This employee bonus policy template sets a good foundation for your company policies on paying bonuses. It should be adapted to your company’s specific needs and circumstances.
The company is committed to rewarding employees whenever possible as a way of appreciating their contribution to the company’s success. This employee bonus policy clarifies how employees are chosen for a bonus and how the company calculates the amounts.
The policy is for all regular full-time and part-time employees. Employees with contracts [of one year and above] are also included. However seasonal employees, interns and temporary employees with less than [one year] contracts do not qualify for bonuses.
Bonus offers are valid only if they have been put in writing. A verbal promises by a manager is not valid unless it has been documented and endorsed by HR.
Policy Highlights and Components
Bonuses can be either discretionary or nondiscretionary:
- Discretionary. The bonuses are determined solely at the company’s discretion. They are not promised to employees and there is never a guarantee that anyone will receive them. For instance, it can be paid as a reward to an individual employee for an outstanding performance at a particular time only.
- Nondiscretionary. The bonuses are promised or announced to employees well in advance. They are guaranteed to those who meet the set criteria. For instance, the company can promise nondiscretionary bonuses to reward teams that meet specific targets.
In some legal jurisdictions, nondiscretionary bonuses must be included in overtime pay calculations. Our company will abide by legal guidelines.
The company awards bonuses in three forms:
- Lump-sum bonus
- Year-end bonus
- Incentive plans
Lump-sum bonuses are one-off payments given to employees for exemplary performance. “Exemplary performance” is defined as:
- Exceeding goals and expectations, either financial or functional.
- Serving beyond the obvious terms of employment.
- Serving as a good role model in personal and professional behavior (e.g. ethics, leadership, teamwork).
A manager who spots an employee deserving of a bonus should make a formal recommendation to the head of department and HR. The manager should give concrete examples of the employee’s exemplary performance.
- Review the recommendation and approve it in consultation with the departmental head and based on the available budget. Lump-sum bonuses are capped at [10% of base salary/ $2,000/ etc.]. Bonuses [for executives/ that exceed $1,000] need to be approved and signed by [CEO/ President.]
- Send a formal letter to the outstanding employee congratulating them for their performance and inform them they are due for a bonus payout.
- Liaise with the finance department to have the bonus payment effected. Ideally, the bonus should be paid within [the next two pay periods/ one month after approval/ etc.]
It is important to note that lump-sum bonuses are discretionary.
The company gives the executive team the ability to offer year-end bonuses for all employees on two conditions:
- We should have exceeded annual financial targets.
- The bonuses must be approved by the board of directors.
Subject to these two conditions, the company will give bonuses to employees who:
- Are on the company’s employment when the bonus payout was announced.
- Have not tendered resignation from the company verbally or in writing.
- Have received at least a satisfactory grading in their performance reviews.
Bonuses will be paid according to this tiered system:
- Employees who have worked for the entire year will receive a year-end bonus payment of [10%] of annual salary.
- Those employed for at least [six] months will receive a prorated amount compared to those employees that have worked the entire year.
- Those who have served under [six months] will receive a [2.5%] bonus.
Bonus Incentive Plans
The company may set up bonus incentive plans at the beginning of the year.
The plans will involve:
- Incentive bonuses to encourage employees to meet annual financial targets. These are usually company-wide bonuses and HR should give a formal payout plan to each employee. [These bonuses may be calculated with a tiered system (e.g. 5% for hitting 80% of the goal, 10% for hitting the goal and 20% for exceeding the goal.)]
- Incentive bonuses for meeting or exceeding individual and team targets. The plans and specific goals are formulated by departmental heads who should submit their plan to HR and CEO for approval [within the first quarter of the year.]
It is important to bear in mind that bonuses are subject to taxation and that the company may modify this policy and bonus plans without notice.
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