[PR] Setting Up a Bonus in Payroll

This guide explains how to correctly set up and process year-end (or other) bonus payments in Payroll. Following these steps ensures accurate tax calculation, deduction handling, and proper year-to-date (YTD) reporting.

Step 1: Create a Separate Payment Sequence

1. Open the PR Pay Period Control form.
2. Set up a separate Payment Sequence specifically for the bonus checks.
3. Check the Bonus checkbox.

This ensures that taxes are calculated according to the rate assigned on the Deduction Code setup.

The system will automatically apply the appropriate bonus tax rate.

Step 2: Verify Bonus Deduction and Liability Setup

1. Open the PR Deduction/Liability Code form associated with the bonus payment.
2. If applicable: Check the box labeled Calculate as a rate of gross for bonus sequences.
3. Enter the desired rate in the Bonus Rate field. 

If this box is checked, the system uses the Bonus Rate for deductions.

If it is not checked, the normal deduction rate or routine will be used.

Step 3: Review Bonus Earning Code Setup (If Applicable)

1. If your system uses a special Earning Code for bonuses:
2. Verify that this Bonus Earning Code is assigned to the Basis Codes tab on all relevant Deductions and Liabilities.

This ensures correct linkage between earnings and deductions.

Step 4: Process Payment Sequences in the Correct Order

1. Always process the regular payroll sequence first, before the bonus sequence.
2. If a bonus check is processed before regular checks, some limits (e.g., FICA) may be reached prematurely.
3. Post and process the regular payroll before processing the bonus check sequence.

Tip: Optionally, you can create a separate one-day pay period for bonus checks. Set the week-ending date before the normal payroll date to simplify processing and reporting.

Step 5: Control Which Deductions Apply to Bonus Payments (Optional)

1. If you don’t want all employee deductions (e.g., HSA, Medical, Dental) to apply to bonus checks:
2. Assign unique Frequency Codes for the Bonus Pay Sequence.
3. Activate only the deductions you want applied to bonus payments.

Note: If pay sequences are processed out of order, YTD amounts on employee pay stubs will be incorrect.

Recommendation: Always double-check the Bonus checkbox, Deduction Rates, and Sequence Order before finalizing the payroll run.