Bonus payrolls

There are two types of bonuses:

1. Discretionary bonuses
   • These bonuses are optional, meaning the employer does not have to give them, and there’s no promise or contract to pay them. Examples include:
     • Bonuses for handling a tough or stressful situation
     • Bonuses for unique or extra effort, without set criteria
     • Employee-of-the-month bonuses
     • Severance bonuses (given when employees leave)
     • Referral bonuses for employees not focused on recruiting
   • Impact on overtime
     • Discretionary bonuses are not included in overtime pay calculations, per the Department of Labor.
   • Setting up discretionary bonuses
     • If you regularly give discretionary bonuses, set up a recurring payment for your hourly or salaried employees on regular payroll.
       • If you run a bonus payroll, set up a “custom earning” using the instructions in the add and pay out custom earning types dropdown of this article. 
2. Non-discretionary bonuses
   • These bonuses are known to employees, who may expect to receive them if they meet certain goals or criteria. Even if an employer can choose not to pay it, that does not make it discretionary. Examples include:
     • Bonuses based on a set formula, like team or individual production bonuses
     • Bonuses based on quality or accuracy of work
     • Announced bonuses to motivate efficient work
     • Attendance and safety bonuses (like after a certain number of days without accidents)
   • Impact on overtime
     • Non-discretionary bonuses are included in overtime calculations, as required by the Department of Labor.
   • Setting up non-discretionary bonuses
     • Set up these bonuses as a recurring payment. Follow the steps in the Add a recurring payment to payroll section of this article.

Important reminders

• Know the difference between the types of bonuses.
• Taxes
  • Bonus payrolls default to the supplemental 22% withholding rate per the IRS, but this can be changed, whereas a regular payroll will tax the bonus as regular wages.
    • For Multnomah County, Oregon employees: For bonuses (and other additional earnings) paid separately from regular payroll, Gusto will default to a 0% tax rate for the Preschool For All Personal Income tax. If the employee wants this tax withheld on their bonus, they can complete the form to opt in with their chosen amount, and you can follow the steps in the OR registration article to enter the withholding amounts. After the bonus payroll, remember to re-set tax preferences for future paychecks.
      • Note: If you make a correction to a past pay period, Gusto will not recalculate the past taxes owed. Employees will need to pay any unpaid past taxes directly to the county, outside of Gusto.
• Bonuses for more than one employee—use search
  • Use our search, sort, filter, and bulk edit tools to make administering bonus payrolls for multiple employees easier.
• Paid time off (PTO)
  • If you run a bonus payroll during a “work period” where an employee has paid time off (PTO) that has not yet been paid on another payroll, the bonus payroll will include the PTO pay. To keep the bonus separate from PTO, wait until the PTO is paid in a regular payroll before running the bonus payroll. 
• Time tracking
  • Time tracking hours do not sync to bonus or off-cycle payrolls, only regular payrolls.

Run a bonus payroll

If you need to exit at any point, click Save changes for later at the bottom of any page. You can access the bonus payroll later, following these same steps.

If an employee has an active garnishment, confirm with the garnishment authority for any specific rules on garnishing the bonus.

1. Sign in to your admin profile in Gusto.
2. Go to the Pay section and select Run payroll.
3. Click Bonus payroll from the list on the right.
4. Pick the employees for the bonus using the search bar, filters, or checkboxes.
   • You can select more than one employee to pay bonuses to at once.
5. Click Continue to start step 1.
   • If you need to change the employees getting a bonus, click Edit Employees on this step.
6. Enter a work period.
   • The timeframe in which the employee worked to earn this payment. 
   • Paid time off (PTO) reminder: If you run a bonus payroll during a “work period” where an employee has paid time off (PTO) that has not yet been paid on another payroll, the bonus payroll will include the PTO pay. To keep the bonus separate from PTO, wait until the PTO is paid in a regular payroll before running the bonus payroll. 
7. Choose a check date.
8. If you have multiple bank accounts set up, choose which bank account to use for this payroll.
   • If you do not see this option, head to this article to learn more.
9. Select if you want deductions and contributions to be included: 
   • Block all deductions and contributions: We will not make any benefit deductions or contributions. 
     • Important: We're unable to turn off 401(k) deductions and contributions due to the requirements of most plans.
       • For integrated 401(k) with Guideline, Betterment, Human Interest, Vestwell, or other partners, Gusto cannot turn off integrated deductions due to 401(k) requirements.
       • For 401(k) plans managed outside of Gusto, we recommend updating your employees’ 401(k) elections.
   • Make all the regular payroll deductions and contributions: We'll make all your normal benefit deductions and contributions.
     • If your benefits are managed by Gusto, your standard benefit will not automatically be applied unless you choose them to be included.
10. Review the tax withholding rates.
    • If you want to make a change, click Edit rates under the Tax withholding rates section.
11. For each employee, enter the bonus amount as +Gross Earnings or +Net Earnings.
    • Gross Earnings: The amount of money your employees earned before any taxes and deductions are taken out. 
    • Net Earnings: The amount of money your employees take home after all taxes and deductions have been taken out. This is the money they have in their pocket on payday.
12. (If needed) Change the payment method to check or direct deposit.
13. Click Save & Continue.
14. Review the wages and taxes Gusto will be debiting.
    • If you need to make adjustments, click Go Back.
15. If everything looks good, click Submit Payroll.
    • You'll get an email confirming the payroll was processed. 
16. If you're paying your employee by check, print the check and give it to your employee.

View this payroll and other past payrolls by going to the Pay section and clicking Pay History.