The Legal Foundation of a Bonus and Incentive System
Designing bonuses and other incentives in Georgia turns on four Labour Code norms: the rules on the form, amount and payment timing of remuneration, the internal labour rules, the cap on deductions from remuneration, and the flexible mechanisms tied to overtime. The United States federal regime for deferred compensation does not apply here — a Georgian bonus system is carried by the Georgian Labour Code, and every premium, bonus and incentive should be written under its conditions.
The first anchor is Article 41 of the Code: remuneration is the basic or minimum remuneration, the salary, or any other remuneration that the employee receives from the employer in money or in kind in exchange for performing work. A bonus, premium or commission fits this definition — which means the general guarantees of remuneration attach to them as well.
Form, Amount and Payment Timing of Remuneration
Under Article 41, the form and amount of remuneration are determined by the employment contract — so the type of bonus, its conditions and the calculation formula must be fixed in the contract or in documents linked to it. The minimum payment frequency is also statutory: remuneration is paid at least once a month. In practice, deferring an annual bonus does not breach the monthly rhythm as long as the base salary is paid monthly; but the bonus still carries the same protective mechanisms as any remuneration.
The delay sanction matters most: for each day of delay of any remuneration or settlement, the employer must pay the employee 0.07 percent of the delayed amount. This rule reaches bonuses too: if a premium is not paid on the agreed day, every subsequent day adds to what is owed. The Code carves out one exception, for the forced-idle remuneration provided for by law.
Internal Rules — the Home of the Incentive System
Article 23 gives the employer the right to adopt internal labour rules and obliges it to acquaint employees with them. Internal rules are precisely the written document in which the types of incentives and rewards, the types of responsibility, and the rules for applying them may be defined — the catalogue of bonuses, the criteria for calculating them and the payment procedure. The same provision lists the time, place and procedure of paying remuneration: the details of a bonus scheme are therefore fixed on two levels — form and amount in the contract, application rules in the internal rules.
Internal rules have two structural limits. First, the employer must ensure the principle of equal treatment of employees and must reflect anti-discrimination provisions in its internal rules and other documents; an incentive scheme that differentiates employees, directly or indirectly, on protected grounds breaches this requirement. Second, any provision of internal rules that contradicts the law, the individual employment contract or the collective agreement is void. Internal rules therefore cannot reduce the amount of remuneration fixed by the contract or dismantle statutory guarantees.
The Deduction Cap and Overtime Mechanisms
Bonus design often raises clawback — the recovery of an overpaid bonus. Article 43 allows the employer to deduct from the employee's remuneration an overpaid amount or any other amount the employee owes under the employment relationship, but with a hard boundary: the total amount deducted at once must not exceed 50 percent of the remuneration. This cap is the central arithmetic constraint of any clawback built into a bonus scheme.
The overtime rules of Article 27 supply ready-made incentive mechanisms. Overtime is paid at an increased hourly rate, the amount is set by agreement of the parties, and payment is made together with the next monthly remuneration after the overtime was worked. Alternatively, the parties may agree to grant proportional additional rest time instead — no later than four weeks after the overtime. The employer must give written notice of overtime one week in advance where possible. For minors, overtime may not exceed two hours a day and four hours a week; and engaging protected employees — pregnant women, new mothers and nursing women, persons with disabilities, parents of children under three years — in overtime without their consent is prohibited.
Frequently Asked Questions
Below we summarize the questions most often asked when bonus and incentive systems are designed.
Where should bonus conditions be written — the contract or internal rules?
The form and amount of remuneration are set by the employment contract; the types of incentives and the rules for applying them are set by internal labour rules. The two documents together form the complete legal frame of a bonus scheme.
How often must remuneration be paid?
By law, remuneration is paid at least once a month. A bonus may be quarterly or annual, but the monthly rhythm of the basic remuneration must be preserved.
What happens if a bonus is paid late?
For each day of delay the employee is entitled to 0.07 percent of the delayed amount. The rule applies to any remuneration, bonuses included.
How much may be deducted at once?
The total of one-time deductions must not exceed 50 percent of the remuneration. This cap also governs deductions made to recover an overpaid bonus.
How We Help on Legal.ge
On Legal.ge we build bonus and incentive systems that stand on lawful ground: we draft the incentive block of internal rules, align the remuneration clauses of employment contracts, fix deduction boundaries, and structure overtime accounting. Contact us — we will make sure your scheme meets every requirement of the Code.