What is bonus pay?
A bonus is extra money you give employees on top of their regular pay. It’s a great way to reward hard work, boost morale, and show appreciation.
Whether it's a holiday bonus, a performance-based incentive, or a profit-sharing payout, bonuses can be a powerful tool to keep employees motivated and engaged. Homebase payroll makes adding bonuses to your payroll easy and ensures accurate tax calculations.
Why should you offer bonuses?
Bonuses aren’t just a way to say “thanks”—they also bring business benefits, including:
- Increased motivation – Employees work harder when they know there’s a reward on the line.
- Improved retention – A well-timed bonus can help keep your best employees from leaving.
- Recognition of achievements – Celebrate milestones, great performance, or team successes.
- Alignment with company goals – Profit-sharing and performance bonuses encourage employees to contribute to business success.
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What types of bonuses can employers offer?
There’s no one-size-fits-all approach to bonuses. Here are some common types:
- Performance bonuses – Given when employees hit certain goals or exceed expectations.
- Sign-on bonuses – Offered to attract top talent when hiring.
- Holiday bonuses – A seasonal thank-you for your team’s hard work.
- Retention bonuses – Encouragement for employees to stay long-term.
- Profit-sharing bonuses – When the company does well, employees get a piece of the success.
Are bonuses taxable?
Yes, the IRS considers bonuses taxable income. They are subject to federal and state income tax, Social Security, and Medicare taxes. The IRS allows bonuses to be taxed in two ways:
- Percentage method – A flat 22% federal tax rate applies.
- Aggregate method – The bonus is added to regular wages and taxed at the employee’s income rate.
Make sure you factor in these taxes when calculating the final bonus amount so employees get the full reward they expect. Easily track and process bonus pay with Homebase Payroll.
You can also sign up for Homebase and have peace of mind knowing your taxes are taken care of.
How to structure a bonus program
If you’re planning to offer bonuses regularly, having a structured program helps. Here’s what to consider:
- Set clear goals – Employees should know exactly how they can earn a bonus.
- Choose the right type – Match the bonus structure to your company’s needs.
- Be consistent – Fairness is key—make sure bonuses are given based on clear criteria.
- Budget accordingly – Plan bonuses so they don’t impact cash flow.
Make payroll (and bonuses) easy with Homebase
Managing payroll, taxes, and bonuses can feel like a lot—but it doesn’t have to be. Homebase payroll automates the process so you can focus on running your business.
With Homebase, you can:
- Easily add bonuses to employee paychecks
- Automatically withhold and calculate taxes on bonus payments
- Ensure compliance with tax regulations
- Save time and reduce payroll headaches