Bonus Plans

Overview

Bonus plans define a flat amount or a percent. A bonus plan can have multiple targets, which enable you to create a single budget. The bonus plan can include employee performance, company performance, and other data and defaults to guide managers and planners to enter awards.

Eligible earnings provide values for an employee's estimated earnings to then calculate a percent of salary-based bonuses. You can associate eligible earnings overrides for bonus awards. You can also associate percent-based stock plans with the Workday-delivered Eligible Earnings Override compensation basis.

Objectives

By the end of this chapter, you will be able to:

Describe the components of a bonus plan.

Configure a bonus plan.

Create waiting periods and proration rules.

Bonus Plan

Bonus plans allow you to have multiple bonus targets. A bonus plan can have a reference currency, bonus plan profiles, scorecards, rounding rules, and performance factors.

When setting up a bonus plan, there are several configuration options:

Configuration Options	Description
Reference Frequency	The period is defined by using the Process Period End Date and the reference frequency. The three reference frequency options are: Annual Monthly Quarterly
Time Proration Rule	The proration of bonus awards is based on: Base Pay Changes in Period Leave of Absence Target Changes in Period Time in Plan Time in Position Time since Company Service Date Time since Continuous Service Date Time since Hire Time since last Base Pay change Time since last Merit increase
Waiting Period	When an employee becomes eligible for a bonus plan, they may not be immediately eligible to receive a bonus. The waiting period unit can be days, weeks, months, years, or calculated based on: Company Service Date Continuous Service Date Date of last Base Pay increase - commonly used for merit. Date of last Merit increase - commonly used for merit. Hire Date Plan Assignment Date Position Assignment Date

Percent-Based Bonus

If you create a bonus plan with a percent-based calculation, you will need to define which pay components to include in the calculation. You can use a delivered compensation basis or create a custom compensation basis. The Workday delivered compensation:

Term	Definition
Total Base Pay	The sum of all the salary and allowance plans defined as a base pay compensation element.
Compensation Basis	A configurable definition of an employee's estimated pretax earnings comprised of regular fixed or base pay plus estimated variable pay or allowances.
Eligible Earnings Override	Defines eligible earnings from payroll for your employees and uses these earnings as the basis for calculating their bonuses in percent-based bonus plans. Run the Employees without Eligible Earnings report before initiating the bonus event.

Bonus Plan Profiles

Bonus plan profiles allow a different default bonus amount and currency based on an additional compensation eligibility rule. The table below provides a general example of how each profile has varying amounts and currencies for different employee populations.

Target Amount	Currency	Eligibility Rule
5,000	EUR	Current Business Site - Paris
8,000	USD	Current Business Site - Dallas
10,000	USD	Current JFJP - Management

Eligibility Waiting Period and Time Proration with Bonus

Customer-defined rules impact the bonus pool calculation and determine which employees participate in the compensation review. The eligibility waiting period defines the rule for whether employees are eligible for a bonus award. The time proration rule evaluates the employee's target compensation in a bonus event using time-based criteria such as leave of absence or time since hire. In the context of a bonus, the proration reasons may be different than reasons for merit awards.

Eligibility Waiting Periods

Employees in the waiting period do not receive the bonus award during the waiting period. You can create and edit eligibility waiting periods. The illustration below displays the Edit Eligibility Waiting Period task with the example of 3 Months from Hire Date.

The Edit Eligibility Waiting period task, as described in the preceding text.

