Bonuses are a big deal to company employees because they incentivize them to exhibit the behavior that a business needs to be successful and profitable. Bonuses are also one of the best ways to increase employee longevity at the company.
When it’s time to calculate employee bonuses in the payroll process, the last thing you want to do is deal with errors. When an employee feels like their bonus was awarded inaccurately, they may lose confidence in their work and company leadership. You’ll want to ensure this process is as streamlined as possible and employees always feel autonomous. Follow these tips to help with bonus accuracy:
1. Update your payroll software
The days of conducting payroll processes by hand are long gone and automation is here to help you. If you’re sick of paper payroll processes that leave your office and mind cluttered, it’s time to upgrade to a new payroll software.
At Payroll Office of America, we offer software that calculates the perfect paycheck every time. This is done through real-time calculation, where the payroll totals update automatically in real-time during the pre-process earning adjustments. If you’d like to award an employee bonus, simply enter an amount or percentage and the payroll totals will automatically update. Never worry about tax implications either because our built-in payroll module supports multiple regional tax requirements and tax structures.
2. Ensure bonuses are taxed correctly
Bonuses are subject to income tax, but this looks slightly different from salary. Bonuses are taxed at a flat rate of 22% up to the first $1 million and 37% after the first $1 million. If you decide to include the bonus on the employee’s regular paycheck, the bonus will be taxed along with the rest of your income. Any difference between the tax you paid on the bonus with your paycheck and what you would have paid with the 22% and 37% rates is corrected on your tax refund.
3. Find a bonus structure that works for you
Finding a bonus structure that works for your workforce is essential to the longevity of your business. Although many companies tie bonuses to individual performance because 65% of workers prefer this, this may not be the best structure for your internal team. This could lead to “hit-or-miss” bonuses, which inhibit low performers from reaching their goals. Usually, something in the middle is the best solution.
Get in touch with our team today by calling 904-596-2847. We look forward to helping you create the perfect bonus payroll structure.
