What is a Year-End Bonus?

Just as the name suggests, a Year-end Bonus is a reward paid to employees toward the year’s end. Several year-end bonuses are linked to the metric performance. Also, the amount varies based on whether specific objectives have been accomplished.

Usually, such bonuses are paid in a lump-sum amount to reward people for their dedication and hard work. On Bombay Stock Exchange Ltd., it is quite common to see top employees and executives of financial companies receive massive bonuses at the year’s end. Based on the performance in that year and the situation of an Economy, bonuses fluctuate. However, in most of the year, the amount remains significant.

How Year-End Bonuses are Decided?

A year-end bonus can be provided by any company, irrespective of the size, generally when the overall profit and sales goals for that year have been accomplished. The firm may objectify to provide year-end bonuses regularly or only after experiencing an exceptional performance. Such bonuses can be structured based on the salary of the employees and how well they have met their goals and other vital measures. In several scenarios, these bonuses are a taxable increase in the wage, which means that the real Take-Home Pay might not be as huge as expected.

Moreover, the bonus’s size can increase an employee's salary to another tax bracket, compelling him to pay a higher Tax Rate against the compensation received for the year. This can result in the employee owing money while filing the Income Taxes because of a sudden elevation in the salary at the year’s end.

Furthermore, the bonus’s size may also stem from the employee’s pay grade with a huge percentage boosts in senior executives and staff's salary. Not just that but some firms may also offer year-end bonuses in the form of contractual part of the salary as a way to encourage amazing work performance consistently.

Often, contractual year-end bonuses are offered to executive management when they are promoted or hired and may not be linked to the performance of the company at all. This way, such a bonus could be capable of serving as a retention and hiring tool to keep essential personnel on board with the company and to prevent them from taking any offers at a high salary in a rival firm.

In case a company underperforms or otherwise misses the target, the possibility of withholding the year-end bonus for certain employees could be there. Also, apart from cash, year-end bonuses may also include gifts or paid vacations.