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Payroll Data Entry: Adding a Bonus Payment

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 a bonus will increase taxable income for the period when it is paid. This will affect the amount of taxes taken off the employee paycheck and if not correctly taxed may create a tax burden for the employee receiving the bonus. It is recommended to use the Bonus Tax Method for bonus payments 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, then uses the difference of these two amounts as the bonus tax. This is a more accurate tax calculation than if the bonus was paid as regular earnings of an employee and taxed using the regular tax method (period basis).

Tip:
Within Avanti the tax method applied to earnings is configurable for each Earning Code and will automatically be used when processing a pay run. (The tax method is determined by the Tax Group selected in the Earning Data tab of the Earning Code [See earning code tax methods].)

Paying a Bonus

One employee has been really great and you want to pay them a bonus in the upcoming pay-period with their normal payroll. Because this is a one-off payment, the bonus will be added to the employee earnings for the pay-period using a batch in Payroll Data Entry.

  1. Open Canadian Payroll > Payroll Data Entry > Payroll Data Entry and insert a new batch for the Pay Group of the employee. [see batch setup]

Now with the batch setup and open, let’s go over the steps to give the employee a $5000.00 bonus for the current pay-period:

  1. Select the employee from the Employee drop-down.

  2. Open the Earnings tab and insert a new earning for the bonus.

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    Tip

    Earnings are inserted by pressing Insert at the bottom of the Earnings tab.

    Now, enter the earning data:

    1. Select the bonus Earning Code.

    2. Add the $5000 bonus by selecting Amount from the Units drop-down then entering 5000.00 in the Rate field.

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    3. Close the earning form and insert the earning into the batch by pressing OK.

      Note

      After pressing OK a new earnings form will open. (This enables multiple earnings to be entered in quick succession.)

      Press Cancel on the new form to stop entering earning data and return to the batch.

  3. 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:

  1. 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])

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  2. Review the bonus tax calculation by enabling “Show Tax Factors”. A detailed listing of the variables and values used during the calculation will be output to the progress listing.

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Troubleshooting

  1. When processing a pay run, no estimated annual earnings are displayed.

    • The progress listing can be scrolled to view previous messages.

    • Is Supress “Annual Income” message during processing enabled? [see supress pay run messages]

    • Was the batch excluded while processing the pay run?

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    • Is the Earning Code on the bonus earning using the Bonus tax method? [see earning code tax methods]

  2. When processing a pay run, the annual estimated income is incorrect.

  3. 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]

    • Is the correct estimated annual income amount used when processing the pay-run?

J
Jack is the author of this solution article.

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