TABLE OF CONTENTS
- What is Earned Bonus?
- What are a few examples where earned bonuses are used?
- How to configure Earned Bonus on Keka?
- How does the accrual of earned bonus work?
What is Earned Bonus?
Earned bonus refers to a bonus that is earned over a specific cycle and disbursed after the accrual period. The accrual of this bonus is determined by factors such as an employee's joining date, exit date, and the number of payable days in a month. It is distinct from ad-hoc bonuses, which are fixed and one-time in nature, given to employees on a non-regular basis.
What are a few examples where earned bonuses are used?
As already mentioned, earned bonus refers to a bonus that accrues over a specific period. So let's explore a couple of scenarios that demonstrate the application of earned bonuses.
- Statutory Bonus, as per the Payment of Bonus Act, is accrued/earned from April to March and disbursed in the month of October in the following year.
- Another example is when organizations offer an annual bonus that employees earn over a specific cycle or period. The amount earned by the employee during that period will be paid out after a few months.
These examples highlight the concept of earned bonuses, where the bonus is accrued/earned over time and paid out accordingly.
How to configure Earned Bonus on Keka?
In Keka system, earned bonus is a component type similar to allowances, reimbursements and reimbursable components. Follow the below steps to configure earned bonus in the system
Step 1: Navigate to Payroll (1), click on Settings (2) and then go to Components (3) section and click on the +Add new Component button as shown in the image below.
Step 2: Click on the component type drop down and select the component type as Earned Bonus, provide the component details like Component name, Description and Maximum limit and then click on Add Component
Step 3: After adding the component, go to Pay Groups and select the desired pay group to configure the earned bonus. Proceed to Pay Group Settings, specifically the Salary Components section, and include the earned bonus component within the pay group.
Step 4: After adding the component to the pay group, select "Edit" to configure the bonus cycle and specify the payout month details of the earned bonus. Finally, click on "Update" to save the configuration.
Step 5: Now proceed to the Salary Structures section within the pay group settings. Include the bonus component within the salary structure and set up the formula or fixed value for the earned bonus component.
Step 6: After configuring the component in the salary structure, the bonus will be automatically added to the salaries of all employees to whom the salary structure is applicable.
How does the accrual of earned bonus work?
The earned bonus will accumulate based on the employee's joining date, exit date, and the number of payable days in a month. It will only accrue if the bonus is included in the employee's salary structure and if the salary is processed in a given month.
Please be aware that the bonus will not accumulate if the salary is on hold or if the salary is voided.
How is the bonus shown to the employee?
Once the bonus is included in the configuration of the salary structure, it will begin to appear in the salary timeline of employees. These earned bonuses will be categorized under the Bonus section and will be distinguished by their Type.
Ad-hoc bonuses will be shown as 'Fixed', while earned bonuses will be shown as 'Earned'. Unlike fixed bonuses, earned bonuses will not have options for editing, deleting, or updating the amount. Details regarding the accumulation and payout of bonuses can be viewed in the Payout Details section for each bonus.
What happens during the exit of an employee?
When the employee is exiting from the organization, if they have earned any bonus, you will have the option to make a payment for the accrued amount up until their exit date.
If you choose not to make the bonus payment, you can void it instead.
How will the bonus be paid to employees?
Once the accrual cycle is finished, the bonus will be displayed in the pre-payroll actions according to the payout date. Like other bonuses, administrators can perform actions on these bonuses. The bonuses will only be visible in the payout month and the subsequent months, not prior to the payout month.
How can admin see the accrual and payment details of all employees?
The admin can see the accrual and payment details of all the employees from the Earned Bonus Report and this report can be accessed from Payroll >> Reports >> Payroll Contribution &Tax >> Payroll Run Reports >> Earned Bonus Report as shown in the image below
Important things to note:
- If the earned bonus is added to any employee and if the accrual is done, then the bonus cycle that is configured cannot be changed.
- In case of salary revision arrears, the arrears will be accrued in the month in which the revision is being processed.
- The earned bonus of an employee cannot be updated or deleted from employee finances as this is configured under the salary structure