Year-end arrives and HR gets the same question as every year: "Is there a bonus this year, and how many months?" Many employers think of a bonus as a reward paid when the business does well. Many employees think of it as part of their income, paid every year. The mismatch usually starts with a few lines in a contract, an announcement or an offer letter, and turns into a dispute the first year profits fall.
This guide explains the difference between a guaranteed bonus and a discretionary one, how to write a clear policy, and how to communicate when you must reduce or skip it. It follows on from variable pay design in sales KPI and commission scheme design, and goes with reducing wages, workdays and benefits when you need to change terms already agreed.
The short answer
Whether a bonus is a right or a matter of discretion does not depend on its name. It depends on what the employer wrote and did. If the wording promises a fixed or calculable amount, such as a "13th month", it is likely to be a debt the employee can claim. If the wording says a bonus may be paid depending on results and performance, at the employer's judgment, and the employer actually behaves that way, that carries weight as discretion. But a long, unconditional payment history can soften the original wording.
The law Wages are defined in Labour Protection Act B.E. 2541 section 5, which links to severance pay under section 118 and to overtime pay. Conditions of employment are defined in Labour Relations Act B.E. 2518 section 5 and cover terms on working days and hours, wages, welfare, termination and other benefits in the employment. An employer with 20 or more employees must have a written agreement on conditions of employment under section 10, and where there is none the work rules are treated as the agreement under section 11. A contract may not conflict with the agreement unless it is more favourable to the employee under section 20. Contract wording is read in good faith and with regard to ordinary usage under Civil and Commercial Code sections 5 and 368, and doubt is construed in favour of the party who would bear the obligation under section 11.
Our practical view Most problems come not from having no bonus but from the employer saying two things. The contract says discretionary, but management tells staff "everyone gets at least two months every year". A good policy aligns three things: the document wording, the criteria actually used, and what management says.
Hypothetical "Saeng Isan Construction", a company in Khon Kaen with 60 employees, has announced for 8 years that "the company may consider paying a bonus depending on results". Every year it has paid every employee the same 2 months of salary, with no written evaluation criteria. In year 9 profits fall sharply and management wants to pay 0.5 months. We use this example throughout and call the company "Saeng Isan".
1. How does a guaranteed bonus differ from a discretionary one?
In practice bonuses fall into two broad types. The first is fixed, such as a 13th month or a set bonus written into the contract. The second is variable, tied to company results and individual performance. The table compares them.
| Aspect | Guaranteed annual bonus (e.g. 13th month) | Results and performance bonus (discretionary) |
|---|---|---|
| Typical wording | "The company will pay ... months" "13th month salary" | "The company may consider paying" "depending on results and performance" |
| Amount | Fixed or calculated by a fixed formula | Varies with profit, targets and evaluation scores |
| Employer skips it unilaterally | Risky; may breach the contract and be claimable | Possible if consistent with the wording and criteria actually used, and in good faith |
| Key risk | Binding even when the business is struggling | Payment history and management statements turn it into an expectation |
| Effect on legal wage calculations | More likely to be seen as wages if fixed and paid for normal work | Generally seen as a reward, but depends on the facts |
| Suits | Roles that need fixed annual income | Teams with measurable results and businesses with uneven profit |
Many companies use a hybrid: a fixed bonus plus a variable top-up. That is fine, but the two parts must be separated clearly in the documents, or the variable part may be read together with the fixed part.
2. Contract and announcement wording: what decides whether there is a right
In a dispute, a court or labour inspector starts with the documents: the employment contract, announcements, work rules, emails or offer letters. Then they see whether actual practice matches. Points to check in the wording:
- The verb "will pay" differs greatly from "may pay". If both appear in one document, align them.
- Conditions tied to payment State the profit level, performance level or board approval that triggers payment. Unconditional wording is more easily read as a debt.
- Who decides, and when State who considers it, when, and on what information.
- Reservation of rights State that the employer may change, reduce or skip the bonus in a year of poor results, with notice. A reservation helps, but it cannot override an amount already agreed as fixed, and it does not excuse a decision made in bad faith.
- Layers of documents Individual contracts, work rules, year-end announcements and what is said in meetings should agree. Where they differ, employees tend to rely on the version most favourable to them.
At Saeng Isan the announcement says "may consider", which is discretionary wording. The weak point is the 8 years of practice, which leads to the next section.
3. Paid for years: can it be stopped? Payment history and conditions of employment
The most common question is whether a bonus paid every year for many years, without conditions, has become a right. The most accurate answer is that it depends on the facts, but these factors are often considered:
- Continuity How many years, and were there years it was not paid?
- Consistency of amount The same for everyone and every year, or varying with actual performance?
- Whether there were conditions Were criteria announced and actually applied, or was it paid regardless of performance?
- The employer's words Did it ever say the bonus was discretionary, or describe it as part of pay?
- Resulting expectation Did employees plan their finances or accept a job offer relying on the bonus?
