My employer pays a modest bonus for each invention employees have that result in a patent filing. I had a few of these this year and recently received a letter showing me the size of this bonus. But this is a gross amount before the taxman takes his bite.
So now my mind is anchored on the gross amount of the bonus. Next week’s pay cheque will be somewhat of a let-down because I will actually receive just over half of this figure.
I don’t mean to sound like I’m complaining about getting a bonus. This should be a happy event and it is happy for me. But, I think my employer makes a mistake by giving me a piece of paper with the gross amount printed in bold.
Perhaps many people don’t really look at their pay stubs and wouldn’t be struck by the much smaller after-tax amount. However, I do look at each of my pay stubs. This incentive scheme would work better on me if the letter they gave me had a prominent after-tax figure.
If I ever ran a business I think I'd take a little extra off each pay cheque over the year, so that the last pay cheque my employees could see their actual Gross Income (and enjoy how much the government scrapes off it).
ReplyDeleteIf you take a penny out of employee pay cheque you will be looking at litigation, not at morale increase :)
Delete@Big Cajun Man: Many employers do this, but in a way that just seems different. They offer a slightly lower advertised salary and then pay a year-end bonus.
Delete@AnatoliN: I remember working for a large company that mistakenly put me on a list of employees paying for third party insurance through our pay cheques. A sizeable chunk of my pay was given to this company that I had never had any dealings with. My employer was completely unconcerned about my unhappiness. I was told to work it out with this other company. Of course, my position was that my employer had no business giving my money away to some company I had never spoken to. That didn't help me much.
On the gross/net train of thought: some time ago a friend of mine considered hiring a contractor for a chore he could have done himself, being an IT contractor himself he reasoned that "I make XX per hour, this contractor charges YY per hour, by hiring him I will save myself XX-YY per hour". I had to remind him that his XX was gross, while YY he intended to pay contractor would come from his after-tax dollars. He reconsidered his initial plan and did the work himself.
ReplyDelete@AnatoliN: Good advice. I try to think of my hourly pay in after-tax dollars.
DeleteI guess it is just easier for the employer. If they wanted to give each employee their net bonus, it would mean that they would have to look up everybody's marginal tax rate and do the math.
ReplyDelete@Anonymous: You're right that they likely do it this way because it's just easier.
DeleteCan your employer make a direct RRSP contribution (without holding back the taxes) so you can put the full amount of your bonus? (My employer allows this, and they pay the full bonus amount, payable to the RRSP plan holder)
ReplyDeleteDownside: you won't get a nice fat tax refund in the spring
Upside: fully deploy your bonus in your RRSP without waiting for the GOC to give you back your tax overpayment.
@Paul T: My employer doesn't do this, but I just file a T1213 after making my RRSP contribution to get my payroll taxes reduced for the rest of the year.
Delete"you won't get a nice fat tax refund in the spring" is the same as "you won't give the government a nice fat interest free loan". It's really an upside.
Delete@Greg: I agree. However, it's important to point out to people that they won't get the tax refund if they reduce their withholding taxes.
DeleteI'm cynical. I think they report your bonus in gross $ so it sounds larger. Just like the government announces tax breaks in gross $--for example "You can claim $500 of your child's sports costs!" which equals a maximum reduction in taxes of about $75. They should advertise how much less tax you will actually pay, but that doesn't sound as good in the newspapers....
ReplyDelete@Bet Crooks: You may be right, but reporting the gross to me backfires for the company because I get to see the smaller figure prominently. The $500 claim rarely backfires because few people see that they save only $75.
DeleteTrue!
ReplyDelete