A bonus is a once-off or periodic lump-sum payment made to an employee, separate from their regular basic salary, whether guaranteed by contract (like a 13th cheque) or awarded at the employer's discretion based on performance.
What it means
Because a bonus arrives irregularly rather than every pay period, taxing it at the same rate as regular salary would either over- or under-tax the employee for that month. Payroll systems instead annualise irregular payments like bonuses to estimate the employee's true annual tax liability and apply PAYE accordingly.
Where it fits in
A bonus is added to gross remuneration in the period it is paid and taxed through the standard PAYE annualisation process, not through a tax directive - directives are reserved for specific lump sums like severance pay and retirement fund withdrawals, not discretionary or contractual bonuses.
Key rules
- Fully taxable - no special exemption applies to bonus payments.
- Annualised for PAYE purposes to avoid under- or over-taxing the irregular payment.
- A guaranteed 13th cheque is treated as remuneration the employee is contractually owed, not a discretionary award.
- Does not require a tax directive, unlike severance pay or retirement lump sums.
