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 his/her 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 his/her base pay is already high in relation to:
- the maximum of his/her salary level or grade
- current market data and/or
- salaries of his/her 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, he/she 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
For guidance, managers and administrative officers can check in with their department's Human Resources Officer.