The year-end bonus is a form of additional compensation above and beyond a worker’s salary. The remuneration is provided to employees as a reward for their hard work and achievements throughout the year. The bonus payout is mainly tied to specific metrics, such as beating their sales quota for the year.
For many mid to senior-level professionals and executives, a bonus represents a sizable portion of their total compensation. Employees look forward to and depend upon a bonus to pay off debt, purchase a new home or automobile, or take a lavish vacation. Some low-wage workers rely on a bonus to buy family holiday gifts and pay off high-interest credit card and tuition debt.
What To Expect
It is important to note that not every company offers a yearly bonus. If times are tough and the business is not doing well, you may receive a small token bonus or nothing at all. In 2022, Wall Street investment bankers, brokers, traders, deal makers and money managers were not immune to market forces. According to Bloomberg, JPMorgan, Bank of America, Citigroup, and other financial institutions were cutting bonuses by up to 30%. If you don’t have a bonus figure in writing, there’s not much you can do other than plead your case for the additional payout.
To receive a bonus, companies set specific benchmarks, such as meeting or exceeding clearly outlined expectations. Usually, companies share target bonus levels when a new hire is brought aboard. The bonus numbers can either be written into the employment agreement or human resources, the hiring manager or others involved with the hiring process give a verbal projection of the bonus amount for the year. You want to get it in writing, as it’s not uncommon for workers to see a “donut” at the end of the year—meaning they were stiffed out of a bonus.
The Breakdown
An annual bonus can be paid in different forms, such as a lump-sum payment in cash, stocks, stock and options. The amount of money paid out to an employee varies depending upon the person’s corporate title, salary, beating specific goals and exceeding expectations.
The year-end bonus is different from a sign-on bonus, which is a one-time payout given to new employees as an incentive to join the company, and a retention bonus that is provided to an employee to entice the worker to stay at the organization, as opposed to accepting a job offer from another company. A referral bonus is given to employees who refer qualified candidates to the company. A year-end bonus is not the same as a holiday bonus, a gift the employer gives to the employee during the holiday season.
When Should You Expect Your Bonus, and Is It Taxed?
Historically, the employer distributes bonuses on a discretionary basis at the end of the company’s fiscal year—late December and in the first few months of the New Year.
This compensation is taxed in the United States. The Internal Revenue Service views the money as supplemental wages and is subject to federal income tax, Social Security and Medicare taxes.
Source: Forbes
