It’s that time of year again!

As the holidays approach, it’s almost a tradition for employers to find ways to show their appreciation to their team members. One of the classic holiday gifts is the employee bonus.

Who gives employee bonuses and why do they do it?

According to Bank of America’s Fall 2017 Small Business Owner Report, 35% of businesses with less than 100 employees planned to give a cash bonus.

When surveying businesses of all sizes, Accounting Principals found that 65% were planning to give a cash bonus.

Of course, there are the stories like the CEO from Ann Arbor, Michigan who surprised his employees with $1.5 million in holiday bonuses. Then there’s real life, where a bonus is usually a percentage of an employee’s income or the equivalent of one or two weeks of pay.

Infographic | What You Need To Know About Giving Employee BonusesCash bonuses are mainly given as a holiday gift or as part of an incentive program. If it’s a gift, it means that there are no performance goals or metrics tied to the bonus and that it’s simply an act of kindness and generosity. However, a bonus that’s part of an incentive program is tied to specific requirements.

Also, holiday bonuses are usually given during the fourth quarter of the year while a year-end or achievement bonus is given in January. The difference in timing is to help further differentiate the two.

What should everyone know about employee bonuses?

The thing that often catches employers and employees by surprise is that bonuses are considered taxable income — in other words, subject to income and payroll (employment) taxes. As a result, it’s really important to ensure that everyone in your company is aware of what their actual, after-tax total really is.

This doesn’t have to be a downer, it’s just a matter of communication. Awareness of this fact will help your business and your employees avoid any unwelcome surprises at tax time.

What should everyone know about employee bonuses?Like any aspect of business, communication is vital when it comes to offering employee bonuses. If a bonus is based on performance, then the requirements need to be laid out clearly.

You also need to uphold these standards and only award bonuses to employees who achieve these milestones. Otherwise, if the bar is too low, the level of achievement won’t rise.

If a bonus is a gift, try to make sure that no one’s left out. No one likes being the odd one out. Or, if you have elected to do something other than a bonus this year, give your employees plenty of notice. If it’s been a time-trusted tradition, people might be planning on having this extra boost to their bottom line.

Note: People in the anti-bonus camp point to expectations as a reason for not giving bonuses. Once you start providing employee bonuses, it’s difficult to stop without causing disappointment.

What’s the relationship between employee bonuses and engagement?

Actually, the answer is entirely up to you. Company culture is shaped by a number of factors and neither recognition nor gratitude should be a one-a-year event.

If your employee bonus program is part of an entire culture that centers on valuing employees throughout the year, it will generally be more effective than a one-off approach.

What’s the relationship between employee bonuses and engagement?As the workplace changes, culture is becoming increasingly important. According to Gallup News, highly successful companies share three key traits — talented employees, superior levels of engagement, and retention rates of 10 or more years of service.

Similarly, in a study that consisted of surveying 20,000 workers, analyzing 50 major companies and hours of painstaking research and analysis, The Harvard Business Review found that the reasons why we work are just as important as how well we perform.

One final fact: Companies with happy workers consistently outperform those with unhappy workers by as much as 20%.

Are there alternatives to cash bonuses for employees?

The results of the Accounting Principals survey showed that of the companies who weren’t giving cash bonuses to employees, 39% were going to offer other year-round perks and 31% were planning to make charitable donations instead.

Again, the choice comes back to your company and your culture. An employee bonus is only one of many possible employee perks. The defining factor in what you do should comes from knowing what resonates with your values and those of your employees.

For more information about employee bonuses, check out this infographic.

Infographic | What You Need To Know About Giving Employee Bonuses

About the Author

michelle wagepoint

Blog master, content creator, and inbound marketing guru at Wagepoint, Michelle enjoys simplifying complex payroll topics and generating articles with actionable advice for small businesses and startups. When not at the keyboard, she enjoys chocolate, running, and quality television (not always in that order).

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