In an increasingly competitive recruitment market, the onus is on employers to do everything they can to attract the very best talent available. Rewarding work, good culture and career opportunities are all important to prospective employees. However, employment benefits have become a key tool for employers to attract new recruits and distinguish themselves from their competitors.

In drafting provisions for any benefits (whether in the contract of employment or any policy), employers should ensure that they have the right to amend or withdraw any benefit. In the case of bonuses and commission payments, employers should ensure that the exercise of the scheme is at the employer’s discretion, rather than the employee having a contractual entitlement to participate in the bonus or commission scheme.

There are various drafting considerations for employers when providing benefits to their employees.

Bonus and commission schemes

In drafting any provision for a bonus or commission scheme, the employer should state that:

• the operation of the scheme is entirely discretionary by the employer (not contractual);
• subject to the terms of the scheme or other conditions set by the employer, any payment is entirely discretionary (not contractual);
• any payment does not form part of an employee’s basic salary; it can be helpful to define basic salary in the contract itself. The effect of this is that it will not count as part of the employee’s salary for the calculation of notice pay or payment in lieu of notice or any pension payments. However, employers should be aware that if the payment of bonuses or commission are sufficiently regular or recurring and are intrinsically linked to the performance of tasks under the employee’s contract, they will need to be factored into any holiday pay calculation;
• if payment is made in one year (or other reference period), the employer is not obliged to make subsequent payments in subsequent years. This is an attempt to counter an employee’s argument that payment of commission or bonus has become the employer’s custom or practice.

In the drafting of any bonus or commission scheme, an employer should assert that in the event of any dispute, the employer’s say is final. Employers should include a clawback provision to allow for recovery of money already paid or awarded as required. An employer should also consider whether to prevent or restrict an employee’s entitlement to bonus or commission if they join, hand in their notice or leave part way through the reference period.

Life assurance, permanent health insurance and private medical insurance

Life assurance, permanent health insurance (essentially a form of income protection for employees who are on long-term sick leave) and private medical insurance are more and more being offered by employers to their employees. If an employer wishes to provide any of these benefits, they should ensure that they have the right to vary or end the scheme without the employee’s prior consent. However, employers should not act capriciously in terminating or amending the terms of any benefit as this risks breaching the implied duty of mutual trust and confidence between the parties. In addition, any amendment or termination should be on reasonable notice to the employee.

Employers should avoid drafting contractual terms in relation to the policy itself and should instead simply refer to the terms of the scheme as in force from time to time. This will prevent any disputes where the employer’s drafting in relation to the scheme differs from what the scheme provides for. Employers should also state that they are not liable to provide any alternative payment or benefit in the event that the third-party insurance provider refuses to provide the insurance to any employee.

In cases where an employee on long term sick leave is in receipt of salary under a private health insurance scheme, it may amount to a breach of contract if the employer dismisses that employee (see Awan v ICTS UK Ltd UKEAT/0087/18).

Salary sacrifice

Salary sacrifice is a tax-efficient method to provide employees with certain (and now limited) benefits. These include employer contributions to registered pension schemes and certain other retirement benefits, childcare support, and cycle-to-work schemes. In salary sacrifice, an employee gives up part of their entitlement to salary, which is subject to income tax and national insurance contributions in the usual way, for a benefit which is fully or partially exempt from tax and national insurance contributions.

Employers must be aware that salary sacrifice arrangements could reduce an employee’s wage below the national minimum wage and should make sure that this is monitored and does not happen. Employers should inform employees that salary sacrifice may affect their current or future entitlement to state benefits such as statutory sick pay, statutory maternity pay or statutory paternity pay.

The employee benefits market is growing at a fast pace but it is key for employers to ensure their contracts are amended to keep pace with any benefits provided.

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Kiera Lee is speaking at our upcoming event, Contracts for the Modern Employment Relationship, which is in association with Mills Selig and takes place on Wednesday 5th June at The Merchant Hotel, Belfast.

Click here to book your place