A performance bonus is an extra payment awarded for meeting or exceeding performance targets. Unlike a 13th cheque, it is usually variable and at the employer's discretion rather than a guaranteed part of pay.
What it means
The amount depends on outcomes - an individual's results, a team's, or the company's - so it varies year to year and may not be paid at all. Because it is a once-off amount that can be large, payroll annualises it for PAYE so the bonus is not over-taxed in the single month it is paid.
Where it fits in
A performance bonus is an earnings component added when paid, increasing that period's gross remuneration. It is treated as a periodic payment for PAYE and reported on the IRP5. It sits alongside commission, which is also performance-linked but typically tied to sales and paid more regularly.
Key rules
- A variable payment tied to performance, usually discretionary.
- Annualised for PAYE to avoid over-taxing the period paid.
- An earnings component included in gross remuneration when paid.
- Distinct from a contractual 13th cheque and from regular commission.
