A bonus refers to financial compensation that goes beyond the basic compensation offered to an employee.
How Does a Bonus Work?
Workplace bonuses are typically reserved for employees who deliver outstanding performance and meet or exceed company targets.
Some companies also offer bonuses to all employees, regardless of individual performance, when company objectives are met collectively.
Why Offer Employees a Bonus?
The benefits of offering a bonus to employees typically include:
- Increasing productivity
- Showing employee appreciation
- Retaining talent
- Attracting more candidates
- Increasing employee motivation and satisfaction
What Are the Different Types of Bonus?
The different types of bonuses include:
- Annual bonus: offered once a year
- Attendance bonus: offered to employees with few or no absences
- Commission: a percentage of sales
- Profit-sharing: bonuses awarded for achieving company financial targets
- Vacation bonus: offered to employees during the annual vacation period
- Project bonus: offered when deadlines are met
- Referral bonus: offered when an employee refers a candidate who is hired by the company
- Retention bonus: offered to employees who have been with the organization for a certain length of time
- Sign on bonus: offered when an employment contract is signed
- Stock options: options to purchase company shares
Are Bonuses Part of Compensation?
Bonuses are part of a company’s total compensation package.
Are Bonuses Taxable?
Bonuses are typically taxable as part of an employee’s total compensation package. However, some bonuses may be tax-exempt, depending on the legislation in place.
For example, in Canada and the United States, all bonuses are taxable.
Can Employees Negotiate Their Bonuses?
Like salaries, bonuses can be negotiated between an employee and their employer. Negotiation takes place at the discretion of the parties involved.