Bonus

A bonus is additional compensation paid to employees on top of their regular salary. It can recognize strong individual performance, mark a company milestone, or be tied to specific occasions like Diwali, depending on the organization’s policy.

Bonuses fall into two categories. Discretionary bonuses are given at the employer’s judgment, with no prior commitment. An employee who delivers exceptional results might receive one, but it wasn’t promised in advance. Nondiscretionary bonuses are the opposite: they’re committed to in advance and paid when the agreed conditions are met. Performance targets, profit-sharing arrangements, and contractual annual bonuses fall into this category.

In India, the Payment of Bonus Act, 1965 sets the boundaries for eligible employees: a minimum bonus of 8.33% of salary and a maximum of 20%.

Beyond compliance, bonuses serve a practical purpose. A well-structured bonus policy gives employees something concrete to work toward and signals that the organization recognizes and rewards results.