No matter the state of the economy, most employees generally desire holiday bonuses and annual raises. But as a small business owner, there are many considerations to examine before giving bonuses. So, should business owners give their employees holiday bonuses?
How Often do Companies Give Holiday Bonuses
The data indicate a range of possibilities. A report from the Bureau of Labor Statistics indicates that 9 percent of employees got holiday bonuses in companies with fewer than 100 employees and 8 percent of employees in companies with more than 100 employees got bonuses. A two-year-old survey conducted by Business Know-How reported that 41.6% of respondents were giving out holiday bonuses. And research conducted by Zippia indicated that 33 percent of U.S. companies gave out year-end bonuses.
Benefits of Holiday Bonuses
Companies can receive several benefits from distributing holiday bonuses including easing and helping prevent employee burnout, boosting morale, strengthening employee commitment, and increasing employee engagement and productivity.
Tips and Guidelines for Holiday Bonuses
While there are no set rules for awarding holiday bonuses, these tips and guidelines can be very useful:
First, it is critical that bonuses shouldn’t be treated emotionally. It is critical to consider whether the company has the cash flow to pay bonuses and if bonuses are affordable relative to the company’s financial position.
Second, bonuses should be consistent, given out fairly and equitably, without bias. It is desirable, if possible, to recognize every employee during the holiday season.
Third, it is wise to let employees know what to expect. If it has been a lean year, don’t hide that fact. If bonuses cannot be given out, explain why, and do so as early as possible so that employees don’t try to “spend it before they get it.” And, if bonuses aren’t possible, consider other ways to show commitment to employees and reward their loyalty such as extra time off or a holiday luncheon/dinner.
Fourth, treat bonuses carefully and insist on confidentiality for awarding bonuses, just like the treatment of regular salaries.
Fifth, be transparent about awarding bonuses. If a year-end or performance bonus is different from a holiday bonus, any difference should be clearly communicated.
Sixth, make sure that the holiday bonus is not tied to a specific holiday to prevent any concerns about discrimination or fairness.
Seventh, pay bonuses in November or December so that the bonuses, which are tax-deductible, can reduce your tax liability that year.
Eighth, make sure your enterprise keeps accurate records of bonuses and that your accounting and payroll systems are professionally managed to avoid problems with employees or the IRS.
Tax Implications for Holiday Bonuses
Company leaders should know that bonuses are considered income and are taxable along with other taxable compensation elements including health care and retirement program payments. Bonuses are also subject to Social Security, Medicare, and Federal Unemployment Tax. They are also subject to state taxes.
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