How work bonuses work and how to spend them?

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Written By LawrenceGarcia

Our journey began in 2015, and since then, we've been on a mission to make financial literacy accessible to all.

Many companies provide excellent benefits. These can include stock options, affordable medical coverage, workplace perks, financial rewards and sometimes even work bonuses – a wonderful reminder of all your hard work for your company! It’s an excellent way to show appreciation for all that hard work by getting paid in return.

The average work bonus in the United States is approximately 11% of an exempt employee’s salary and 6.8% for non-exempt workers’ wages. This substantial income stream can help you reach your financial objectives.

If your company awards you a bonus, be sure to plan how to spend it wisely. Before we dive in, let’s first discuss what bonuses are and how they’re calculated.

What are bonuses and how are they calculated?

What exactly are bonuses, you might ask? Work bonuses refer to any rewards your employer may offer that are not part of your regular income. They are awarded in accordance with a company’s performance over an agreed upon period, so they can serve as rewards for workplace accomplishments.

These can be utilized to reward potential employees for accepting job offers or improving company performance.

Taxation of work bonuses

If you receive a bonus at work, taxation will apply – U.S News & World Report states that bonuses are subject to an automatic 22% rate of taxation. Your employer may even add the money onto your paycheck as compensation.

Tax withholdings on bonuses added to your paycheck must be claimed as income during tax season.

Common Types of Work Bonus

At your workplace, there are various ways to receive bonuses. Here are some of the most popular types of work bonuses employees offer:

Quarterly and annual bonuses

Employees typically receive either a quarterly or annual bonus for their performance over an assigned period. After evaluation and recognition of this achievement, employees are rewarded either annually or quarterly with this bonus.

Year-End Bonuses

Employees receive year-end bonuses at the conclusion of each calendar year. These rewards are similar to quarterly and annual bonuses in that they are based upon milestones that were reached at either the beginning or end of the year, and employees are rewarded if these goals are fulfilled at year’s end.

Holiday Bonuses

As a way of rewarding employees during the holidays, some employers provide work bonuses. These rewards are given to all employees regardless of whether or not they have met certain performance objectives.

Profit-sharing Bonuses

Profit sharing bonuses, also referred to as profit-sharing bonuses, are rewards awarded based on a company’s success. A portion of its profits earned over an agreed upon period are paid out to employees as bonuses.

Employees are incentivized to increase company earnings through profit-sharing bonuses that are distributed among all personnel.

Commissions

Commission bonuses are another common type of work bonus. They’re awarded based on specific performance targets and often seen in sales departments.