Naomi Shah
Community Specialist
Follow
Community Specialist
9 different kinds of cash bonus for employees
Last updated: September 27, 2022
Naomi Shah
Community Specialist
Follow
Community Specialist
Follow
Like
Comment
Share
 9 different kinds of cash bonus for employees
Jump to section

Employers use a variety of methods and tactics to boost motivation, morale, and engagement among their teams.

One of the most popular options for achieving this goal is to give employees cash bonuses.

The problem, however, is that not a lot of employees really understand how cash bonus schemes work, and it’s not always clear what an employee can do to earn a cash bonus.

In this article, we’ll describe in detail how cash bonuses work, as well as why and how employers use them to incentivize and motivate workers.

Then, we’ll go a step further and discuss nine different kinds of cash bonuses that your company might use. This way, you can better understand how these bonuses are given out, what they’re given out for, and how you can work toward one during the year.

What are cash bonuses?

Cash bonuses are a type of lump-sum payment given to employees for a variety of reasons (which we’ll outline soon). Cash bonuses can be discretionary or nondiscretionary.

A discretionary bonus is one that is at the discretion of the employee. That is, it’s up to the employee to decide to give this kind of bonus. It’s not an expectation, and it’s not something that’s discussed or agreed upon ahead of time.

Your annual bonus is a good example of a discretionary bonus.

Nondiscretionary bonuses are bonus structures that are agreed upon in advance, and there is a clear expectation of the employee’s ability to earn one. For example, a salesperson’s commission check is a nondiscretionary payment.

The second thing we should explain is that the term “cash bonus” doesn’t refer to actual cash. Your employer usually doesn’t give you physical cash as your bonus.

Cash bonuses are still paid into your bank account via direct deposit, just like your wages or salary.

Rather, the term “cash” is simply used to designate a monetary bonus. This is in comparison to non-cash bonuses, such as holiday leave or company stock options.

So, what's the point of cash bonuses in the first place?

Why do employers give cash bonuses?

The primary reason a business owner may give their workers cash bonuses is as a reward.

For example, if you’ve performed exceptionally in the last month and perhaps handled a difficult change well, your employer might wish to thank you for this effort.

In this same manner, cash bonuses can be used as a form of motivation. If employees know that cash bonuses are on the table for improved performance, it’s likely they’ll put in more focus and effort to achieve the targets that are asked of them.

Cash bonuses can be used as a form of morale-building too, particularly during difficult business periods.

For example, let’s say you work for a small business that is going through a restructure or corporate takeover. Your employer may opt to give out cash bonuses to acknowledge that this transition is difficult and to thank employees for their cooperation.

Lastly, cash bonuses can become an expectation in certain markets.

For example, if it’s widely known that in your industry most companies give out annual bonuses, then your organization might choose to implement a similar policy. This can help the organization stay competitive in the hiring market.

How do cash bonuses work?

It’s important to reiterate that cash bonuses aren’t strictly cash payments.

If you receive a cash bonus from your employer, you can still usually expect this to be paid into your bank account. It's likely that this payment will take place during your normal pay cycle as well, though some companies pay cash bonuses immediately.

To illustrate how cash bonuses work, let’s look at an example.

Imagine you’re a production line worker at a food production plant.

Last month, your team increased output from 20,000 units to 25,000 units without increasing costs or working additional hours.

This makes the company more profitable, and so your employer wants to share some of those gains in the form of a cash bonus. Each person on your team is rewarded with a cash bonus amount that is a percentage of their current salary, which is paid out during the next pay cycle.

You should note that cash bonuses are taxed, but they are taxed slightly differently from your regular income.

The IRS deems cash bonuses to be supplemental wages, which are taxed at a flat rate of 22%.

9 different kinds of cash bonuses

Let’s break down nine different types of cash bonuses.

1. Annual bonus

Annual bonuses are a specific type of cash bonus that is given once a year.

Most commonly, this occurs at the end of the year and is given to employees just before they finish work for the holidays.

Around 1/3 of U.S. companies give employees annual bonuses, most typically calculated as a percentage of the employee’s yearly salary.

An annual bonus can be anywhere from $50 to $100,000, depending on your industry, level of experience, and job title. Some industries (such as mining and energy) pay as much as $10,000, according to LinkedIn.

(Image Source)

2. Signing bonus

Signing bonuses are given to job applicants as an incentive to take an open position at the company.

For example, imagine you’re interviewing for a job at three different companies.

Each company has given you an offer, and you need to decide which company and position you like the most, which has the most competitive salary package, and where you’ll be best placed for self-development.

One company might also offer you a sign-up bonus (generally around 10% of the offered salary), which would be paid out to you immediately on joining.

(Image Source)

3. Spot bonus

Spot bonuses (also known as on-the-spot bonuses) are essentially one-off, surprise bonuses.

