Definition of "Discretionary Payment" after 1st April 2011

Employers will need to review any discretionary incentive schemes in view of the new statutory definition of "discretionary payment" under the Holidays Amendment Act.

A discretionary payment is defined as

"(a) means payment of an amount that the employer is not bound, by the employee's employment agreement, to pay the employee; but

"(b) does not include payment of an amount where the amount to be paid is discretionary, even though the payment itself is provided for in the employment agreement".

Such payment does not form part of an employee's holiday pay. However, as you can see the definition expressly excludes a payment which an employer is "bound" to make under an employment agreement even where the employer has discretion to determine the amount. Such a payment will not qualify as "discretionary" under the new provisions and thus will form part of holiday pay.