7 Do’s and Don’ts of Offering Holiday Bonuses

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In 2018, the average holiday shopper spent about $1,000 on gifts. To put that into perspective, since nearly 40% of  Americans do not have enough savings to cover an unexpected $1,000 expense, that means Americans are spending a lot on the holidays. In the past, a small majority of businesses have been kind enough to offer holiday bonuses, helping to ease the burden of the busiest gifting season of the year for their employees. 

Holiday bonuses can inspire great joy and merriment in an admittedly stressful time of year. But if administered without thoughtful care, they can also spark whispers and dissension. One employee finds out that their (seemingly equal) colleague received more and, suddenly, goodwill and happy tidings are out the window. 

If you’re in a position to offer holiday bonuses to your team, your employees will surely appreciate the gesture, as will the friends and family members on the receiving end of their gifts. Here are our top tips for setting up a holiday bonus program that rewards employees for their hard work throughout the year and does so in a way that can be replicated drama-free year after year. 

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Yep, it’s that time of year again.

The results are real.

DO: Consider the Long Run

Employees appreciate a certain amount of stability from their employers. If you’ve given out holiday bonuses for the last three years and suddenly decide to pull the plug, you’ll face an onslaught of questions and concerns from employees. Perhaps they were banking on that bonus this year. More likely, they’ll be worried about the health of the company. 

If you’ve had an extraordinary year, offering a holiday bonus may feel like a big win. But rescinding the bonus program the following year will then feel like a bigger loss. Approach the idea of holiday bonuses as a process you’ll repeat next year—and the year after that. 

This means putting clear policies in place from the get-go so that employees know the benchmarks they need to meet, how the bonus will be paid out, and all other relevant info up front. 

DON’T: Spend More Than You Can Afford

You may have had a great year, but after considering all expenses, how much do you have to offer in holiday bonuses? Review your financial statements and projections closely and determine exactly how much you’ll be able to spend on bonuses before communicating anything. 

Once you know the total amount you have to work with, you can start to portion it out to employees. 

DO: Treat Employees Fairly

In some companies, holiday bonuses are based on shared performance metrics. If the company meets its revenue goals, everyone gets the same amount added to their paychecks. It’s an easy way to handle bonuses, though this method is typically reserved for monthly or quarterly goals throughout the year.

For one-time bonuses, most companies will opt to evaluate them using individual performance metrics. In other words, stellar employees may receive more than the average worker. Long-time employees may receive more than newbies. If you go this route, be aware of personal biases and don’t make decisions about how much each employee gets using gut instinct alone. 

Instead, use a standardized evaluation method to make sure that everyone is treated fairly. Do you do monthly one-on-one meetings with employees? How about semi-annual reviews? Do your employees have quotes or benchmarks that they aim for every month? However you track performance throughout the year can be used here to evaluate bonus amounts. 

DON’T: Treat Everyone Equally 

Hear us out. One-time bonus payments often do a better job incentivizing great work if they’re tailored to individual performance. When all employees are paid the same, regardless of how well they did throughout the year, your top performers may start to feel put out. 

There’s a time and a place for shared goals and shared bonus payments. But since holiday bonuses are associated with showing gratitude, consider giving a little more to your top performers or more tenured team members. 

As a side note: this does not mean that every employee’s bonus payment needs to be public knowledge. 

DO: Communicate the Bonus Program Clearly

Once you’ve decided on how much to allocate for holiday bonuses and the rubric you’ll use to evaluate them, share your overall plans with the team. You don’t need to give much advance notice, but don’t wait until after the money has been paid either.

Shortly before your team starts to head out for their holiday time off, make everyone aware of the new program and allow them the opportunity to ask questions, voice concerns, and share feedback. 

DON’T: Go Under the Table 

There are special tax considerations to keep in mind when handing out bonuses. It’s up to you to decide whether to process bonuses separately from payroll or to add the amount to your employees’ paychecks. Depending on the employee’s income, processing it as part of payroll could mean that the bonus will be taxed at a higher rate. There may also be state-specific taxes to contend with. 

Whatever you do, don’t try to avoid the IRS. Even gift cards are taxable. Work with your payroll provider and tax accountant to make sure your plans to process bonuses are above board. 

Scalefactor eBook cover image

Yep, it’s that time of year again.

The results are real.

DO: Pay Before the End of the Year 

Speaking of taxes, don’t forget that tax season is just around the corner for your business. If you’re already planning to offer a holiday bonus, when you pay matters. Waiting until after the new year means that you can’t deduct the payments as a payroll expense and that you might end up paying more in taxes. To get the most immediate tax benefit, get those payments out before December 31. 

Ready to implement your own holiday bonus program? Keep these tips in mind and you’ll be well on your way to an engaged, happy employees. Best of all, you’ll get to show them how grateful you are for the work they do 365 days of the year. 

Want more holiday help? Check out our Holiday Prep Checklist, created to make preparing your business for the holidays a little less stressful. Because we know you’ve got enough on your plate already. 

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