How To Calculate A Bonus In 3 Easy Steps (With Types)

By Indeed Editorial Team

Updated 20 September 2022 | Published 5 May 2022

Updated 20 September 2022

Published 5 May 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Employee bonuses help increase the morale and overall performance of employees in an organisation. Calculation rules for employee bonuses vary based on various factors. Understanding how to calculate a bonus can help employees understand their earnings and salary components in a better manner. In this article, we discuss what a bonus is, understand how to calculate it and explore the common types of bonuses that employers offer.

What Is An Employee Bonus?

A bonus is an additional compensation that employers pay to employees to reward their loyalty and commitment to the company. The main goal of an employee bonus is to distribute organisational profits among employees. Bonuses boost employee morale, productivity and motivation among employees and in turn help companies achieve their goals. When linked to employee performance, bonuses can play an important role in employee retention and contribute to high-performance work culture.

Statutory bonus is an important category of bonus in India. Companies pay the statutory bonus in accordance with the Payment of Bonus Act, 1965. This law applies to all factories, establishments and businesses that employ more than 20 people in a fiscal year. In some cases, if employees are not eligible for a statutory bonus, they might receive ex-gratia from the company instead. Companies calculate bonuses based on the salary and dearness allowance (DA) that an employee receives.

Read more: What Is A Bonus? Definition And Types

How To Calculate A Bonus

Follow these steps to learn how to calculate a bonus:

1. Determine your eligibility for statutory bonus

The first step to calculating your bonus is to check if you are eligible for receiving one. There are certain eligibility rules for the calculation of bonuses under the bonus laws. To receive a statutory bonus, an employee requires to complete at least 30 working days in a particular organisation in an accounting year. According to the bonus laws, to be eligible for a statutory bonus, the sum of one's basic salary and dearness allowance cannot exceed ₹21,000 per month.

2. Determine your eligibility for maximum or minimum bonus

If you satisfy the above eligibility criteria, the next step is to determine if you are eligible for a minimum or maximum bonus. Employees qualify for a minimum or maximum bonus based on the gross salary earned. A minimum bonus applies if the gross monthly salary is equal to or less than ₹7,000 per month. A maximum bonus applies if the gross monthly salary is greater than ₹7,000 per month.

3. Calculate the actual statutory bonus

Once you determine the type of bonus you may receive, you can calculate the actual statutory bonus for your earnings.

If your salary is equal to or less than ₹7,000 per month, calculate the bonus using the below formula:

Bonus = Salary * 8.33 / 100

If your salary is greater than ₹7,000 per month, calculate the bonus using the below formula:

Bonus = 7000 * 8.33 / 100

Related: How To Answer The Salary Expectation Question In Job Interviews

What Are The Types Of Employee Bonuses?

Apart from the statutory bonus, employers offer different bonuses to their employees. Following are some common types:

Profit-sharing

A profit-sharing bonus is where the company pays employees a certain percentage of their profit. Companies pay this amount annually or quarterly based on the company's bonus plan. Some publicly traded companies may offer shares to their employees as a part of their profit-sharing plans.

Spot bonus

A spot bonus is a company's way of rewarding employees for exceptional performances on certain tasks. The amount offered as a bonus depends on the organisation and the act that led to a bonus. Companies award spot bonuses to individual contributors whose contributions do not readily fall under a performance measuring standard.

Non-cash bonus

A non-cash bonus, as the name suggests, is a non-monetary reward that employees receive for their work. This type of bonus can include trophies, awards, certificates and other rewards. Some of these awards get nominated by supervisors and peers, resulting in improved teamwork.

Referral bonus

Most companies offer a referral bonus to employees for referring new hires. A common rule is that the employee receives the referral bonus on completion of a 90-day probation period or by referring a specific number of candidates. Referral bonus amounts vary depending on the designation, skills and company policies.

Signing bonus

Some companies offer a signing bonus to new employees upon the acceptance of a job offer. While some companies release the bonus after the employee's onboarding process, others pay this bonus after a few months of joining. Signing bonuses helps companies fill important positions and attract potential candidates.

Milestone bonus

Milestone bonus, also known as a task or mission bonus, usually applies to projects with critical deadlines. Organisations decide milestones in advance and create goals to be accomplished so that employees can receive the bonus. This type of bonus is common in hardware and software development companies during critical development projects.

