Bonus is compensation paid in the form of reward by employers to employees beyond salary for good performance or any other reasons depending upon the company’s payroll policy. In some companies, all employees receive bonuses on some special occasions like Diwali. Paying bonuses to employees adds to the productivity in business as it increases employee morale and motivates them to reach their goals. Companies pay bonuses to reward achievements or to show gratitude towards their employees.

A bonus payment can be discretionary or nondiscretionary, depending upon whether it is meeting certain criteria or not. Discretionary bonuses are the bonuses that are given randomly to the employees as they do not expect. If an employee shows exceptional performance then this type of bonus can be given to them. While on the other hand, Nondiscretionary bonuses are the bonuses that are given to employees as promised.

Minimum and Maximum bonus

According to the Payment of Bonus Act (1965), a minimum bonus of 8.33% of salary can be paid to an employee and a maximum bonus of 20% of their salary.