The Holiday Bonus Guide for Small Businesses

With the end of the year quickly approaching, many small business owners are starting to consider giving their employees a holiday, or year-end, bonus. And it’s not a bad idea! According to World at Work, 82% of employers give out bonuses. Of course, there is not just one right way to show gratitude—so we’ve put together The Holiday Bonus Guide for Small Businesses that encompasses everything you need to know when it comes to paying bonuses to your employees. First, let’s take a look at what kind of bonuses employers are giving:

Cash vs. Non-Cash Alternatives

When it comes to annual bonuses, cash is not the only option. In fact, according to a recent survey of small businesses planning on giving bonuses this year, 60% plan to give their employees cash, while 40% plan on giving non-cash gifts or other perks. For example, extra time-off is generally valued by most employees, and it’s mostly free for the company to give. Alternatively, flexible hours, personalized gifts, or even a holiday party with a free dinner and a raffle giveaway is a great way to engage employees and create a sense of community among co-workers. Next, let’s take a look at the most popular types of bonus structures:

• Flat dollar bonuses
• Performance-based bonuses
• Percentage or tiered-based bonuses
• Company-performance based bonuses

Flat Dollar Bonuses

By giving employees a flat dollar amount, in most cases ranging from $50-$5,000 with the median being $300, this type of bonus is typically received with the least amount of drawback. Since the bonus amount doesn’t vary from employee to employee, it’s an opportunity to appreciate your people equally. For example, we all know the holidays in Hawaii is all about food and family, so something as simple as a gift card to Foodland or another local grocer can be an easy and practical way to appreciate your employees (and their families) during this season.

Performance-Based Bonuses

Annual bonus programs that reward employees based on expected—or exceeding—performance are designed to incentivize employees to deliver superior results, all year round. While some companies may have financial rewards in place—for example, 5% of an employee’s annual salary for meeting their set goals—other small businesses may offer an alternative, non-cash reward like additional paid time off or a company-wide retreat or experience.

Percentage-Based or Tiered Bonuses

This next type of bonus structure rewards employees with a certain percentage of their salary at the end of the year, assuming the company met their overall revenue goals. There are many ways to structure this type of program taking years of service, department goals, performance, and other factors into consideration. For example, an employee could expect to receive an additional 2% of their annual salary at year one, but jump to 5% after being employed for five years. Or an employee at the manager level might earn a larger percentage than an associate.

Annual Bonuses on Company Performance

Being transparent about company performance on a monthly basis can be a good driver for employee engagement when annual bonuses depend on it. What does this look in practice? Let’s say your company is on track to bring in $1M this year and your bonus plan is 2% of total revenue. If your team is comprised of 20 people, this averages $1,000/employee. When employees know what to expect, no one is surprised at the end of the year. For example, this year, you might be able to give an average of $1,000/employee, and next year, if earnings are up, you might bump it up to $1,300/employee.

Final Thoughts

It’s worth mentioning that depending on your business type, end-of-the-year bonuses can be listed as a tax-deductible business expense. However, it’s important to consult with your financial manager or accountant about tax implications prior to committing to annual bonuses. In conclusion, while there aren't any cut and dry rules to follow when it comes to holiday or end-of-the-year bonuses, we hope this holiday bonus guide provides you with some actionable thought starters as this time of year approaches.