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
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
Variable Pay

As the name suggests, it would vary month on month and is usually performance driven.

So if say you are a sales officer, you would have two parts of salary - fixed part and variable part.

Fixed part would include all statutory components like basic, DA, HRA, Medical reimbursement, Food allowance, etc.

Variable pay is linked to your performance is paid accordingly.

There is usually a maximum limit set for same/similar roles. Say for example that the maximum amount alloted to the people for sales officer role is 15,000 pm

And there would be a level of performance expected from you - Say for example getting a sales revenue of 1 or 1.5 lacs would be your optimum or best performance.

So at the month end, your actual performance would be compared to the expected performance and the variable pay (or incentives as is other name for it) would be paid in same ratio as between the two performance.

Bonus however is slightly different.

A bonus is usually given annually, and most often the employers distribute bonus in Diwali.

However, Bonus can be paid at different times by breaking the amount.

A company is not liable to pay bonus for the first 5 years or till it gets profitable (whichever is earlier) from the date of its start.

Thereafter it becomes mandatory for the firms to pay bonus to the employees.

Usually companies take set-off and set-on approach which is nothing but certain adjustment amount to be taken care so that if in a given period the profitability of the company is low, the bonus is not held.

Every year, the company determines a percentage of profit to be distributed to the employees as bonus. (A bonus is something paid to all in addition of their monthly salary)

There is I think some bare minimum compliance to be followed. Again, not all employees qualify to receive bonus, there is a limit depending on the salary that people get. However, many companies distribute bonus to the employees getting higher pay in the name of ex-gratia (kindly correct me if i am wrong)

Again say for example as per calculation it comes out that bonus paid to the employees would be say 1000 for the year, the employer can pay the whole amount at one go or he can break the amount and pay it in parts to them.

Bonus need to be paid within 8 month of financial closing.

Hope I was able to answer your query.

From India, Mumbai
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
Dear Satish Kumar,
Bonus payment is mandatory as per provisions of the Payment of Bonus act. But variable pay is optional. Companies include this component variable pay to balance their capacity to pay. If the company performs well then the variable pay increases and vice versa. Examples of variable pay are Profit sharing, Performance incentive, Individual performance incentive, Productivity bonus etc.,
M.V.Kannan

From India, Madras





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