Time Proration Rule

The time proration rules calculate the bonus target amounts. They calculate a percentage of time during the process period, determine the bonus amount for each segment of time, and then sum the value for each segment. This new calculation becomes part of the award pool during the bonus pool configuration step. The following are configuration options:

Option	Description
Base Pay Changes in Period	Select if you want to calculate the employee's target and pool contribution based on different base pay amounts. For example, for a process period of 01/01/2020 to 06/01/2020 if an employee had a salary change on 04/01/2020, Workday will run two calculations. The first is for the salary between 01/01/2020 and 03/31/2020. The second is for the salary amount between 04/01/2020 and 06/01/2020.
Leave of Absence	Select if you want any leave of absence removed from the process period. This calculation will use this new amount to calculate the employee's individual target amount and contribution to the award pool.
Target Changes in Period	Select if you want to calculate the employee's target and pool contribution using different target amounts. For changes in the middle of a period, Workday runs two calculations. For example, you may have a process period of January 01, 2020 to June 1, 2020 with a target percent on bonus plan changed from 5% to 10% on May 1, 2020. The first calculation is for the amount between January 01, 2020 and April 30, 2020 at 5%. Then a second calculation runs for the amount between May 1, 2020 and June 1, 2020 at 10%.
Time in Plan	Select if you want to use only the time the employee was in the plan to calculate the employee's target amount and pool contribution. For example, an employee has Plan A and changes to Plan B half way through the year. If a compensation review runs only for Plan B, Workday only calculates contributions to Plan B for time the worker was in Plan B.
Time in Position	Select if you want to use only the time the employee was in the position to calculate the employee's target amount and pool contribution.
Time since Company Service Date	Select if you want to use the employee's company service date to calculate the employee's target amount and pool contribution.
Time Since Continuous Service Date	Select if you want to use the employee's continuous service date to calculate the employee's target amount and pool contribution.
Time since Hire	Select if you want to use the employee's hire date to calculate the employee's target amount and pool contribution.
Time Since Last Base Pay Increase	Select if you want to use the date on which the employee had their last pay increase to calculate the employee's target amount and pool contribution. For example, if an employee has a base pay increase on 05/01/2020 with a process period is 01/01/2020 to 06/01/2020. Then, Workday only calculates the contribution from 05/01/2020 to 06/01/2020.
Time Since Last Merit Increase	Select if you want to use the date on which the employee had their last merit increase to calculate the employee's target amount and pool contribution.
Scorecard Profile Changes	The Process Period End Date and the plan frequency determine the period for review. In a compensation review, this rule evaluates scorecard profile changes for participating employees.
FTE Changes in Period	The Process Period End Date and the plan frequency determine the period for review. In a compensation review with bonus or merit, this rule will evaluate FTE changes for participating employees during this time and will affect the resulting award.

Examples of Proration

Each proration segment uses the number of days in that segment, divides it by the number of days in the year, then calculates the percentage. Additionally, proration criteria can calculate targets or pools. If you are not using a proration rule, the process will use the employee's compensation plan defaults and profiles.

In comparison, if you select the Time since Hire proration, the employee's hire date will calculate the employee's target amount and pool contribution.

Example
: On June 01, 2020, an employee was hired with a base pay of $100,000 and a bonus target of 10%. If we do not use Time since Hire in the proration rule, the calculation will not consider the employee's hire date. The calculation will be: $100,000 × 10%=$10,000.0 If we prorate for Time since Hire, the following calculates: (($100,000 × 10%) × 214) = $5,847.

In this example, the prorated bonus target will display to the manager and they can enter in the employee's bonus amount. Keep in mind the proration calculation is only a suggestion. As long as the bonus amount is discretionary, and manager can enter any value.

A green timeline tracks a 2016 period from 1/1/2016 to 12/31/2016, noting a "Hired" date on June 01 followed by 214 days. Text to the right lists a current value of $10,000 and a desired value of $5,847.

Using delivered advanced fields you can drill in and review the calculation using days since hired. These fields include:

Bonus Target Change Percent

Actual Bonus Amount

Rounded Total Bonus Target Amount

Another example of a proration criterion is scorecard profile changes. This criterion will prorate on changes to the scorecard profiles during compensation and staffing events. Transactions such as

Edit Position

,

Move Workers

, and

Assign Superior Organization

cause a scorecard profile change, but is not included with the proration calculation.

