Small Business Owner’s Guide to the Holiday Bonus

Holiday bonuses have long been a way to show appreciation for employees. While employees like being appreciated, they like cash even better. If a company has paid cash benefits in the past, then employees may be expecting and counting on a Christmas bonus for holiday expenses or paying bills. What kind of holiday bonus will businesses be giving in 2021 when the pandemic has upended day-to-day operations and the sales of so many businesses?

The answer is likely to have less to do with employers’ generosity and appreciation of their staff than it does with the company’s bottom line and operational realities. A business’s size and how its sales have declined or grown during the pandemic will reflect this year’s bonuses.

If your company plans holiday bonuses for 2021, then get tips on common bonuses and gifts, what other businesses are doing, and how to avoid bad feelings among employees.

Related: Small Business Owner’s Guide to Holiday Tipping

Holiday Bonuses This Year

For insight into what small businesses were doing this year, Business Know-How included two questions about bonuses in our September 2021 pandemic impact survey. Only 41.6% of participants indicated they were giving a holiday bonus this year. A few of those respondents appended comments such as, “If I can afford it.”

This percentage was slightly lower than 2019’s survey results, where 42.8% of businesses who participated were giving cash bonuses. 

What’s the Average Holiday Bonus Amount?

Question 25 different small businesses about their bonus practices and you’ll most likely find 25 different company policies regarding them. When we asked respondents who indicated the nature of the bonuses they were giving this year, some patterns emerged. 

79% said they were giving a flat-rate cash amount. Those amounts varied from a low of $20 in one case to a high of $10,000. Nearly half of those responses indicated the amount would be between $100 and $500. Others were planning to give a salary percentage, with one weeks’ salary being the most common amount. Some were still undecided about the form and amount of the bonus. Some gave amounts that varied among employees based on company position or performance. 

What Are Bigger Businesses Doing This Year?

According to a September survey of large and midsized US employers conducted by Willis Towers Watson Data Services, 66% said they will give bonuses this year, with executives and management level employees being the most likely to receive them. 26% were unsure if they’d give bonuses and 8% said they wouldn’t at all.

Some big box stores, because of the need to be open, keep shelves stocked, and lines at cash registers moving, have offered “hero pay” bonuses during the year. Both Target and Lowe’s announced plans in October 2021 to give employees bonuses this fall. While these might not technically be holiday bonuses, they come near holiday time. Such bonuses can make it harder for small, local retailers who are still open to hire and retain employees if they can’t afford bonuses or salary increases.

What Kind of Bonus Should Your Company Give?

Based on our findings and research, most businesses choose one, or sometimes more than one, of these options.

Cash Bonuses

Extra cash during the holidays is welcomed by almost all employees. One reason is that most have extra expenses during the holidays. For some small businesses, a cash bonus is a flat amount paid to all employees. In others, it’s equal to a percentage of salary, or based on how profitable the business was during the year.

Performance-Based Bonuses

Some companies give performance-based bonuses instead of, or in addition to, holiday bonuses. In these pay-for-performance programs, bonuses are given depending on if employees met or exceeded annual sales or goals. Performance bonuses often aren’t distributed until the beginning of a new year.

Non-Cash Gifts

Many small businesses give a non-cash gift, either in lieu of or in addition to a cash bonus. Others offer special perks like flexible hours during the holidays or extra time off.

Related: 5 Simple Things That Will Make Your Employees Happier

Tips for Giving Holiday Bonuses

First, can you afford to give a bonus? During a 25-year span, one employer changed their yearly bonus offerings depending on each year’s earnings and profits. During lucrative years, employees enjoyed lavish holiday parties with highly-priced raffle prizes and generous cash bonuses. In lean times, there were no cash bonuses, no parties, and no prizes.

If your company has offered holiday bonuses in the past but will be unable to next year, let employees know as early in the year as possible. Many employees count on that bonus and factor it into their household budget as part of their yearly earnings.

Related: Keep Employees Focused During the Holiday Season

Second, carefully and fairly choose bonus amounts. Think “fair and equitable distribution.” In other words, bonuses should be consistent, given out uniformly, and on an unbiased basis. Make sure that no worker feels unfairly shortchanged.

Third, include all workers. If possible, be sure that every employee is recognized in some way during the holiday season. One four-month-long temp worker was crestfallen when a week-long employee received a bonus and she didn’t. 

Fourth, give the gift of time. If your company can’t afford cash or gift bonuses this year, consider giving paid time off. Time off with family and friends is something virtually everyone could use more of. Employees will appreciate an extra day off or two to relax during the holidays after working hard during the year.

Finally, keep in mind this comment from one of the employers who responded to our survey:

“If you take care of the people that take care of you throughout the year, you only stand to benefit as people do much more when they are appreciated and tend to remain loyal.“