How to calculate a bonus!

Before we breakdown how to calculate a bonus, first we have to discuss what a bonus is. Bonuses are a form of variable pay that are used to inspire employee loyalty or reward performance, and it’s essential to know about the different kinds.

Discretionary bonuses

A bonus is discretionary if it’s given solely at the employer’s discretion and does not cause an expectation of payment from the employee. The bonus should not be contingent on the employee’s performance or tied to any agreement with the employee, nor should it be routine — thereby creating the expectation of regular payment.

For example, a Christmas bonus is discretionary if it meets both conditions:

  • The employer has sole discretion over the fact that the payment will be made and over the amount of the payment.
  • The employee does not have a contractual right to the bonus or was not promised the bonus.

A bonus is not discretionary if the employer retains the freedom to provide the bonus at its sole discretion. The employer also announces to the employee that he or she will receive the bonus, consequently creating the expectation of payment. For instance, a bonus rewarding an employee for exceptional performance is discretionary, provided no advance notice of the payment is given to the employee.

Nondiscretionary bonuses

A bonus is nondiscretionary if it causes an expectation of payment by the employee because the employer has promised to pay the bonus or because there’s an employer-employee agreement regarding payment of the bonus.

Nondiscretionary bonuses are usually offered for the purpose of improving performance and productivity, in which case the employer must set work goals and performance standards in advance of the payment. These bonuses are tied to the employees’ quality and quantity of work and are designed to motivate them to work more efficiently or to remain with the company.

Hiring bonuses, attendance bonuses and individual or group production bonuses are all examples of nondiscretionary bonuses.

Effect on overtime

If the bonus is discretionary, the amount should not be factored into overtime calculations. However, under the Fair Labor Standards Act, nondiscretionary bonuses must be included in nonexempt employees’ overtime pay calculations for the period of time that the bonus covers.

To calculate the overtime rate of pay for a nondiscretionary bonus earned over a single workweek:

  • Add the bonus to the employee’s total wages for the workweek.
  • Divide the total wages for the workweek by the total hours worked for the workweek to arrive at the regular rate of pay.
  • Multiply the regular rate of pay by 1.5 to get the overtime rate of pay.

If the bonus is earned over multiple weeks, the bonus amount for each workweek will need to be figured and included in the regular rate of pay for all overtime weeks covered by the bonus.

Ultimately, accurate overtime calculation is dependent upon you knowing whether the bonus is discretionary or nondiscretionary.

Don’t feel like doing math and keeping track of the numbers by yourself. We can do it for you.

 

 Copyright 2021

About Atlantic Payroll Partners

At Atlantic Payroll Partners we believe we are the best, local payroll provider to help you grow your business. Even more than that. We’re a professional employment organization that offers an incredible suite of solutions for your business. In addition to offering payroll services we offer, full-service HR, workers’ compensation, accounting, and health care benefits. Our solution suite is back by over 100 years of combined experience in the PEO space.

We’re proud to say that we’ve helped businesses reduce employee turnover, increase revenue, make more money, and lighten their daily load by working with us. Our clients can offer their employees’ health care benefits and access to the same 401k plans that the Fortune 500 companies use without breaking the bank.

We welcome you to continue exploring our website, to learn more about Atlantic Payroll Partners and how we can help improve your business. We do our job, so that you can focus on yours.

5 Tips to Retain Employees with a Promotion Policy

If you don’t have a clearly defined promotion policy you should adopt one. Atlantic Payroll Partners understands that employee retention is important. We’ve put together some tips to help you retain employees with a promotion policy.

Being internally  promoted is usually a sign that the employee has made noteworthy contributions to the company. However, dilemmas can arise if other employees regard the promotion as unfair or inconsistent with normal business practices.

Promotions stemming from favoritism can trigger coworker resentment, or a discrimination lawsuit if the reason for the preferential treatment is due to a protected class such as gender, race or age. We’ve compiled the 5 steps to retain employees with a promotion policy.

1. State the Purpose of the Policy

Briefly describe your position on employee promotions and why the policy is necessary. You might say that your company believes in promoting from within, and the purpose of the policy is to establish guidelines that endorse this belief.

2. Define Promotion

Say that a promotion moves the employee to a more significant role in the company. Then, explain the basis for this escalation.

Per a report by WorldatWork, 80% of organizations defined promotions based on higher-level responsibilities or an increase in pay grade, band or level.

Some employers offer promotions without a pay raise, “employees will usually not feel completely satisfied with a promotion unless there is a meaningful increase in base pay,” according to the Society for Human Resource Management.

3. Be Clear About the Eligibility Requirements

Any employee in good standing with the company should be eligible for promotion consideration, provided they meet the qualifications for the role.

Employees should understand that promotion depends not just on external influences. External influence, such as experience, education and technical abilities — but also on their personal ambition and attitude. For example, an employee who doesn’t want a promotion, despite performing well in his or her current role, would not be suitable for advancement.

4. Describe the Application and Approval Process

Questions to consider:

  • The methods that are used to communicate opportunities for advancement.
  • How long will promotion vacancies be posted internally?
  • What is the process when department heads wish to recommend one of their staff members for promotion?
  • When and how should employees apply directly through HR?
  • What are the procedures for promotions at the management and chief officer levels?
  • Who is involved in the approval process?
  • How long can an employee stay in his or her current role after being approved for promotion?
  • When and how will applicants who were not selected for promotion be notified?

5. Communicate the Policy

According to SHRM, employers tend to under-communicate their promotion policies to the general employee population.  This could cause the organization to miss out on the chance to attract, motivate, and retain employees. Along with creating the promotion policy, make sure you develop a communication strategy for recruitment and retention purposes.

Copyright 2020

About Atlantic Payroll Partners

At Atlantic Payroll Partners we believe we are the best, local payroll provider to help you grow your business. Even more than that. We’re a professional employment organization that offers an incredible suite of solutions for your business. In addition to offering payroll services we offer, full-service HR, workers’ compensation, accounting, and health care benefits. Our solution suite is back by over 100 years of combined experience in the PEO space.

We’re proud to say that we’ve helped businesses reduce employee turnover, increase revenue, make more money, and lighten their daily load by working with us. Our clients can offer their employees’ health care benefits and access to the same 401k plans that the Fortune 500 companies use without breaking the bank.

We welcome you to continue exploring our website, to learn more about Atlantic Payroll Partners and how we can help improve your business. We do our job, so that you can focus on yours.

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