Claiming bonuses

With Christmas approaching quickly, some organisations use this time of year to allocate employee bonuses. An employee may decide to sacrifice a bonus and receive something other than their salary, such as a fringe benefit or superannuation. However, their eligibility to do this will depend on whether an effective salary sacrifice agreement was agreed to prior to them being entitled to the bonus.

For a performance bonus (paid because certain performance based parameters have been achieved), the employee must establish a salary sacrifice agreement prior to the employment duties that give rise to the bonus being performed.

For a discretionary bonus (paid because of the employer’s generosity), the employee must establish a salary sacrifice agreement prior to the employer making the decision to allocate the bonus.

If a salary sacrifice agreement is not implemented prior to either of these conditions it will be ineffective. This will result in the employee still being taxed on the bonus even though it has been allocated elsewhere.

Published : 18 November 2007