Important
: The Change Job
or Request Compensation Change
events must have an effective date on or before the compensation snapshot date will impact profile proration.

Workday prorates bonus awards based on changes in scorecard profiles when the bonus plan has a scorecard with profiles and will evaluate:

Plan Modifier

Performance Factor Scorecard

Performance Factor Scorecard Modifier

Compensation Matrix Modifier

Example
: An employee transfers from San Francisco to Chicago on October 1. This transfer causes a scorecard profile change on his bonus. The employee has a base pay of $100,000 with a 10% target.

If we do not use scorecard profile changes in period in the proration rule, the calculation will not consider the scorecard profile changes. The calculation will be: $10,000 × 40%=$4,000.00.

If we use the scorecard profile changes in period in the proration, the calculation will consider the scorecard profile changes. The calculation will be: ($10,000 × 75% × 90%) + ($10,000 × 25% × 40%) =$7,750.00.

A timeline spanning from January 1 to December 31, displaying the calculations described in the preceding text.

FTE Changes in Period prorates on FTE changes for both merit and bonus. The target calculates based on a prorated compensation basis for each period. The

Edit Position

or

Change Job

business processes make FTE updates and changes.

Example
: On January 01, 2020, an employee was hired with an FTE at 50% and a base pay of $100,000. On July 01, 2019, the employee has a Change Job event with an FTE at 100% and a base pay of $100,000.

If we do not use the FTE Changes in Period in the proration rule, the compensation basis will use $100,000 for the calculation. If we prorate for FTE changes in period, the following calculates:

A timeline displays compensation basis changes for 2018, mapping a 50% allocation ($25,000) from 1/1/2018 and a 100% allocation ($50,000) from 7/1/2018. Text on the right calculates a current comp basis of $100,000 against a desired comp basis of $75,000.

Eligible Earnings Override

An eligible earnings override is a delivered compensation basis. This basis allows you to define an employee's eligible earnings. Typically you want to base bonuses on actual earnings. Actual earnings may include actual hours worked, overtime, and additional payments not captured in compensation.

The

Create Eligible Earnings Override Period

task defines the eligible earnings period in which an employee's earnings are eligible for a bonus. Create the eligible earnings override period if you plan to load or manually create the eligible earnings override. If you are using eligible earnings override to calculate the employee's bonus, then you would load in the amount before running the bonus process.

Steps to Create Eligible Earnings Override

Create a bonus plan that uses a compensation basis of eligible earning override.

Access the

Create Eligible Earnings Override

task.

Enter the employee and select the eligible earnings override period. If the employee has multiple jobs, you will need to select the position associated with the bonus plan.

Select the bonus plans to associate the employee's eligible earnings with for the given period or select Apply to All Bonus Plans. You can assign only one eligible earning to a worker for a given plan and period.

Enter the exact amount and currency for the employee's eligible earnings override that calculates the bonus.

A downward flowchart outlines four steps: Bonus Plan with Eligible Earnings Override, Create Eligible Earnings Override Period, Enter Eligible Earnings Override for Period, and Audit for Missing Data.

Lastly, use the

Employees without Eligible Earning Override

audit to list all employees with a zero value.

Chapter Summary

A bonus plan defines a flat amount or a percent with multiple targets. The bonus plan can include employee performance, company performance, or serve as guidance for the managers entering the awards.

An eligible earnings override is a delivered compensation basis that allows you to define an employee's eligible earnings. This allows you to use a specific value for an employee's estimated earnings to calculate salary-based bonuses. You can also associate eligible earnings overrides with percent-based stock plans.

Simple Annual Bonus

A horizontal timeline maps a process period from 1/1/2021 to 12/31/2021, leading to an effective date of 2/1/2022. Four illustrated employee avatars represent process events below the line: FTE % Change, Time in Plan, Base Pay Change, and Leave of Absence.