What Is a Private Bonus Plan and How Does It Work?

Retaining skilled, committed employees can be crucial to the long term success of any small business. A Federated Life^® Triple Protection Plan^SM can address this need with a key feature: a private bonus plan. This arrangement may help encourage employee loyalty through a structured bonus opportunity.

Why Consider a Private Bonus Plan?

A private bonus plan is a bonus program created by the business owner to reward and help retain select employees. When informally funded with a business-owned life insurance policy, the business can choose to use the policy’s accumulating value to support the bonuses paid under the arrangement. The employer decides who qualifies, sets the bonus schedule, and determines when to issue bonuses.

How Does It Work?

The employee may receive bonus payments based on a schedule designed by the business. Bonuses are only paid while the employee remains with the company. These payments are typically treated as taxable income to the employee and may be deductible to the business when paid. Business owners should consult their tax advisor regarding their specific situation.

How Is a Private Bonus Plan Different from an Executive Bonus Arrangement?

An executive bonus plan typically involves the business providing a bonus for an employee to pay premiums on a personally owned life insurance policy. Companies may use this approach for higher-level positions.

A private bonus, however, may offer more flexibility for small businesses. Bonus payments follow a schedule designed by the business. Eligibility continues only while the employee remains with the company. This structure may make private bonuses easier to implement, and a more effective tool for employee retention.

Connect with a Federated^® marketing representative to learn more about the private bonus plan.

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This article is for general information and risk prevention only and should not be considered an offer of insurance or legal, financial, tax, or other expert advice. The recommendations herein may help reduce, but are not guaranteed to eliminate, any or all losses. The information herein may be subject to, and is not a substitute for, any laws or regulations that may apply. This information is current as of its publication date and is subject to change. Some of the services referenced herein are provided by third parties wholly independent of Federated. Federated provides access to these services with the understanding that neither Federated nor its employees provide legal or other expert advice. All products and services not available in all states. Qualified counsel should be sought with questions specific to your circumstances. All rights reserved.