse15 said:

to answer a few points,
the company made circa £186K last year, it was a tough year that included paying staff to leave and a number of maintenance problems and breakdowns. profit should have been around £250K ish without these. t/o is around £10-£11mil per year. 

out of his pocket - he doesnt want the company to pay it directly to me, i guess because the accountant would tell others in the company that i have a bonus and they dont (im guessing). it is a limited company and the md owns around 98% of shares. 

that is the only reference to the bonus payment in contract.

thanks for advice/replies 

You were originally concerned that it would be difficult to pay you after you left employment but now you are suggesting that, for however long it is, the 2.5% has not been going through the company accounts.  So how do you pay tax and NI on it?  What appears on your payslips?

Certainly seems a bizarre arrangement - what happens when everyone gets their end of year bonus, does OP pay back the monthly subs, or just not get any? Wonder what the FD or auditors would say.  

Given the clandestine nature of the arrangement, I expect you will not get any bonus.

lincroft1710

I hope you have paid tax and NI on previous bonuses.

If it was literally "cash in hand" and there is no record of previous payments, then should your bonus be refused, you will have no proof of it ever being paid previously.