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.
In addition, bonuses are usually given when the company makes a profit. Thus, when a company is unable to record profits, it will not provide year-end bonuses to its employees. In calculating annual profits, companies need a cloud-based and complete payroll system, it is unlikely that they will use a manual system because it will only take time and is prone to human error.
Companies can automate these things by using a payroll application to make it easier. Using a salary application can make it easier for companies to calculate salary amounts and calculate annual bonuses automatically and optimally.
Regarding the bonus amount, every company has its 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:
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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, 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 liking:
- 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 for 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 percentages, some companies share their revenue with their employees. The employee’s hard work is being paid with bonuses.
To make this method work, profits should be shared. In addition, how big the bonuses are highly dependent on how much 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, some companies only share 7,5%, 5%, or even 2% of the total revenue.
The bonus size is determined 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, 50 employees are 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
The two methods of calculating the year-end bonus above have their 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 as those who work diligently. A 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 Global HR and Payroll Solution to make the job easier.
Integrated payroll systems 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. Get a free demo now!
