End-of-year bonus trick or treat

Before we budget for a bonus, let’s look at the reasons why employers gift us with a bonus because it isn’t compulsory. The South African Labour Guide defines two types of bonus:

The performance-based bonus: This is paid for an employee’s good performance and is usually a percentage of the employee’s salary. The performance can be measured against certain company standards and for a consistent amount of work.

The production-based bonus: In contrast, the production bonus is based on production measured against targets of the company rather than on performance standards.

Both types of bonuses are usually calculated as a percentage of an employee’s salary and added to their December salary. Before getting too excited about the moolah, this is where the friendly and ever-present taxman comes in: the bonus forms part of your pay as you earn (PAYE) taxable amount. How it works is the taxman looks at your annual income in total, ie, including your bonus, and takes a chunk of your money depending on what tax bracket you fall into. The thing is, that bonus might just move you into a higher tax bracket. Watch out for that – try to get information from your employer on that issue. At the very least, be prepared to be seriously shooketh at the amount deducted.

So, this leaves you with less of your bonus to spend on that festive season shopping spree or your end-of-year getaway. But here’s the exciting part we’ve been waiting for: what to do with the bonus.

1. Reduce debt

This may not seem like such a good way of spending any additional income but if you overspent on your credit card (damn those black Friday specials)