Employee annual bonus is a bonus given by the company to its employees based on the business profits that have been obtained. This type of employee bonus is also known as the year-end bonus.

As we know, there are many ways in which companies manage relationships with their employees. This is done in order to maintain a good employee experience so that the company can retain its outstanding employees. Well, one common practice is for companies to reward their employees with an annual bonus. This is a form of appreciation for employees who are loyal and able to give their best performance for the company.

You need to understand that the annual employee bonus is actually not regulated by the Labor Law. Thus, this bonus is not an obligation that must be fulfilled by the company. But keep in mind that giving this annual bonus has been regulated in a work agreement or company regulations, then the company has the commitment to settle it. 

Definition of the Employee’s Annual Bonus

Broadly speaking, an employee’s annual bonus is an amount of money paid by the company to its employees based on the profits. The profits may be obtained as a result of performance that surpasses the target or because of an increase in productivity. As we have explained above, the provision of an annual employee bonus is not mandatory because it is not regulated in the Manpower Act. Thus, the awarding of annual employee bonuses is regulated in accordance with the policies of each company. For this reason, the regulations regarding the awarding of annual bonuses to each of these companies may vary.

The timing of awarding does vary. There are some companies that give it at the beginning of the year, in the middle of the year, at the end of the year, or even at the same time as the THR (religious holiday allowance). However, the most common time for giving this bonus is at the end of the year. For this reason, the employee’s annual bonus is also often referred to as the year-end bonus. Besides, many companies consider giving bonuses at the end of the year because at that period their employees need more budget to buy Christmas and New Year needs.

Also Read: Nurturing Existing Employees

Benefit of Providing Employee Annual Bonus

As previously explained, the provision of an annual bonus is not mandatory. But you need to understand that there are so many benefits that companies can get when they give this annual bonus to their employees.

When a company provides an annual bonus or year-end bonus, employees will feel that their one year of hard work gets appreciated by the company. This will ultimately motivate employees to work even better.

Keep in mind that giving bonuses must also take into account several factors such as the amount of monthly salary, length of service, position, and employee discipline level. When employees understand that the annual bonus is awarded fairly, they are more likely to be willing to contribute more and stay with your company. Apart from being able to maintain high employee retention, the annual bonus can also be a strategy to attract new candidates.

From the explanation above, clearly there are many benefits that can be obtained by the company. Broadly speaking, this annual bonus is able to maintain employee loyalty and work motivation, increase employee engagement, generate job satisfaction, and to attract new candidates to apply at your company.

Also Read: Understanding Employee Life Cycle & How to Optimize It 

How to Calculate Employee Annual Bonus

Every company has its own policies and formulas for calculating annual employee bonus. Even so, the annual bonus must still be given fairly. Companies should also pay attention to various factors in calculating the amount or nominal value of the employee’s annual bonus, for example, the length of service, position, department, salary, performance, and if there is a warning letter or SP sanction received by the employee. 

An annual bonus or year-end bonus is indeed not a mandatory item that must be given by the company to its employees. There are no specific regulations governing the amount of the annual bonus distribution. Keep in mind, some companies even provide this annual bonus in non-cash form such as by providing free travel packages, free dinner vouchers, giving hampers, or others.

Simplify Employee Bonus Calculations with Payroll Services from DEOS

DEOS Group is a company that provides a complete service for managing the employee life cycle in your company, including managing the payroll process. As we know, calculating salaries, bonuses and taxes is a complex process and we are here to help you. Please visit our Employee Experience Service to get further explanation about Payroll service.

Currently, DEOS Group also provides a variety of other services to help better HR management processes in your company, starting from the recruitment process, providing training to employees, to providing an employee database. If you need help managing HR in your company, don’t hesitate to contact us. The DEOS Group team will be happy to assist you.