11 cash bonuses to look out for

Last updated: May 22, 2024
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Naomi Shah
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11 cash bonuses to look out for
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Employers use a variety of methods 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.

There’s a range of cash bonuses. Some of them are annual, while others are only paid from time to time.

In this article, we’ll describe 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 11 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's at the discretion of the employer. That is, it’s up to the employer to decide whether 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's 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 describe a monetary bonus. This is in comparison to non-cash bonuses, such as holiday leave or life insurance.

Why do employers give cash bonuses?

Rewards programs can increase employee performance by upto 44% — that’s a pretty good reason to hand out cash bonuses.

The main reason a business owner may give their workers cash bonuses is recognition of their hard work.

For example, if you’ve performed exceptionally in the last month and 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 the effort to achieve the manager’s targets.

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's 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 bonus cash from your employer, you can expect this to be paid into your bank account. This payment may take place during your normal pay cycle, 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's 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're taxed slightly differently from your regular income.

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

11 different kinds of cash bonuses

Let’s break down 11 different types of cash bonuses.

1. Annual bonus

Annual bonuses are a specific type of cash bonus that are paid once a year. They’re a way to thank employees for their hard work.

Most commonly, annual bonuses are given to employees at the end of the year, just before they finish work for the holidays. However, some companies offer them in February or March.

An annual bonus can be anywhere from $50 to $100,000, depending on your industry, level of experience, and job title.

Not all employees receive annual bonuses, and you should read your company’s policy handbook for more information. For example, bonuses could be a perk given to full-time team members only. Or, you may need to have worked there for a year before you get the bonus.

Bonuses may also be based on your performance, so you could get it one year but not the next.

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.

There can be conditions attached to signing bonuses. Let’s say you take a position and get a signing bonus but decide after a month that the job is not for you. Do you have to pay the money back?

The rules can vary between companies, but if you’ve been working for less than a year, you'll usually need to return the signing bonus.

Keep in mind that you’ll have to pay tax on these lump sum payments.

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 asks you to step up and lead the team for the day.

You perform exceptionally well under this pressure and steer the team through a successful meal service. 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.

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.

How much is a holiday bonus? This bonus can vary depending on where you work, your role, and how successful the company is. For example, in some industries, the holiday bonus can equal a month’s pay. In others, it could be $100.

The holiday bonus isn’t always in the form of extra cash. It could be a prepaid gift card, a subscription, a bottle of wine, chocolates, or something else.

Remember, not all employers offer this perk.

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 payment 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.

Some workers get commissions only, while others get a base salary with a commission on top.

9. Task bonuses

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

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

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 moved, and product categories need to be sorted in a more strategic manner.

This is quite a large undertaking, and so after completing each stage of the project, your employer might choose to reward your team by issuing a task bonus.

10. Gainsharing

Gainsharing is similar to profit sharing. It’s about giving employees shared goals that benefit the company’s bottom line.

For example, if team members are more productive and the business’s profit margin increases as a result, those team members will be thanked with a cash bonus. Employees may also get rewards if they save the company money.

The main difference between gainsharing and profit sharing is when you get paid. While profit sharing is usually a quarterly or yearly arrangement, the bonus cash rewards from gainsharing come as monthly payments.

Gainsharing is based on each employee’s performance and contribution to a goal. Profit sharing is a percentage of the company’s profits over time.

11. Project bonus

Some companies offer project completion bonuses. These incentives are given once a project is completed on time and to a high standard.

Project bonuses are more common for those who work in teams. Companies that choose project bonuses include creative, marketing, and tech brands.

A project bonus is a one-time bonus and is usually agreed to before the project starts. For example, team members who finish a project before the due date could receive a 15% bonus.

Project bonuses don’t work for all employees. The program terms can be confusing, and these perks are sometimes a better option for freelancers than hourly employees.

12. Milestone bonus

Some companies show employees they care with milestone bonuses. These are usually small cash payments of around $50 to $100 each. The money may be paid as a direct deposit if your circumstances change. Alternatively, your employer may give you a prepaid gift card to a local store.

Sometimes, milestone bonuses are given after you’ve been with the company for a while.

For example, if you’ve been working at a company for 12 months, you could receive an anniversary milestone bonus.

13. Stock options

Next, we have stock options. This rewards program lets employees purchase company stock at a reduced cost. There are usually strict rules involved, and you may need to split your purchases over time.

For example, you may be allowed to purchase a quarter of your stock limit when you’re first hired. After each year of employment, you may purchase another quarter until you hit the maximum limit.

There are also conditions about when and how the stocks can be sold in the open market.

When employees own stocks, the company’s success impacts them directly. This means they may be more productive and stay with the company for a long time.

What is the difference between a cash bonus and a raise?

40% of workers say their wages don’t cover the rising cost of inflation, so any extra money is a win. By now, you know that a bonus is usually a one-off payment on a regular or occasional basis.

There are minimum bonus requirements you have to meet, and these perks can be tied to your work performance.

Another way to improve your bank balance is with a raise. This is slightly different from a bonus, as it’s ongoing.

A raise is an increase in your salary with additional money in your pocket each pay period.

You can get a raise for different reasons. For example, you may get a promotion that comes with a pay increase. Raises can also be due to inflation or to recognize good performance.

Sometimes, employees get a raise when they’ve been working at the company for a specific amount of time.

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.

What other employee benefits can you expect?

If you’re looking for a new role, companies that offer bonuses may stand out. However, these aren’t the only benefits you should look for.

Health benefits, such as medical, vision, dental, and prescription coverage, can help to reduce your living expenses. Life insurance and disability insurance will give you peace of mind that your loved ones will be protected.

Some employers let you use your pre-tax income to save money. For example, a 401(k) plan with a company match will help you save for your retirement.

With Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs), you can set money aside for unexpected health expenses.

Visit our benefit resources page for more information on this topic.

When was the last time you got a cash bonus?

Some companies offer cash bonuses and other rewards. These incentives can motivate employees and show them appreciation.

There is a wide range of bonuses, and the options vary between companies. For example, there might be an annual bonus that’s paid once per year or a signing bonus for new employees.

Spot bonuses, retention bonuses, holiday bonuses, and referral bonuses are a few other rewards to look out for.

Some companies share success with profit-sharing, gainsharing, and stock options. Others offer task, project, and milestone bonuses.

In sales roles, commission-based payments are common.

Not all companies offer cash bonuses, so make sure you read the fine print.

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

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Dana Morrow
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