Thursday, June 17, 2021

The Beginners Guide to Employee Bonus Plans

Employee bonus plans are a great way to motivate your employees to improve or maintain their performance at work in order to reach new company goals.

But constructing an employee bonus plan that is fair and motivating can be tricky.

Organizations need to balance providing equal opportunities for all employees with understanding what is actually incentivizing to each individual. And don’t forget nailing the timeliness of the bonuses to ensure you will reach your goals on time.

Today, we are going to look at the ins and outs of a great employee bonus plan, and provide some actionable tips for you to get started right away.

What is an Employee Bonus Plan?

An employee bonus plan provides compensation to employees, outside of their annual salary. It allows organizations to incentivize or reward employees for reaching certain predetermined goals.

Employee bonus plans make a great way for employers to provide recognition to those who go above and beyond normal work obligations. It’s also a great way to motivate employees to get on board with company goals to ensure success in reaching them.

There is a range of different ways employers can reward employees within a bonus plan, including both financial and non-financial rewards. Overall, employee bonus plans have been known to improve morale and bring the team closer together.

The Basics of an Employee Bonus Plan

When formulating a motivating bonus program, there are a lot of moving parts to consider. Instead of getting lost in the details, start by considering these basic components of an employee bonus plan to help you lay the right foundation from the get-go.

Create a Budget for Bonus Payments

One of the most important things to consider when devising your employee bonus plan is how much you can afford to put forward for bonuses. Don’t wait until the end of the year to realize that you’ve overpromised and can’t afford to meet your employees’ expectations.

The easiest way to determine roughly how much you can afford to pay in bonuses is by using last year’s profits as part of your annual budgeting process. Then determine how much of those profits you could afford to give back to your team if you were to have exactly the same year again.

Remember, it’s always better to underpromise and overdeliver, so err on the side of caution when it comes time to let employees’ know how much is up for grabs.

Keep It Simple

Your bonus plan should be simple and straightforward so that it’s easy enough to for both employees and managers to understand.

To do this, keep the targets and expectations on how employees will reach the targets crystal clear. Don’t add too many layers and don’t overcomplicate the goal. Employees won’t appreciate having dozens of different hoops to jump through.

Finally, educate employees on the bonus plan and create clear documentation for them to follow to reach the milestones easily.

Make Bonus Opportunities Available to Everyone

If you can’t devise an employee bonus plan that includes everyone, you should reconsider offering a bonus plan. Your employee bonus program should be fair across the entire organization.

It would be unfair if one department has a bonus program, while others do not. Especially when you’re all working towards the same end goal.

It’s worth noting here that you may need to structure bonus plans differently for different departments. Sales departments where earnings are commission-based will likely view and accrue bonuses differently than IT departments where earnings are salary-based, for instance.

So rather than institute a company-wide bonus structure that favors some departments but not others, make sure that each department’s bonus structure is tied into that department’s responsibilities, earnings, and work style.

Set Timeframes for Awarding the Bonuses

It’s very common for bonuses to be awarded in line with holidays, such as Christmas, or around the end of the financial year. However, you could also adjust the frequency of the bonus payments according to the achievement of milestones or according to job level or department.

You can award bonuses whenever you like, as long as you stick to the timeline that you’ve promised your team. There is nothing more anticlimatic and demotivating for an employee who has just worked extremely hard to deliver a result than to have to wait months to see the reward for their efforts.

To combat this issue, use projections of when cash flow is typically at its peak to set the bonus payment timelines and set your payment frequency around it.

Furthermore, don’t be afraid to increase the frequency of your award payments to avoid paying out a lump sum in one go. Incremental rewards can help to keep your team motivated and focused to push through with the goal throughout the year.

Make the Bonus Worth It

For your employee bonus plan to create the right incentive, it should be significant enough to make a difference to the employee. Otherwise, it would not be regarded as a bonus or a reward and would not generate the motivation required to produce the results you want for your company.

It’s also important to remember that the reward doesn’t have to be financial.

You can reward employees by giving them additional paid leave or more flexibility in their working hours. Sometimes these forms of incentive are more enticing to employees than simply offering them more money.

To figure out what is most incentivizing to your employees, consider asking for direct feedback from them with a survey. You can directly ask whether they’d prefer a year-end or holiday cash bonus. Perhaps they value time off more than actual cash. Maybe they like to be surprised with spot bonuses instead.

Take the time to understand what is going to drive your employees most and make that the bonus.

3 Tools to Improve an Employee Bonus Plan

Enlisting one of the tools below can help you to capture relevant employee data, generate insightful reports to help you reward employees, and make payments to employees when the bonus is due.

You can also keep track of all employee data under one roof while also producing information-rich reports–perfect for tracking employee performance.


