A payout refers to the transfer of funds, assets, or benefits to individuals, entities, or investors.
Typically, payouts are made as compensation, rewards, or settlements. Examples of payouts include salaries and wages, dividends, and insurance settlements.
While payouts are commonly in the form of currency, they can also be goods, stocks, cryptocurrency, or vouchers.
People frequently use electronic payments such as mobile and wire transfers to process payouts.
What is a payout ratio?
A payout ratio indicates how much of a company's earnings is distributed as dividends to shareholders.
If the ratio is high, the company has reached maturity with growth potential. Conversely, if the ratio is low, it implies that the company reinvests more of its earnings to foster growth.
How to calculate payout ratio
To calculate the payout ratio, divide the dividends your company pays during a period by your net income for that same period.
Payout ratio = total dividends / net income
What is a cash payout?
A cash payout refers to the distribution of funds or money, typically in physical currency or an electronic transfer of funds as a payment, compensation, or winnings.
Common types of payouts in the workplace
Payouts come in many forms. A few examples include PTO payouts, commission payouts, bonus payouts, insurance payouts, equity payouts, settlement payouts, and local payouts. We define these common payout types below.
PTO payouts
A PTO (paid time off) payout is an employee's compensation for unused PTO from their employer.
While PTO is not a mandatory benefit in every country, some companies choose to offer PTO as a supplemental benefit. In this case, these companies may also choose to offer PTO payouts if their employees use only some of their earned PTO within a specified period, such as at the end of the year or upon leaving the company.
However, many other countries mandate PTO and PTO payouts as statutory benefits. Employees in these countries are entitled to a certain number of paid leave days each year as specified by labor laws. Here are a few examples:
- U.K. Classified workers in the U.K. are entitled to a minimum of 5.6 weeks of paid annual leave. The Working Time Regulations 1998 mandate the payout of unused PTO using the employee’s standard rate of pay.
- New Zealand. Employees in New Zealand receive no less than four weeks of paid annual leave. The Holidays Act 2003 requires the payout of unused PTO using the employee’s typical weekly pay rate.
- Australia. Employees in Australia get a minimum of four weeks of paid annual leave for each year of service with their employer. The Fair Work Act 2009 requires the payout of unused PTO using the employee’s standard rate of pay.
Commission payouts
Commission payouts refer to additional compensation given to individuals, typically employees or sales professionals, based on performance metrics. Individuals receive a percentage of their sales revenue or a fixed amount per sale.
For example, real estate agents earn commissions based on the value of properties they sell.
Bonus payouts
Bonuses are additional monetary rewards given to employees as part of their global compensation package for achieving goals, such as going above and beyond in a task, meeting sales targets, completing projects on time, or contributing to the company's overall success.
For example, each member of an engineering team may receive a year-end bonus after completing an important project on time.
Insurance payouts
An insurance payout is the money an insurance company gives to a policyholder or beneficiary to compensate for a covered loss.
When an insured event occurs, like property damage, illness, injury, or death, the policyholder or beneficiary can file a claim to receive a payout.
For example, an employee could submit a workers' compensation claim for a job-related injury. An insurance payout helps cover medical expenses, rehabilitation costs, and sometimes lost wages during recovery.
Equity payouts
An equity payout, also known as an investment payout, is when a company shares its profits with shareholders.
There are two forms of equity payouts:
- Dividends. Companies give shareholders a share of their profits through dividends, typically cash or additional stock shares, as part of an equity incentive plan.
- Share buybacks. Rather than distributing dividends, a company may repurchase its shares from the market. This lowers the number of shares available, increasing shareholder value and strengthening ownership.
Settlement payouts
A settlement payout refers to a financial disbursement or compensation provided in an agreement to resolve a legal dispute or claim between parties. People often choose settlement payouts to avoid lengthy legal battles.
For example, in a contractual dispute between a supplier and a manufacturer, where the supplier claims that the manufacturer breached their contract, the two parties may settle the matter out of court with a settlement payout.
Local payouts
Local payouts refer to financial transactions within a specific geographic area, like a city, county, or country.
Local payouts often use local payment processors or financial institutions to manage transactions.
For example, a retail company sources its inventory from local suppliers in a specific region. The retail company receives a 2% discount on the invoice total, a policy set in place by local suppliers who want to support local, small businesses.
Other types of payouts
Outside of the workplace, various scenarios involve payouts that are not directly related to traditional employment. Here are some examples:
- Prize or lottery payouts. Rewards or winnings in various competitions, contests, or events where individuals or entities compete to achieve a specific outcome or demonstrate a skill.
- Gambling payouts. Payments made by a gambling company to individuals who win bets or games.
Payouts to an international workforce
Payouts to an international workforce refer to the disbursement of compensation to employees, freelancers, or service providers in different countries worldwide. Standard payouts to international employees include wages and benefits.
When paying a global workforce, employers must ensure compliance with international payroll regulations. Noncompliance may lead to legal consequences, financial penalties, and a damaged business reputation.
Teaming up with a global payroll outsourcing partner simplifies payroll management and reduces noncompliance risks for employers paying international employees. A global payroll outsourcing partner navigates international laws, handles currency complexities, and ensures timely and compliant payments to employees all over the world.
Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2024 Velocity Global, LLC. All rights reserved.
