Bonus pay definition and meaning
Bonus pay is additional money or compensation that an employee earns on top of their regular compensation. A bonus payment is usually merit-based and can be in the form of cash or gifts. Bonus pay counts as supplemental income and is typically subject to federal withholding at a 22% flat rate. See links to our payroll calculators below to learn more about how bonuses are taxed.
More about bonus pay
Any financial compensation that’s greater than the normal payment expectations of the employee can be considered a bonus. Bonuses do not include extra wages that are earned, like overtime pay or pay advances.
Some common examples are holiday bonuses as a gift, end-of-year bonuses to reward employees for a successful year for the company, signing bonuses for accepting a position in the company, referral bonuses for introducing a new employee to the company, and retention bonuses to reduce employee turnover. Employers can usually pay an employee bonus in almost any form they choose, from cash or gift cards to company stock.
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