In April 2022, the law firm, Irwin Mitchell, decided to pay most of its staff a one-off bonus of £900 to assist them with the cost of living crisis.
If you're considering paying a bonus, this is what you should consider
Reason
What, when and why.
Explain why you are paying the bonus. Is it to help with the rising cost of living or because your business has performed well? Identify the period that the bonus payment covers. Is it for the 2021/2022 tax year? Tell your employees when you will pay them. Put everything in writing.
Discretionary
Avoid misunderstanding by stating explicitly that you are paying this one-off bonus entirely at your discretion. That will prevent your employees from expecting it every year or from it becoming a contractual entitlement.
Tax
Where you make a one-off bonus payment to an employee, it will almost certainly be subject to income tax and National Insurance deductions in the usual way. Manage your employees' expectations by warning them about the deductions so that they don't query why you have paid them less than you promised.
Remember
Don't forget those who are away from the business whether due to illness or any type of family-related leave. If the reason for the payment is a rise in the cost of living then you should pay those who are away from the business for these reasons too