Bonus Payments and Payroll

As part of an employees pay, some employers choose to make bonus payments, often as an incentive to stay with the company or reward for a job well-done. National Statistics found that between December 2005 and April 2006, bonus payments were around 3 billion higher than in the same period in 2005. Clearly bonus payments are growing in popularity, but what considerations should a company keep mind when it comes to putting this through payroll? Louise Mitchell Director of Precise Payroll in Aberdeen talks us through payroll issues businesses must keep in mind when making bonus payments.

What are Bonus Payments?
Bonuses are additions to pay that are linked to individual or team performance measured against targets or objective criteria. Employers introduce bonus payments to reward individuals for doing well. By definition a íbonusí payment is an extra and not part of basic pay.

Why are the most common types of bonus payments?
There are many different ways companies choose to motivate their staff with rewards, the most common types of bonus payments in the UK are:

Commission
Profit-related payment
Annual bonus

Bonus Payments and Payroll
PAYE (Pay As You Earn) is the HM Revenue and Customs system for collecting income tax from the pay of all employees in the UK. As a business owner or employer you are responsible for deducting tax from your employees.

PAYE also effects any bonus payments that you make to your employees ñ all payments an employee receives, as a result of doing work for you, is subject to tax ñ this includes all of the most common types of bonus payments above.

Employers must also be aware, that should they decide that they would like to offer their employees other incentives or thanks for a job well done in the form of shares or vouchers, PAYE must be applied to the cash value of bonus.

Precise Payroll provide payroll solutions for employers across the north east from their offices in Aberdeen. These services can help improve an existing internal payroll process or remove the function completely through effective outsourcing. Employers can contact the company by telephoning 01224 638222 or email: info@precisepayroll.co.uk.