What is Bonus?

Meaning & Definition

Bonus

A bonus is a form of additional compensation or payment that is typically provided to employees by their employers in addition to their regular salary or wages. Bonuses are generally given to recognize and reward exceptional performance, achieve specific goals, motivate employees, or mark significant events, such as holidays or year-end financial results.

Key points about bonuses include:

• Purpose

Bonuses serve various purposes, including:

• Rewarding exceptional performance: Employees who go above and beyond their job duties may receive performance-based bonuses.
• Encouraging specific outcomes: Employers may offer bonuses to motivate employees to meet or exceed specific targets or goals.
• Attracting and retaining talent: Signing bonuses and retention bonuses can be used to attract and retain key employees.
• Celebrating special occasions: Employers often provide bonuses during holidays or as year-end bonuses to recognize employees’ efforts and loyalty.

• Types of Bonuses

There are several types of bonuses, including:

• Performance Bonuses: Tied to an individual’s or team’s performance, these are often used to reward exceptional work.
• Sign-on Bonuses: Given to new hires as an incentive to accept a job offer and join the organization.
• Retention Bonuses: Designed to retain key employees by providing them with a financial incentive to stay with the company for a specific period.
• Profit Sharing Bonuses: These bonuses are based on the company’s financial performance and are distributed among employees.
• Holiday Bonuses: Typically provided during festive seasons and holidays as a gesture of goodwill.
• Discretionary Bonuses: Given at the employer’s discretion, often as a token of appreciation.
• Sales Bonuses: Awarded to salespeople based on their sales performance.

• Taxation

Bonuses are typically subject to taxation. In some regions, they may be taxed differently from regular salary or wages, and taxes may be withheld when the bonus is paid.

• Eligibility

Bonus eligibility can vary by organization and may be based on factors such as individual performance, team performance, company performance, or length of service.

• Payment Timing

Bonuses can be paid on various schedules, such as annually, semi-annually, or quarterly, depending on company policy.

• Amount

The amount of a bonus can vary widely based on the type of bonus, an individual’s or team’s performance, and company policy. Some bonuses may be a fixed amount, while others may be a percentage of an employee’s regular salary.

Bonuses are a common tool used by organizations to motivate and reward employees, align their efforts with company objectives, and attract and retain talent. The specific terms and conditions of bonuses are typically outlined in an employment contract or company policy.