Legally, an employee may argue that a bonus paid so consistently that it became known is part of the "conditions of employment" under Labour Relations Act B.E. 2518 section 5, which covers wages, welfare and other benefits in the employment. If the employer wants to change a condition already favourable to employees, it must look at the lawful routes, such as agreement with the employees or the demand procedure (section 13), and section 20, under which a contract may not conflict with the agreement unless more favourable to the employee. This is, however, an argument employees may raise, not a certain result. We do not cite particular Supreme Court decisions in this guide because the outcome in each case turns on the wording, the history and the evidence.
What an employer can do to reduce risk
- State in the announcement each year that the bonus is discretionary and depends on that year's results and performance.
- Use the announced criteria in fact, and record the evaluations. Do not pay everyone the same with no criteria and call it discretion.
- Management should not say "you will definitely get it every year" or "same as always".
- In a year of no or reduced payment, follow the criteria and give the reasons openly. See section 8.
At Saeng Isan, 8 consecutive years of equal 2-month payments with no criteria give employees a substantial argument. Management should not announce a cut to 0.5 months straight away, but take advice first on how to proceed.
4. Is a bonus "wages", and why does it matter?
Labour Protection Act B.E. 2541 section 5 defines wages as money the employer and employee agree the employer will pay as remuneration for work under the employment contract, for work in normal working time on working days, and including money paid on holidays and leave days when the employee does not work but is entitled to be paid by law. The definition affects several calculations, such as severance pay under section 118, which is based on the last rate of wages, and overtime pay, which is based on the hourly wage rate.
| Type of bonus | Legal tendency | Effect on calculations |
|---|---|---|
| Fixed, paid regularly each month or year as remuneration for normal work | More likely to be seen as wages | May be brought into the base for severance and overtime |
| Reward varying with profit or performance | Often seen as not remuneration for normal work | Generally not in the base, but check the wording and actual payment |
| One-off special payment for a specific reason | Generally a special payment | Generally not in the base |
The table is general guidance, not a fixed conclusion. A court looks at the facts and the purpose of the payment case by case. Calling money a "bonus" does not decide it, and calling it "remuneration" does not make it wages. The employer should state the purpose of the bonus clearly and avoid paying what is really remuneration for normal work under the label of a bonus. If an employee is dismissed and severance must be calculated, see severance pay and termination, and for disputes about unpaid money see unpaid wages and overtime. Where an employer pays a 13th month as an additional wage, take advice on the effect on other entitlements.
5. Who is eligible: in service on payment date, pro-rata, probation and discipline
A bonus policy should say who is eligible. Common conditions, with the limits of fairness, are:
| Condition | Example term | Limits to watch |
|---|---|---|
| In service on payment date | Someone who resigns before payday gets nothing | Acceptable if written clearly and applied to all, but not to employees dismissed without cause so that they miss the date |
| Pro-rata by time | Joiners and leavers mid-year get months worked | Fairer; state how months are counted |
| Probation | Only those who pass probation, or pro-rata | Permitted, but say whether months count back once probation is passed |
| Disciplinary record | Reduced or no bonus for those disciplined in the year | Acceptable if the criteria are clear and tied to the evaluation; not a second punishment |
| Sick, maternity or other statutory leave | Do not cut the bonus merely because of lawful leave | Cutting for using a statutory leave right risks being seen as unfair |
The key principle is that conditions are written in advance, applied equally and do not conflict with statutory rights. Unfair terms may be reviewed under Labour Protection Act section 14/1, and discipline must follow the work rules under section 108. A bonus should not be used as an unwritten sanction outside the work rules.
6. Evaluation criteria and documentation
A performance bonus is robust only if the criteria are clear and records support them.
- Company-level criteria The indicators that decide whether there is a bonus, such as net profit, sales or cash flow, and who approves.
- Individual-level criteria Targets agreed at the start of the year, the weight of each indicator and how scores are given.
- Evaluation period State the start and end dates of the cycle.
- Evaluator and review Who scores, whether the employee sees the result, and whether there is an appeal.
- Records Written target setting, progress notes during the year and a year-end summary.
If an employee's performance falls below the criteria in a way that affects the bonus, communicate during the year rather than for the first time at year end. See related approaches in performance improvement plans and KPIs for employers, and if relatives work in a family business, apply the same criteria as to other staff; see roles and pay in the family business.
Saeng Isan should start by writing next year's criteria, setting individual targets at the start of the year and recording evaluations, so that next year's bonus is truly discretionary and not only in name.
7. How to change or reduce a bonus properly
Before reducing or skipping, first classify the bonus.
- If it is discretionary with clear criteria and records Apply the announced criteria and tell staff the result.
- If it is a debt under a contract or agreement A reduction needs the employee's consent, or the lawful procedure for changing conditions of employment. Do not cut it unilaterally.
- If you are unsure because the payment history is long Take legal advice before announcing, and consider negotiation, for example paying a reduced amount this time but moving to clearly discretionary wording from next year, with the employees acknowledging it in writing.
Be aware that if a reduction leads an employee who does not accept it to leave, it can turn into an unfair dismissal issue. The Labour Court may award compensation under the Labour Court Establishment and Procedure Act B.E. 2522 section 49. A transparent route matters more than the saving in a single year. See also restructuring and redundancy planning.
