Bonus
Any non-regular or infrequent payment can be considered a bonus payment—performance bonus, profit sharing bonus, long service award, vacation payout without time taken, to name a few.
Keep in mind that bonuses increase taxable income for the period it’s paid. If incorrectly taxed, bonuses may create a tax burden for your employee. We recommend using the Bonus Tax Method because the resulting tax deduction is more accurate.
The Bonus tax method calculates tax on total annual earnings twice, once with and once without the bonus payment. The difference between these two amounts becomes the bonus tax. This calculates taxes more accurately than if the bonus was paid as regular earnings and taxed using the regular tax method (period basis).
Tip: Within Avanti, you can select which tax method is used for each earning code. The taxes are automatically deducted when you process pay. Go to Tax Group for more information on how to assign a taxation method to the earning code. |
Paying a Bonus
Want to reward an excelling employee by paying them a bonus with their upcoming pay? You can create a batch in Payroll Data Entry for this one-time bonus payment.
Insert a new batch for employee's pay group in Payroll Data Entry.
By default, this can be found in Canadian Payroll >> Payroll Data Entry.Additional InformationGo to Payroll Data Entry Batch for more information on creating batches.
Now with the batch added and open, let’s go over the steps to give the employee a $5000.00 bonus for the current pay-period:
Select the employee, the select Insert on the Earnings tab.
Next, enter the earning's information.
Select the bonus Earning Code.
Add the $5000 bonus by selecting Amount from the Units drop-down then entering 5000.00 in the Rate field.
Once you finish updating any additional information, save the bonus by selecting OK.
NoteWhen you select
OK,a screen will open to add another earning. PressCancelonce you're done entering earnings for the employee.
This is done to allow multiple earnings to be entered in quick succession.
Close the batch by pressing Exit.
With the bonus earnings for the employee inserted into the batch, you are now ready to complete and process the batch. see batch status
Processing a Bonus
Processing a pay-run with a bonus is similar to a normal pay-run and the same procedures should be followed.
When processing a pay-run there are some additional checks that can be performed to ensure that the bonus was calculated and taxed correctly:
Review the estimated annual income for the bonus tax from the progress listing.
(If the amount is incorrect, it can be overridden from the employee profile tax-factors tab.[see override tax factors])
Review the bonus tax calculation by selecting Show Tax Factors. A detailed listing of the variables and values used during the calculation will be output to the progress listing.
Troubleshooting
When processing a pay run, no estimated annual earnings are displayed.
The progress listing can be scrolled to view previous messages.
Is Suppress “Annual Income” message during processing enabled? [see suppress pay run messages]
Was the batch excluded while processing the pay run?
Is the Earning Code on the bonus earning using the Bonus tax method? [see earning code tax methods]
When processing a pay run, the annual estimated income is incorrect.
When reviewing the Payroll Register there is too much tax taken from payroll with bonus.
Is the Earning Code on the bonus earning using the Bonus tax method? [see earning code tax methods]