There are two types of problem relating to payment of bonuses, and having them recognised as expenses:
1. The reason for the bonus – The bonus cannot be related to profit sharing etc. The expenses will be allowed only if it can be shown that it is general practice to pay the bonus (i.e. not limited to single employee, or perhaps not even limited to one group of employees). In general, the bonus needs to be part of the “regular” overall employment conditions of the employees.
2. To be allowed as an expense the bonus must have been paid during the period of the project (provisions are not eligible expenses). Strictly, therefore the expenses must be recognised only when paid and then related to the reporting period. This means that part of the bonus should not be accepted. For example: EU reporting period annually to 30 June and Bonuses paid annually (for past year) 31 December. Strictly 6 months only of the December bonus should be included in calculating the hourly rate for the first year, but in subsequent reports the full year’s bonus should be included in the hourly rate calculation. So in a 3 year project 2.5 bonuses will be recognised (if paid).