8. Tax and communicating a reduced or no-bonus year
Tax A bonus paid to an employee is employment income under Revenue Code section 40(1). The employer must withhold tax under section 50(1) and remit it on time. How it is computed, such as combining with salary in the same year and the year-end assessment, should be checked with the Revenue Department or your accountant case by case. Also check with the Social Security Office whether the payment counts toward the contribution base.
Communication How the bad news is delivered matters as much as the figure. An approach that works:
- Tell staff early, before year end. Do not let them learn it from rumour.
- Do it in writing, citing the wording of the policy in force.
- Explain the reason with figures you can disclose, such as sales or profit against last year.
- Say clearly whether individual performance assessments still count as before.
- Give next year's plan, such as the new criteria and when results will be announced.
- Invite questions and listen to concerns. Do not overpromise, such as promising to make up for it next year if you are not sure.
Sample message to staff (an example; adapt to the facts and have a lawyer review before sending)
Subject: Result of the annual bonus review for B.E. 2569
Under clause ___ of the bonus policy, the company considers a bonus based on company results and
each person's performance, at the company's discretion each year.
In B.E. 2569 the company's results fell from the previous year in ___ (figures that can be disclosed).
The company has therefore decided to pay a bonus of ___ of salary under criteria ___, payable on ___.
Individual performance results for B.E. 2569 will be given to each person by ___.
If you have questions, contact HR at ___ by ___.
For B.E. 2570 the company will announce the criteria and targets in advance, by ___.
9. A sample bonus policy clause
Sample clause (an example; adapt to your business and have a lawyer review before use)
Annual Bonus Policy
1. Nature of the bonus
The annual bonus is a special payment that the company may consider paying, at the company's
discretion each year, based on company results and employee performance. It is not
remuneration for normal work, and payment in one year does not oblige payment in a later year.
2. Criteria
2.1 The company will announce company-level criteria by ___ each year.
2.2 Individual criteria follow the targets agreed in writing at the start of the evaluation cycle.
3. Eligibility
3.1 Employees in service, and not under notice of termination or resignation, on ___.
3.2 Employees who join or leave mid-cycle for reasons that are not their fault are paid pro-rata
by the months worked.
3.3 Probationary employees are paid pro-rata after passing probation.
3.4 A reduction or withholding for discipline must refer to the work rules and be notified in writing.
3.5 Taking statutory leave is not of itself a ground to reduce the bonus.
4. Notification
The company will notify the result in writing by ___ with a short summary of reasons,
and allow questions within ___ days.
5. Changes to the policy
The company may amend this policy for the next evaluation cycle with not less than ___ days'
notice. An amendment does not affect a concluded cycle for which the company has agreed
a fixed amount.
Clause 1 helps keep the wording discretionary, but it does not guarantee a win in every dispute because a court also looks at actual practice, and clause 5 does not apply to money already agreed as a fixed amount. If you have 20 or more employees, also check whether the work rules or the agreement on conditions of employment say anything about bonuses that conflicts with this policy. See the HR documents and work rules service.
10. Bonus policy checklist
Wording and documents
- Reviewed the contracts, announcements, work rules and offer letters for "will pay" versus "may pay"
- Separated any fixed bonus from the variable bonus in the documents
- The policy wording, the announcement and what management says are consistent
- No bonus term in the work rules or agreement conflicts with the new policy
Criteria and records
- Company-level criteria and individual targets announced in advance in writing
- Clear evaluator, evaluation period and scoring method
- Progress notes and year-end summary kept
Eligibility
- Set the in-service date, pro-rata for joiners and leavers, and probation rules
- Discipline conditions refer to the work rules
- No bonus cut merely for using statutory leave
Tax and money
- Checked withholding tax and social security contributions with the accountant
- Reviewed which part of the bonus might be viewed as wages for severance and overtime
Communication
- Prepared the message for a reduced or no-bonus year before year end
- Taken legal advice before changing a long-paid bonus
Further reading
- Sales KPI and commission scheme design — when variable pay is tied to sales
- Unpaid wages and overtime — when money already due is in dispute
- Severance pay and termination — how the definition of wages affects the calculation
- Reducing wages, workdays and benefits — when you must change terms already agreed
- Performance improvement plans and KPIs for employers — evaluation criteria and performance records
- Roles and pay in the family business — when relatives are among the recipients
- When to get a lawyer to review HR documents — points to check before announcing a policy
A clear bonus is one whose wording matches what is actually done. If the employer wants discretion, it must exercise real discretion under criteria. If it wants to guarantee, it must know what it is binding itself to.
We help review employment contract and bonus announcement wording, draft policies and evaluation criteria, check work rules, and plan staff communication when a bonus must change. For an initial consultation, call +66 92 254 2045 or send us the details. See also HR documents and work rules.
This guide is published by Suwanvara Law Firm — a Khon Kaen law firm established in 1986. General information only, not legal advice on a specific matter.
