A bonus is a form of incentive pay that employers provide to employees in addition to their usual salary or hourly rate. Bonuses are different from commission wages because they are not based on the price of a certain product or service and they are mostly paid to individuals not involved with sales.
There are two types of bonuses:
1. Discretionary Bonus: In the form of a reward where there is no promise for their payment. For example, year-end holiday bonuses
a. An annual holiday bonus may still be considered discretionary if it’s not measured based on objective standards such as hours worked or productivity.
2. Non-discretionary Bonus: Where a promise is made that a bonus will be given for specific achievements. For instance, exceeding a minimum sales quota.
With bonuses also comes legal considerations for employers. If your company needs assistance with planning year-end processing, bonuses, and compensation, contact JH Consulting at 714-321-2279.