1. HR Glossary
2. Bonus

Bonus

What is Bonus?

Bonuses are a kind of statutory pay offered to the employees as per the Bonus Act. It is offered for long-term service or to recognize the performance of the employees. It can either be a part of the compensation or an excess amount offered for the employees’ contribution. Bonuses can be offered to both entry-level as well as senior-level employees.

Let's take an example of a sales manager in a product-based company. He achieved all the set targets and also made additional sales beyond the target. As a result, he receives a 15% of annual bonus.

Why should organizations provide bonuses to employees?

Its s considered compensation an employee receives in their salary structure. Organizations can provide work bonuses with many intentions, which are described below.

• It is an effective method to attract and retain talent in an organization.
• It increases employee morale and thus creates an engaging workplace culture.
• Healthy competition can be practiced among the workforce, helping them represent their productive selves.

Frequently Asked Questions

What are the different types of bonuses?

Bonuses can be of different types. Some are offered half-yearly, while some yearly. Some are based on performance, and some on their responsibility. The most ones are listed below.

Annual

These are paid yearly based on employees’ performance for that year. There is no limit on the amount an employee can receive, as it can clearly depend on their department and position. The crucial point for companies here is that they also receive some performance results that are decided previously. The reason it is given yearly is to prevent them from leaving.

Retention

A retention bonus is a single-time payment offered to employees in order to retain them for the long run. This is generally chosen during times of volatile market conditions to keep the top performers from accepting offers of a competitive place.

Referral

Referral bonuses are rewards given to encourage employees to refer skilled candidates from their network for vacancies in the company. It may depend on the role of the position, difficulty in hiring, etc. An essential factor to consider is this is always offered after successful recruitment and completion of certain predefined days in the company.

Signing

A signing bonus is a single-time reward provided to the possible employees as an incentive to attract them to join the company. This can be a monetary or stock option but is different from the salary, benefits, etc.

Spot

Employees who have performed exceptionally well, achieved a significant target, or have suggested a profitable idea for the project may be eligible for a spot or discretionary compensation. This forms a great way to motivate and appreciate employees for their efforts. Spot bonuses can be monetary, gift cards, time-off, etc.

Is it required for organizations to provide bonuses?

Companies must provide bonuses to the workforce once a year. However, as per the performance, the employer may decide the final payment.

Can employees discuss bonus amount?

It is entirely dependent on the company whether to keep the amount negotiable or not. Some companies may have fixed the percentage priorly. But in case it is not pre-decided, employees can try to negotiate their bonus.

To which companies do the bonus act of India apply?

As per the rule, every establishment, industry having at least 20 on-roll workforce in the financial year is obliged to provide a bonus.

What are the highest and lowest limits of bonus?

The highest and lowest limits of bonus finalized is 8.33% and 20% respectively.

How do companies calculate bonus?

The bonus will be dependent on the salary he receives from the company.

If the compensation is less than ₹7000, it will be calculated on the actual salary. Bonus = Salary * (percentage) / 100

But, if it is greater than ₹7000, it will be calculated on that amount. Bonus = ₹7000 * (percentage) / 100

What happens to bonus if the employees resigns?

In case employee resigns before the end of the fiscal year, the employer should pay the remaining bonus to the employee on a prorated basis.

Can the bonus be deducted or put on hold by the employer

The employer has all the rights to hold or reduce the bonus for misbehavior, misconduct, dishonesty, or excessive absenteeism.

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