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Jan 5, 2024 · An employee bonus is paid in addition to your base salary — it’s a way for the employee to make more money and for the employer, it’s an alternative to a raise or promotion to recognize...
- Overview
- What are bonuses?
- Discretionary vs nondiscretionary bonuses
- Types of bonuses
Bonuses are a payment or incentivized reward added to an employee’s compensation package. In addition to wages or salaries, some companies provide regular bonuses to their employees. Each company’s bonus structure depends on the size and net worth of its business. In this article, we take a comprehensive look at how bonuses work by defining what they are and listing 12 of the most common types of bonuses.Key takeaways:
•Bonuses are a payment or incentivized reward added to an employee’s compensation package.
•There are two ways to categorize most bonuses: discretionary (not guaranteed) or nondiscretionary (guaranteed as shown in your employment contract).
•Companies often use bonuses as a way to increase productivity, improve employee retention, thank employees for their efforts and create a positive work environment.
Bonuses are a type of compensation paid to an eligible employee in addition to a previously set hourly wage, contract amount or annual salary. While many companies provide bonuses in the form of cash, a bonus can take any form as long as it provides value to employees as well as the organization.Bonuses can be built into a company's budget in a dis...
In many cases, a bonus will either be discretionary or nondiscretionary, as follows:
•Discretionary: These bonuses are awarded at the discretion of the employer, meaning they are not stipulated in your employment contract and are not guaranteed. For example, milestone bonuses are awarded at the discretion of your employer.
•Nondiscretionary: Theseincentive-based bonuses are outlined in your employment contract and vary by employer. As long as you meet the requirements detailed in your contract, the bonus is required as part of your compensation package. Signing bonuses and retention bonuses are examples of nondiscretionary bonuses.
Some types of bonuses are guaranteed while others are not. It's important to remember, too, that while the action of providing the bonus may be guaranteed, the amount of a bonus may not. Look closely at your employment contract to see if you should receive any guaranteed bonuses. You can also speak with a human resources representative to find out whether your company pays out a percentage of your salary or a flat rate when they calculate bonuses.Read more: Discretionary vs. Nondiscretionary Bonus: Everything You Need To Know
Profit-sharing
One type of bonus some companies use is a profit-sharing plan. Employers often implement these plans because they want to give their employees a sense of ownership in the company. With profit-sharing, the company distributes a certain percentage of the company's quarterly or annual profits to employees, usually based on each employee's annual salary. Some companies provide the shares of profit as cash payouts, while others contribute the bonus payout to a 401(k) or another retirement plan on behalf of their employees.
Spot bonus
Companies give spot bonuses to employees for a variety of reasons. Usually, managers or supervisors are authorized to provide these relatively low costs—usually around $50 or $100—bonuses to employees who demonstrate a specific company value.
Noncash bonus
A noncash bonus is any award or prize that isn't of monetary value. An example might be an extra day of paid time off or a coveted parking spot in the employee lot. Usually, noncash bonuses are tied to programs like employee of the month, and companies regularly award them to employees for meeting certain criteria.
Bonuses come in many shapes and sizes (all of which we’ll explain later), but generally speaking they’re performance-based, meaning a company distributes them based on how an employee or group of employees contributes to team or company goals—typically revenue-based ones.
Jul 30, 2024 · Learning more about bonuses can help you understand the different types and increase your chances of taking the steps to earn one. In this article, we explain what bonuses are, why companies provide them, how they work, and 12 common types.
Feb 18, 2020 · 1. Annual Bonus. The most common type of bonus is given annually based on an employee’s annual base salary. Each employee is assigned a target bonus, in most companies, that reflects a possible bonus at the end of the year.
Mar 10, 2023 · Review how to calculate an employee bonus for three types of bonus pay: sales commision, percent of salary and sign-on bonus, plus a calculation example.
Jan 4, 2024 · Employers use a signing bonus when they’re trying to lure a top employee or executive away from a competitor, outbid another company’s competing offer, or close the gap between the employee’s desired salary and the company’s offered salary.
