Points to keep in mind
- Lump sum merit payments are considered part of an employee's normal pay. As such, they are subject to taxes and are included in pension calculations.
- The term "lump sum" should be used exclusively for annual review allocations and not for other types of one-time payments.
Why provide a lump sum merit payment?
- An employee's base pay is already high relative to current market data, as determined by Human Resources and the department.
- An employee's base pay is high relative to other employees with similar responsibilities, or is high within their level or grade.
- An employee's pay would exceed the grade maximum if a full merit increase is given to base pay.
- An employee's base pay is already at the maximum for their level or grade.
Why provide a partial lump sum payment?
A manager or administrative officer may choose to provide a partial merit increase and an additional amount in the form of a lump sum. This may occur if an employee is a top performer and their base pay is already high in relation to:
- the maximum of their salary level or grade
- current market data and/or
- salaries of their peers
Example: An employee's salary is $50,000. The manager/department administrative officer wants to recognize the employee's superior performance with a significant increase (perhaps 5%). However, for any of the reasons stated above, the manager is hesitant to give the employee the entire amount as a base pay increase.
The employee might receive:
- a 3.0% increase in base pay, for a new base salary of $51,500
- the additional 2.0% ($1,000) in the form of a lump sum merit payment
Need Help?
For guidance on lump sum payments and all forms of merit increases, managers and administrative officers can check in with their department's Human Resources Officer.
