HomeProductsHRM/PayrollHow to Calculate Your Employee Year End Bonus

How to Calculate Your Employee Year End Bonus

Aside from payroll, there is another thing that your employee waiting for, which is a year-end bonus. Normally, the government does not regulate the bonus. Thus, the base of the bonus is based on the agreement on talent recruitment. The use of integrated payroll systems in companies can make it easier for companies to payroll and award bonuses practically, accurately, and automatically. Calculate the online HRM & payroll software calculation scheme from HashMicro so that you get an idea of the price.

Download Here: HashMicro’s HRM & Payroll Software Pricing Scheme Calculation

Furthermore, bonuses are usually given when the company is gaining profits. Thus, when the company cannot book any profits, it will not be giving any year-end bonus to their employees. In calculating annual profits, companies need a cloud-based and complete payroll system, they are unlikely to use systems that are still manual because it will only take time and are prone to human error. Companies can automate those things by using a salary payment application to make it easier.

Regarding the bonus amount, every company has their own policies. Usually, the bonuses will be determined by the service time factor, performance, position, and employee attendance.

So, what is the best way to calculate the year-end bonuses for your employees? There are two methods that you can try:

year end bonus

Year-End bonus calculation with the percentage system

The percentage system is highly dependent on the employee’s performance. The better their performance and their service time are, the more bonus they will receive.

The percentage number can vary from one company to the other. The example below is not absolute, so your HR team can decide the best proportion for each factor.

Employee service time

For new employees (under 1 year of service time), then this factor will be counted with pro-rate. However, for those who work longer in the company, then the amount can be determined by percentage.

  • 1 – 2 years: 100%
  • 3 – 4 years: 110%
  • 5 – 6 years: 120%
  • 7 – 8 years: 130%
  • 9 – 10 years: 140%
  • > 10 years: 150%

Position

You can include this aspect to determine the bonus amount you give to your employees. Thus, Feel free to adjust the numbers to your likings:

  • Operator: 80%
  • Foreman: 90%
  • Supervisor: 100%
  • Superintendent: 110%
  • Manager: 120%

Departments

Every department in a company has different workloads. Additionally, this also can to determine the bonus calculation.

  • Productions (or the ones related to it): 120%
  • Non-productions: 110%
  • Supporting: 100%

Warnings

When the other factors can be considered as rewards for your employee’s hard work, this one is a punishment for those who broke the company rules. Therefore, Warning letters received by the employees will get less amount of bonuses compared to those who don’t.

  • No warning letter: 100%
  • 1st warning: 90%
  • 2nd warning: 80%
  • 3rd warning: 70%
  • 3 months suspension: 60%
  • 6 months suspension: 50%

The percentage and punishment types you can adjust to your company policies. Thus, Choose which one is appropriate for your company.

After deciding what to calculate, the next thing you have to do is calculate your employees’ bonuses based on those factors. Here is the formula:

Bonus = (salary x service time x position x department) x warnings

Let’s take Andy as an example. He has a $5000 salary per month. He has been working in your company for 5 years and managed to reach a supervisor position in the production department. Sadly, a while ago he got 1st warning due to breaking the company rules.

So, how much the bonus that Andy will get this year? Let’s calculate them:

Andy’s Bonus = (5.000 x 100% x 120% x 120%) x 90% = $ 6.480

Pretty simple, right?

Revenue sharing

Aside from percentage, there are also some companies that share their revenue with their employees. The employee’s hard work is being paid with bonuses.

To make this method work, there should be profits to be shared. In addition, how big the bonuses are highly dependant on how much the profit is earned by the company during a certain period.

Usually, the company shares 10% of the total profit they get for every employee in the company. However, there are also companies that only share 7,5%, 5%, or even 2% of the total revenue.

The determination of the bonus size is by how often the company shares its revenue. 10% means once a year, while 2,5% is the best option if you share the profits quarterly. Here’s the formula:

Bonus = (total profit x percentage)/ number of employees

For this method, let’s take a look at Christie’s company. Her company shares a 5% total profit with their employee. Additionally, there are 50 employees working in the company. This year, they achieved 10 billion in profits. So, Christie and her colleagues will get:

Bonus = (10.000.000.000 x 5%)/50 = $ 10.000.000

Conclusion

year end bonus

Two methods on how to calculate the year-end bonus above have its own advantages and disadvantages. The second method is easier, but it’s kind of unfair if we look deeper into each employee’s performance. Therefore, you can work leisurely and still get the same bonus amount with those that work diligently. Since competency management system helps you improve your employee performance to meet the standards desired by the company.

The first method is harder. Even harder when you do the calculation manually and your company has hundreds or even thousands of employees. Thus, that’s why you need HRIS software to make the job easier. HR software will automate your administrative tasks, calculate salary and taxes, manage leave and attendance, Expense claims, and more operations with the best HR Software in Singapore.

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