BambooHR is all-in-one HR software made for small and medium businesses. This software allows you to put your employees front and center. It specializes in hiring, onboarding, compensation, and company culture.

Its performance management feature allows you to get the inside scoop on employee performance. You’ll be able to compare employees side-by-side and easily identify high-performing employees. Generate in-depth performance reports to determine which departments need the most motivation, and which ones are performing well.

Finally, engage employees in company goals by setting and tracking multiple goals right inside BambooHR performance appraisal software.


Deputy is a sophisticated scheduling tool geared towards companies with shift workers. It makes scheduling and time-tracking a breeze. It also has excellent performance management features to help you enlist your employee bonus program.

With Deputy, you can keep a clear record of employee performance over time, celebrate top performers and support staff that need guidance, and engage with staff within the platform to keep the motivation high.

You can also track the busiest times of each shift, retrieve reports on labor hours, costs, and profits, and track employee attendance. All of this information is vital in assisting you to create a successful, goal-orientated bonus program.


Gusto is an all-in-one people platform. This software is most well-known for its online payroll services, but it also has notable HR features. In particular, Gusto heavily supports employers providing both health and financial benefits to their employees.

With Gusto, you can build the right benefits package for your team to suit individual needs. You can also customize paid-time-off policies to suit each department, allowing managers to adjust levels of paid-time-off provided as required.

All of these features can support you in carrying out your rewarding employee bonus plan, right within the platform.

4 Tricks for Employee Bonus Plans

There is a lot to consider when devising an employee bonus plan and it may take some time to get it up and running. In the meantime, you can get started with rewarding your employees right away with the following tricks.

Maximize Your HR Software

The first thing to do once you decide to start an employee bonus plan is to maximize your existing HR software. Although BambooHR, Deputy, and Gusto, are all excellent tools for managing employee bonus plans, it’s likely that your existing HR software similar capabilities.

Tap into those key features we mentioned above. Generate reports on current employee performance. Take note of which departments are thriving on paper, and which departments need a little more help.

Gathering as much existing information as possible will help you to structure your employee bonus plan accurately from the get-go.

Celebrate Wins Often

If you decide to pay financial bonuses in lump sums at the end of the year, it’s a great idea to make celebrating the smaller wins a weekly, fortnightly, or monthly habit.

These incremental reminders will help the team to stay focused on the goals and offer positive reinforcement that they’re on the right track.

Recognizing the small wins can be as simple as:

  • Writing a personalized thank you note or email
  • Buying your team a round of drinks on a Friday afternoon
  • Giving employees an extended lunch break
  • Providing catering in the office over lunch
  • Socially recognizing the work of an individual

The celebration or gesture doesn’t have to be expensive or grand. It just needs to remind the team that you appreciate their efforts and the hard work has not gone unnoticed.

Start with Alternatives to Cash Bonuses

The quickest and easiest way to get your employee bonus plan off the ground is to start with alternatives to cash bonuses. These alternatives would give employees an incentive to work harder without immediately putting stress on your budget.

Some alternatives you could consider that won’t affect your bottom line exponentially are additional flexibility to working hours, additional paid leave, spot bonuses in the form of gift cards, or company-specific bonuses like getting to park in the CEO’s parking spot for a week or having lunch at a nice restaurant on the company’s dime.

Create Clear Communication Regarding the Plan

Before you kick your employee bonus plan off, you need to communicate the details with your team.

Ideally, you’ll create a comprehensive document that answers all the most common questions employees will ask to alleviate pressure on the HR department after the announcement of the new program.

The document should answer questions like:

  • Who is eligible for the bonuses?
  • When and how do employees become eligible?
  • What achievements should they reach to get the bonuses?
  • What do the bonuses look like–i.e., cash or otherwise?
  • When will people start receiving the bonuses?

This information will undoubtedly evolve as you roll out the employee bonus plan, but answering these simple questions is enough to get it off the ground quickly.

What to Do Next

Rolling out an employee bonus plan doesn’t have to be daunting, but it does take time to ensure the plan is just right. If you keep your focus on the key components of a good employee bonus plan throughout the process, your employees will delight in the wide opportunities for further compensation. And if you don’t already have great HR software in place to aid your journey, check out our list of best HR software options on the market.

One other thing that comes hand-in-hand with employee bonus plans is performance management. As your plan kicks off, there will be employees who quickly earn their bonuses and employees who struggle to reach the benchmarks. Those employees that are lagging behind will need assistance with their performance.

To facilitate this learning process, it’s a great idea for you to scrub up on your understanding of managing employee performance. As always, having savvy performance management software on your side will heavily aid this process. Luckily for you, we’ve also got some great recommendations on that. Check out our list of best performance management software tools on the market.

from Quick Sprout