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Advice and Tips
Questions you should ask about getting a bonus at work
Written by Tekna’s Legal Department
Modified: Feb. 22 2021
Many Tekna members are part of a workplace bonus plan. Keep reading to learn more about bonuses:
Workplace bonuses are often confirmed in writing; sometimes, an entire bonus plan is explained in an employee contract. This might give you the right to negotiate your own contract and make sure that it can’t be changed or canceled. This is why we recommend that you get a contractual agreement on what your bonus will be, preferably listing this information in your employment contract or in a separate attachment to your employment contract.
In many cases the employer alone decides what the bonus plan in the company personnel handbook will look like; in general, only the employer is authorized to administrate this plan, a situation that can present challenges with regard to determining the content, operation and termination of the bonus plan agreement.
A bonus plan might apply to all employees – or to only a specific employee group. If you have an individual bonus plan, it might be a provisional agreement where special rules apply. A so-called “general bonus” is collectively calculated for all employees/a select group of employees in contrast to an individual or performance-based bonus.
A bonus agreement can also include both general and individual elements; for example, it might say that in order for any bonuses to be paid, your company must first reach certain target goals; at the same time, you have to show that your own efforts have helped your company reach these goals.
Be aware of the fact that bonuses are based on performance; in other words, there’s no guarantee that you’ll receive one. This is why you should plan your personal finances based on your fixed wages and not on the possibility of getting this unreliable type of extra payment.
Bonus plan criteria
According to the basic agreement between Tekna and NHO § 10, all bonus plan criteria must be made available to all individuals and groups affected by the plan. It’s important for employees to understand these criteria; when companies distribute bonuses correctly, their viability is ensured.
The criteria in a bonus plan are normally connected to predefined annual or semiannual results, net profits or profit margins. Bonus payments can be either a fixed amount or percentage of profits. In addition, the criteria can be related to production levels of an individual, group or entire staff over a certain period of time. We strongly advise you to learn what your company’s bonus criteria are in order to receive this extra payment. We also recommend that you ask for this information when starting a new job (or at any time if you’re unsure of what these criteria might be).
In Supreme Court ruling (HR-2020-2109-A) was issued stating that if a bonus plan is considered payment for work and is connected to an employee’s efforts, then hourly workers must also receive bonuses in accordance with point (1) f in the provision on equal treatment in the Working Environment Act.
Interpreting and putting bonus plans into practice
There’s often uncertainty about what a bonus plan actually means: Should my co-worker get a bonus, and if so, how much should it be? These questions are of course more difficult to answer if no written contract exists. Unfortunately, in this situation, the employer’s interpretation of the bonus plan’s often what determines who gets a bonus and how much they’ll be paid.
Interpretation is often based on what’s objectively determined in an employment contract’s wording. Yet this wording is often unhelpful; indeed, it’s more often the basis for conflict. This is why it’s important to clarify what the parties actually mean by using certain words and expressions in this contract. In addition, the contract’s language can be more detailed; for example, practice from previous years might provide guidance. Both having dialogues between employees/employers and passing legislation on bonus plans can only help clarify this situation.
Your bonus and vacation money
Many employees wonder if they’ll get any extra vacation pay after receiving a bonus. Yet the law clearly states that all wages form a basis for calculating vacation money, “wages” in this case meaning salaries and bonuses.
So a bonus payment is as a rule included in vacation money. According to The Holiday Act §11, vacation money must be paid at some point during the year after it’s been earned. For example, someone who received a bonus in 2018 will receive the vacation money calculated from this bonus in 2019.
If vacation money’s paid at the same time as a bonus is paid, the vacation pay must still be paid the following year. This decision has been reached on two separate occasions by different Courts of Appeal. The exception to this ruling is in cases where the employee has consciously planned how to get paid twice (it’s usually quite difficult to discover this kind of speculative behavior).
Your bonus and pension
According to both the Company Pension Schemes Act and the Defined Contributions Pension Schemes Act, wages earned over the course of a year form the basis of your pension. The term “wages” in this case means your personal taxable income. Any bonus payments made during the year are generally considered to be a portion of your income.
