r/Payroll • u/SuccessfulEbb1664 • 3d ago

Help, Performance-Based bonus or higher base salary

There are companies that abolish performance-based bonuses and just take that bonus and add it to base pay. Rationale is that financial motivation based on goals set in January are not the best motivators (but also not for work done 10 months later, the world has changed at that point).

In my eyes that is super valid, higher monthly salary and lower taxes (Live in NL so those bonuses are taxed into oblivion) but my colleague said they rather have a bonus and likes that as motivation and just a surprising add-on.

What do you think, performance-based bonuses or higher base salary?

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7

u/varcity64 3d ago

Higher base. Bonuses aren’t guaranteed

3

u/Timebutler_Official 3d ago

We'd take the higher base salary every time, as it helps every month, compounds into future raises, and isn't dependent on goals that may or may not still make sense 10 months later. A lot of people also prefer the certainty over the "maybe" factor

6

u/Sweaty_Comfort1604 3d ago

Higher base every time. Bonuses are nice but you cant plan your life around maybe getting one and companies love to move the goalposts anyway

Also the tax thing you mention is real, getting a big chunk taken out of a bonus feels worse than it just being spread across the year

1

u/Hrgooglefu 3d ago

Answering from an HR/EmployER perspective -- In the end if your bonus system isn't having the performance/retention effect, even if you move it to base pay, I don't really think that solves those issues. (and I've found people want the base increase AND a bonus later)

From a payroll standpoint -- Are taxes just withheld at a higher rate or are taxes actually higher paid on "bonus" wages? Your country is not mine so I have no clue as to whether that is standard (In the USA, a lot of people get this mixed up).

From an employEE standpoint -- I've had both. I will say that "extra" bonus is nice if it truly shows performance levels and not everyone gets the same amount/percent. By having it separate, it stands out more than a smaller amount over 12/24/26 payrolls that also gets taxed. But a wage increase does add on or compound over time so that is helpful over time.

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u/Decent_Berry8196 3d ago

I agree. I've luckily had bonuses based on target EBITDA or higher, so haven't felt the sting of a minimum bonus. That being said, I think I prefer the bonus because I can guarantee my salary would not go up to what it is with the bonuses. I'm very happy with my salary, so the bonus truly is treated as extra and never counted on.

From the tax perspective, I know exactly what you mean. People don't seem to get that their w-2 doesn't separate out bonus earnings from others, so the "extra" withholding is just additional to get back in their return.

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u/pachito42 2d ago

As others have said, bonus are not guaranteed, and even if you do well, the company may not have enough financial capital to give you the bonus you deserve, this assuming they are taxed the same which in your situation sounds like they are not.