Bonus Pay in Canada: What Employees Need to Know

A bonus can be a meaningful part of your income — but many employees are unsure how bonus pay actually works, or what happens when a bonus is withheld, reduced, or not paid at all.

In Canada, bonus entitlement depends on how the bonus is structured, how it has been paid in the past, and what your employment contract or bonus plan actually says.

This guide explains bonus pay in plain language, including discretionary bonuses, taxation, and what to do if your employer refuses to pay.

What Is Bonus Pay?

Bonus pay is money an employer pays on top of regular salary or wages. It can be paid monthly, annually, or as a one-time amount.

Common types of bonuses include:

• Annual or year-end bonuses
• Performance or incentive bonuses
• Sales or commission-based bonuses
• Company-wide profit bonuses
• Holiday or Christmas bonuses

What Types of Bonuses Do Employers Offer?

Employers use bonuses for different reasons, and the structure matters.

Bonuses may be:

• A fixed percentage of salary
• Based on hitting targets or KPIs
• Calculated using a clear formula
• Paid at the employer’s discretion
• Paid consistently year after year
• A retention bonus

Are Bonuses Guaranteed or Discretionary?

This is one of the most misunderstood areas of employment law.

Guaranteed (Non-Discretionary) Bonuses

A bonus is usually non-discretionary if:

• It’s written into your employment contract
• It’s tied to specific performance targets
• It can be calculated using a formula

If you meet the conditions, you are generally entitled to be paid.

Discretionary Bonuses

A bonus may be described as discretionary if:

• The employer decides whether to pay it
• There is no fixed formula
• The plan gives management flexibility

However, “discretionary” does not automatically mean unenforceable.

What Is a Discretionary Bonus?

A discretionary bonus is one the employer says is optional — but that label alone isn’t the end of the analysis.

Courts look at the reality of how the bonus operates, including:

• Whether it’s been paid regularly in the past
• Whether employees expect it as part of their pay
• Whether performance targets are used in practice

How important the bonus is to overall compensation

In many cases, a discretionary bonus can become owed if it’s paid consistently and forms a meaningful part of income.

Discretionary vs Non-Discretionary Bonus: Key Differences

Non-Discretionary Bonus

• Based on rules or targets
• Predictable and measurable
• Often treated as wages
• Commonly enforceable

Discretionary Bonus

• Employer has flexibility
• No strict formula
• Still enforceable in some situations
• Depends on history and expectations

Are Bonuses Considered Wages?

Often, yes.

If a bonus is:

• Earned through work
• Paid regularly
• Linked to performance or targets

It may be treated as wages or compensation, not a gift. This matters for:

• Bonus disputes
• Severance calculations
• Claims for unpaid compensation

Can an Employer Withhold a Bonus?

Sometimes — but not always.

An employer may be able to withhold a bonus if:

• You didn’t meet the stated conditions
• The bonus plan clearly allows it
• The bonus was genuinely discretionary

An employer may not be allowed to withhold a bonus if:

• You already earned it
• It was paid consistently in the past
• The refusal is arbitrary or unfair
• The bonus forms part of your regular compensation

Each situation turns on the wording of the plan and how the bonus actually worked in practice.

Are Bonuses Taxed More in Canada?

No — there is no special “bonus tax.”

Bonuses are taxed the same way as salary. Employers must deduct:

• Income tax
• CPP contributions
• EI premiums

Does Vacation Pay Apply to Bonuses?

Sometimes.

Vacation pay may apply if the bonus:

• Is considered part of wages
• Is tied directly to work performed

Purely discretionary or one-time bonuses may not attract vacation pay, but performance-based bonuses often do.

What to Do If Your Bonus Is Not Paid

If your employer refuses to pay a bonus, don’t assume they’re automatically right.

Steps to take:

1. Review your employment contract and bonus plan
2. Look at how the bonus was paid in prior years
3. Gather emails, targets, and pay records
4. Get legal advice before accepting the loss

When to Speak With an Employment Lawyer

You should consider legal advice if:

• A bonus you expected wasn’t paid
• Your employer suddenly changed the bonus plan
• A “discretionary” bonus feels anything but discretionary
• A bonus is missing from a severance package

Key Takeaways

• Bonuses are often more than “extra” pay
• Discretionary bonuses can still be enforceable
• Labels matter less than how bonuses actually work
• Tax treatment is the same as salary
• Unpaid bonuses are a common employment dispute