Attendance bonus

Many companies pay a bonus to employees with a stellar attendance record. Usually paid on a quarterly or annual basis, the attendance bonus is common across service-based industries like restaurants, hotels, and pharmacies. As employees in this sector do not have fixed holidays and work on festivals and public holidays, this type of bonus helps keep employees motivated.

Annual bonus

Most companies give a performance-based annual bonus to their employees. While annual bonuses can vary from employee to employee based on their performance and position, some companies offer a flat bonus for all employees regardless of their designation. Companies can also determine the annual bonus using a combination of factors like annual employee performance and the company's annual performance.

Related: What Is Variable Pay And Why Do Employers Offer It?

Holiday bonus

Holiday bonuses are gifts employees get on festivals and holidays from the organisation. These are not part-time or performance-based bonuses and they apply to the entire workforce. Holiday bonuses can include gifts, monetary benefits or other favours depending on the company. Holiday bonuses help companies keep the employees happy and ensure their morale is high.

Commission

Commissions are common in the sales department of an organisation. Sales professionals often have sales targets to meet and they earn a commission based on their sales amount. In most cases, companies give employees a certain percentage of the total sales amount as sales commission. Some companies may have an upper limit on the sales commission an employee can receive. These professionals receive their commission payments on a monthly, quarterly or annual basis.

Retention bonus

Companies offer deserving employees a retention bonus to encourage them to stay in the organisation for a longer duration. Employees usually receive the retention bonus during company mergers and acquisitions or when they plan to leave the company for better opportunities. A retention bonus is a reward or singular transaction offered in addition to one's regular salary.

Longevity bonus

Most companies offer a longevity bonus to employees who spend a significant amount of time working for the company. The structure of this bonus can vary based on the company and can occur in multiple tiers. Employees receive longevity bonuses as a salary raise or a cash reward. The longevity bonus encourages employees to stay in the organisation for a longer period and fosters employee loyalty. It also rewards tenured employees for their continued service to the company.

Safety bonus

Safety bonuses reward individuals or teams for meeting specific safety goals. Companies offer these bonuses on a quarterly or annual basis. Safety bonuses encourage safe behaviours within the company and ensure that employees regularly follow safety standards. Employees may also receive a safety bonus when they make innovative suggestions to improve safe behaviour in the company and report safety violations.

Dividend bonus

This is a bonus for employees who are also shareholders in a company. Companies pay dividend bonuses from the profits made over a financial year. The dividend bonus offered to an employee depends on the number of shares held by the shareholder. In case of a loss, companies do not pay any dividend bonuses to their shareholders.

Benefits Of Employee Bonus

Employee bonuses positively impact employees in several ways. Following are the major benefits of employee bonuses:

Motivates employees

Bonuses may inspire employees, motivating them to work harder and contribute more efficiently to the organisation. Performance bonuses or incentives can motivate employees to work towards organisational goals and milestones. They can boost employee morale and are ideal to use while assigning new responsibilities and beginning new projects.

Helps recruit the best talent

Organisations use different bonuses to recruit in-demand professionals for open positions. Bonuses like sign-in bonuses and joining bonuses are attractive ways to attract skilled resources to the organisation. Receiving a lucrative bonus can help employees feel well-compensated for their skills and foster employee loyalty.

Increases team collaboration

Certain bonuses, such as team bonuses, can bring better collaboration within teams. These bonuses can inspire teams to work in harmony towards common business goals. Working towards shared business goals can help develop a sense of camaraderie and team spirit, which can be good for the overall growth of the organisation.

Promotes healthy competition

Offering bonuses is a great way to increase healthy competition among employees within a team. Goal-based incentives can push each employee to deliver their best, thus boosting organisational productivity. A balanced combination of individual and team-based bonuses can ensure optimum efficiency and collaboration and encourage friendly competition within a team.


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  • What Is A Take-Home Salary Calculator? (Components And FAQs)

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  • What Is Compensation?

  • What Is a Salary Slip? Importance, Components and Format

  • How to Calculate the CTC Structure (Formula and FAQs)

  • What Is Salary Structure And How To Make One (With Samples)

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