Exceptions for variable and temporary supplementary benefits
At the same time, according to each of these laws, exceptions may be made for variable or temporary supplementary benefits in pension plans. In other words, a percentage of up to 10% of an employee’s wages may be disregarded; what’s considered to be «variable work» dependa on the employee’s actual situation.
What about working on commission?
Although a commission often looks the same as a bonus, it can be even more variable since it’s an individual’s effort alone that’s being measured. In contrast, bonus payments are often based in part on individual or group results.
In 2011, The Borgarting Court of Appeal took up the question of whether or not commissions should be included in the basic calculations for pension amounts.
What is a variable supplementary benefit?
The Court of Appeal’s decision
In its introduction, the Court of Appeal states that it can find no evidence that the legislature has intended that central and stable wage elements may be disregarded when determining an individual’s pension.
With regard to the central concept of «variable supplementary benefit», the Court states that the concept must be limited to wage elements that are of a permanent, stable and lasting character, and which are a regulated and central wage element in an employee’s overall situation. An assessment of this might have significance if a wage element is written into an employment contract that entitles the employee to receive an annual or quarterly payment in accordance with specified terms. This payment contrasts with for example overtime pay or reimbursements, where the wage payment might be a result of an employer’s management rights. As a result, these benefits are not included in the wage concept.
The Court considered several characteristics of the variable supplementary benefit in its evaluation. Does it comprise a large and stable portion of the employee’s wages? Having a bonus written into an employment contract indicates its permanency; likewise, regular payments made in accordance with this bonus model indicate stability.
It's important to consider the amount of the supplementary benefit. For instance, in the case presented to the Court of Appeal, the commission rate comprised 15% of the entire wages; as the Court found, this amount comprised a major part of the employee’s wages. At the same time, it remains uncertain what the cut-off point is with respect to determining bonuses as part of wages.
The Norwegian Financial Supervisory Authority has also stated that any contractual bonus that’s paid to an employee as part of their company’s employee incentive plan must be included in this employee’s pension. This rule applies even if the bonus amount varies greatly from year to year. Exactly what comprises this employer-sponsored bonus structure has not been defined; but any bonus agreement written into an employment contract is usually based on the empcloyer’s own employee incentive plan.
All in all, the Court of Appeal’s ruling and above statements support the idea that a contractual bonus must be included in pension calculations. The importance of having a contractual bonus is central here as it stresses the significance of having a bonus that is written into an employment contract.
Your bonus plan and ending your employment relationship
One of an employer’s common requirements is that you have to be working for them in order to receive a bonus; however, many employees feel that this demand is unreasonable. What’s correct in this situation? Generally speaking, the question concerns an interpretation and fulfillment of a contractual bonus (if one exists). Yet if this hasn’t been included in the contract, it’s natural for you to demand the same bonus that the other employees receive for the time you’ve been employed.
Any employee who quits during a bonus year should as a rule be able to demand to be paid a proportionate share of the bonus. For example, if Per’s been employed for 8 months, his bonus should comprise 8/12 of the full bonus payment. At the same time, all employment situations must be assessed on an individual basis. We encourage you to contact Tekna’s Legal Department if any conflict about bonus payments arises in connection with quitting your job.
Your bonus plan and parental leave
If you’re on statutory paternal leave, are you entitled to be paid the entire bonus amount – or a portion of it (provided that it’s a general bonus plan at the group or company level)? The question must be evaluated concretely in relation to the bonus plan’s purpose/wording and company practice.
The Equality and Discrimination Ombudsman has made several statements saying that employees who are on this kind of leave may not be discriminated against with respect to salaries and bonuses. The statements in for instance case 11/210 point out that if a bonus depends on a company’s results and earnings, you are to receive this bonus even if you’re on parental leave, including the period of time you worked before your leave started. If it concerns a general bonus that’s paid regardless of company results, the bonus must be given to every employee regardless of whether you’re on parental leave or not.
Your bonus and layoffs
In Supreme Court ruling (HR-2020-2109-A), the question was raised whether temporary employees were entitled to receive a bonus during any period when they were laid off. The Court indicated that the employee’s rights and obligations in the employment relationship were suspended as a result of layoffs, including wage obligations (in accordance with the Layoff Wage Act). Consequently, temporary employees were not entitled to receive any bonus during a layoff period; the same ruling is assumed to apply to permanent employees.