They are used when employers want to reward or acknowledge a specific effort or behavior.

Imagine, for example, that you work as a food server at your local fast-food restaurant. Your team leader calls in sick, and the branch manager calls on you to step up and lead the team for the day.

You perform exceptionally well under this pressure and steer the team to a successful day. Your manager might choose to award you with a spot bonus to recognize and thank you for your performance.

4. Retention bonus

Retention bonuses are given to employees to keep them working at the company.

This is a common practice during times of company restructuring, corporate buyouts, or changes in leadership.

For example, if your company is restructuring and has made a number of employees redundant, this can create a lot of uncertainty and anxiety.

You might be considering looking for a job elsewhere to improve your job security.

Employers know that this is a common reaction, so yours might choose to offer you a retention bonus, which is a cash payment given to stop you from leaving the company.

Retention bonus amounts vary significantly based on region, seniority, and job criticality.

(Image Source)

5. Holiday bonus

Holiday bonuses are like annual bonuses, except more specific to the holiday season.

This kind of bonus is given to show appreciation for employees’ efforts during the year and give workers a little extra spending money to use during the holiday season.

6. Referral bonus

Referral bonuses are given to employees who refer someone from their network to apply for a job for which they are later hired.

For example, imagine there is an opening for an administrative assistant at your company.

You know someone who worked at your last job as an admin assistant, and you strongly believe that they’d be a great fit for the position.

You refer them to your human resources rep, they interview for the job, and they get hired.

In this case, your employer might reward you for your help with a referral bonus (kind of like a finder’s fee).

7. Profit-sharing

Profit-sharing is a bonus structure that distributes a percentage of company profits to employees.

For example, your company might have an annual profit-sharing plan that gives each employee a percentage of the yearly profit at the end of each financial period.

This structure looks to align incentives between employees and the business. If you perform well in your job, the company does well financially, and both parties are rewarded.

8. Commission

Commission is a structure typically used to incentivize salespeople.

For example, if you’re a sales rep, you might receive money in the form of a commission for each new sale you make.

There are a few ways this works.

One common way is to be rewarded with a percentage of the gross sale amount. Another is to calculate the commission based on net profit (the sales price minus any costs associated).

A third option is to pay reps a flat rate. For example, if you’re a used vehicle sales agent, you might be paid a flat rate of $500 for every car you sell.

Often, commission payment plans are tiered, meaning salespeople earn a higher percentage of the sale as their sales volume increases.

(Image Source)

9. Task bonuses

Task bonuses are a type of cash bonus used to reward the completion of a specific milestone or project (rather than rewarding performance based on output).

For example, let’s say you work as a picker-packer at a distribution center.

In order to make space for a new product line your company is bringing in, the center needs to be reorganized. Storage units and shelves need to be relocated, and product categories need to be sorted in a more strategic manner.

This is quite a large undertaking, and so after completing this project, your employer might choose to reward your team by issuing a task bonus, a type of cash bonus to say thanks for your hard work.

What about non-cash bonuses?

Some companies choose to offer non-cash bonuses. These bonuses can still be incredibly valuable.

Smaller non-monetary bonuses include incentives such as gift cards, vouchers, or additional leave.

For example, your boss might allow you to take an extra paid day off as a way of thanking you for your exceptional effort last month.

Another common type of non-cash bonus is company stock.

For example, your company might choose to give each employee shares instead of cash as their annual bonus.

When was the last time you got a cash bonus?

It’s pretty common that a company won’t give out cash bonuses.

This is unfortunate for employees, as receiving a bonus of any kind (and any value) can be incredibly rewarding, leaving you feeling like your time and effort at work are appreciated.

If you feel like it’s time to find a workplace that rewards workers with cash bonuses, then there’s no better time to start job hunting than now.

Check out the Jobcase job board to browse open positions today.

8
1 Comment
Like
Comment
Share
Naomi Shah
Community Specialist
Follow
Community Specialist
Follow

Comments

Kemar Emmanuel

Ok

26w
Like
Reply
Add
Related Articles
Sara Jones
Community Specialist
Follow
Community Specialist
3
Like
Comment
Share
Vikki Sanchez
Community Specialist
Follow
Community Specialist
9
2 Comments
Like
Comment
Share
Jennifer Young
Community Specialist
Follow
Community Specialist
7
2 Comments
Like
Comment
Share
Naomi Shah
Community Specialist
Follow
Community Specialist
2
Like
Comment
Share
Michael Frash
Community Specialist
Follow
Community Specialist
4
Like
Comment
Share
Yiming Shuang
Community Specialist
Follow
Community Specialist
2
Like
Comment
Share
Heath Alva
Community Specialist
Follow
Community Specialist
13
3 Comments
Like
Comment
Share
Ashley Wilson
Follow
18
4 Comments
Like
Comment
Share