Hi HR Experts Please explain what is the difference between Variable Pay and Bonus ? or both are same ? Thanks and Regards Satish
From India, Mumbai
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From India, Mumbai
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Bonus is something that is not a part of regular salary.Variable pay is something which is part of your salary and it depends on your and company’s performance. Regards,
From India, Mumbai
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22From India, Mumbai
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Variable Pay
As the name suggests, it varies from month to month and is usually performance-driven.
For example, if you are a sales officer, your salary would consist of two parts - a fixed part and a variable part.
The fixed part includes all statutory components like basic pay, DA, HRA, medical reimbursement, food allowance, etc.
Variable pay is linked to your performance and is paid accordingly.
There is typically a maximum limit set for similar roles. For instance, the maximum amount allocated to sales officers might be 15,000 per month.
A certain level of performance is expected from you, such as achieving a sales revenue of 1 or 1.5 lakhs as optimal performance.
At the end of the month, your actual performance is compared to the expected performance, and the variable pay (or incentives) is paid based on this comparison.
Bonus, however, is slightly different.
Bonuses are usually given annually, with many employers distributing them during Diwali. Alternatively, bonuses can be paid at different times by dividing the amount.
A company is not obligated to pay bonuses for the first 5 years or until it becomes profitable (whichever comes first) from its start date.
After this initial period, it becomes mandatory for companies to pay bonuses to employees.
Companies often use a set-off and set-on approach, making adjustments so that if the company's profitability is low in a particular period, bonuses are not withheld.
Each year, the company determines a percentage of profits to be distributed to employees as a bonus. Bonuses are paid to all employees in addition to their monthly salary.
There are certain compliance requirements to be followed. Not all employees qualify for bonuses; the eligibility is based on salary levels. However, many companies provide bonuses to employees with higher salaries under the name of ex-gratia.
For example, if the calculated bonus for the year is 1000, the employer can choose to pay the full amount at once or break it into parts.
Bonuses must be paid within 8 months of the financial year-end closing.
I hope this clarifies your query.
From India, Mumbai
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As the name suggests, it varies from month to month and is usually performance-driven.
For example, if you are a sales officer, your salary would consist of two parts - a fixed part and a variable part.
The fixed part includes all statutory components like basic pay, DA, HRA, medical reimbursement, food allowance, etc.
Variable pay is linked to your performance and is paid accordingly.
There is typically a maximum limit set for similar roles. For instance, the maximum amount allocated to sales officers might be 15,000 per month.
A certain level of performance is expected from you, such as achieving a sales revenue of 1 or 1.5 lakhs as optimal performance.
At the end of the month, your actual performance is compared to the expected performance, and the variable pay (or incentives) is paid based on this comparison.
Bonus, however, is slightly different.
Bonuses are usually given annually, with many employers distributing them during Diwali. Alternatively, bonuses can be paid at different times by dividing the amount.
A company is not obligated to pay bonuses for the first 5 years or until it becomes profitable (whichever comes first) from its start date.
After this initial period, it becomes mandatory for companies to pay bonuses to employees.
Companies often use a set-off and set-on approach, making adjustments so that if the company's profitability is low in a particular period, bonuses are not withheld.
Each year, the company determines a percentage of profits to be distributed to employees as a bonus. Bonuses are paid to all employees in addition to their monthly salary.
There are certain compliance requirements to be followed. Not all employees qualify for bonuses; the eligibility is based on salary levels. However, many companies provide bonuses to employees with higher salaries under the name of ex-gratia.
For example, if the calculated bonus for the year is 1000, the employer can choose to pay the full amount at once or break it into parts.
Bonuses must be paid within 8 months of the financial year-end closing.
I hope this clarifies your query.
From India, Mumbai
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Hi Satish,
Ankita is Correct.........
A bonus is something paid to you that isn't part of your regular salary. It is an extra form of compensation (an addition to your regular salary).
Variable pay IS part of your regular salary.Variable pay is used generally to recognize and reward employee contribution toward company productivity, profitability, team work, safety, quality, or some other metric deemed important. It is the portion of your regular salary that is"at risk" every year and often dependent on company and/or employee performance during the plan year. Of course your employer won't tell you that you have pay at risk. Instead they will often disguise this portion of your salary as a target in a bonus, incentive, or performance pay plan. Bonus, incentive, profit sharing, and performance pay programs are all just other names for a variable pay program.
Regards
Ankita
Executive HR
“A candle loses nothing by lighting another candle.” In other words, be willing to help others and share your knowledge and insights with others who may benefit
From India, Patna
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Ankita is Correct.........
A bonus is something paid to you that isn't part of your regular salary. It is an extra form of compensation (an addition to your regular salary).
Variable pay IS part of your regular salary.Variable pay is used generally to recognize and reward employee contribution toward company productivity, profitability, team work, safety, quality, or some other metric deemed important. It is the portion of your regular salary that is"at risk" every year and often dependent on company and/or employee performance during the plan year. Of course your employer won't tell you that you have pay at risk. Instead they will often disguise this portion of your salary as a target in a bonus, incentive, or performance pay plan. Bonus, incentive, profit sharing, and performance pay programs are all just other names for a variable pay program.
Regards
Ankita
Executive HR
“A candle loses nothing by lighting another candle.” In other words, be willing to help others and share your knowledge and insights with others who may benefit
From India, Patna
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Dear Satish Kumar,
Bonus payment is mandatory as per the provisions of the Payment of Bonus Act. However, variable pay is optional. Companies include the variable pay component to balance their capacity to pay. If the company performs well, the variable pay increases; conversely, it decreases if the company performs poorly. Examples of variable pay include profit-sharing, performance incentives, individual performance incentives, productivity bonuses, etc.
M.V. Kannan
From India, Madras
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Bonus payment is mandatory as per the provisions of the Payment of Bonus Act. However, variable pay is optional. Companies include the variable pay component to balance their capacity to pay. If the company performs well, the variable pay increases; conversely, it decreases if the company performs poorly. Examples of variable pay include profit-sharing, performance incentives, individual performance incentives, productivity bonuses, etc.
M.V. Kannan
From India, Madras
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