Holiday bonuses have long been a way to show appreciation for employees. While there are many ways to show appreciation, employees like receiving cash bonuses the best. In fact, if a company has paid cash benefits in the past, then employees may be expecting and counting on a Christmas bonus to pay for holiday expenses or other bills.
But some small businesses that have paid out bonuses in the past may find it difficult to do so due to rising costs, increased interest rates, and lower profit margins. Here are tips on what other businesses are doing, common bonus amounts, types of bonuses, and gifts to consider this holiday season.
Holiday Bonuses This Year
What kind of Christmas bonuses will businesses be giving in 2022? The answer is likely to have less to do with employers’ generosity and appreciation of their staff than it does with a company’s size, bottom line, and operational realities.
In a survey Business Know-How conducted two years ago, 41.6% of participants indicated they were giving a holiday bonus. A few of those respondents added comments such as, “If I can afford it.”
In 2022, however, inflation, labor shortages, and concerns about a recession could impact bonus payments. Some businesses may dig deep to give a holiday or year-end bonus as an incentive to retain employees.
Lowe’s gave out $55 million in bonus cash to hourly employees in September 2022 to help them cope with inflation. While September isn’t holiday season, it comes near the holidays and puts pressure on small and local businesses to do something for their employees.
Meanwhile, many small and local businesses may not be able to afford bonuses this year because rising labor costs and inflation have left them little or nothing to scrape out of the bottom of the budget barrel. Labor costs, alone, are between 5.18 percent and 7.6 percent higher this year than last.
What’s the average holiday bonus amount?
Ask 25 different small businesses about typical bonus payments, and you’re likely to get 25 different answers. Moreover, the bonus policies may vary from year to year. When we surveyed small businesses in the past, some patterns emerged.
Seventy-nine percent of the employers who responded indicated they were giving the same amount of cash to each employee in the company. Nearly half of those responses indicated the amount would be between $100 and $500. Outliers mentioned amounts as low as $20 and as high as $10,000. Others said they calculated bonuses by using a percentage of each employee’s salary. One week’s salary was the most common amount indicated for a holiday bonus. A few gave amounts that varied among employees based on company position or performance.
Do most companies give employees holiday bonuses?
Although employees like and often expect holiday or year-end bonuses, not all businesses offer them. A Bureau of Labor Statistics report shows that in businesses with fewer than 100 employees, 14% of workers got a year-end bonus, while only 9% got a holiday bonus. In companies with more than 100 employees, the numbers were lower. Only 8% got a year-end bonus, and only 3% got a holiday bonus.
What kind of employee bonuses do companies give during the holidays?
Most businesses that pay bonuses choose one or sometimes more than one of these options during the holidays or at the end of the year.
Flat-Rate Cash Bonuses
Extra cash during the holidays is welcomed by almost all employees. One reason is that most have extra expenses during the holidays. A flat-rate cash amount means all employees are given the same amount of cash. To comply with tax laws, the “cash” amount gets added to a payroll check or gets issued as an additional payroll check.
Some companies give performance-based bonuses instead of, or in addition to, holiday bonuses. In some instances, bonuses are given to individual employees who met or exceeded sales or other goals for a specific period. In other cases, they’re given out based on the company’s overall performance. Performance bonuses are often distributed at the beginning of a new year. Some companies, however, have performance incentives that are tied to quarterly or other results.
As the name implies, a year-end bonus is one given at the end of a calendar year. A year-end bonus, if given, may be the holiday bonus, or it may be separate from and in addition to a holiday bonus.
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.
Are holiday bonuses taxable?
The amount of taxes you withhold depends on how you distribute the bonuses to employees. If the bonuses are included as extra pay in employees’ regular paychecks, they’re taxed at each employee’s tax bracket. If you issue the bonuses as separate checks, they’re taxed at a flat 22%.
When should you give out holiday bonuses?
If you’re giving a holiday bonus, most employees prefer to get it early enough so they can use the money to buy gifts or pay for other holiday expenses. Many companies, therefore, give out the holiday bonus somewhere between the last week in November and the second week in December.
An added reason for paying out bonuses in late November or December is that they’re tax deductible and can reduce your company’s tax liability for the current year.
If you’re giving a year-end bonus that’s meant to retain workers through the holidays or that’s dependent on your business’s fourth quarter performance, then you’ll most likely give it at the beginning of the new year. In that case, talk to your tax advisor in advance to determine when and how to deduct year-end bonuses paid out after the end of the year.
Tips for Giving Holiday Bonuses
Here are some things to consider in making your holiday bonus decision:
Can you afford to give a bonus?
Consider your current finances. Do you have the cash on hand and cash flow to support giving a bonus this year? Put another way, can you give your employees a holiday bonus and still pay your rent, loans, and other expenses in January and February even if some clients are late paying you or you lose a big customer?
Let your employees know what to expect
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.
Be fair and equitable
Carefully and fairly choose bonus amounts. In other words, bonuses should be consistent, given out uniformly, and on an unbiased basis. Include all workers. If possible, recognize every worker in some way during the holiday season. A temp worker who had been working at a company for four months was crestfallen when she didn’t receive a bonus, but an employee who had been hired just a week before did get one.
What to Do If You Can’t Afford to Give Holiday Bonuses
If your company can’t afford cash or gift bonuses this year, let your employees know in advance, and consider other ways you could show you appreciate their work.
One possibility is 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.
A no-cost gift you might give is to set up a flexible work schedule policy for the coming year, or to allow flexible work hours just during the holidays. Being able to adapt one’s work schedule to attend school functions or do other personal chores is a welcome perk to many employees. Be sure rules and procedures are clear.
Still another way to show appreciation if you can’t afford a bonus is to have a holiday luncheon in your office. Order sandwiches or other food and goodies from local shops. Ask those stores if they might be willing to supply discount coupons to your employees, too. The coupons will be savings for your employees and will bring extra business to the local shops.
Other Types of Bonuses
There are other types of bonuses some employers offer, as well. These aren’t related to holiday giving:
These are given “on the spot” rather than as part of a regularly planned program. They may be given as recognition for an individual employee’s performance or some action they took, or to a group of employees such as nurses or paramedics during the COVID-19 pandemic. Spot awards are often flat dollar amounts ranging from $25 to $50 and up.
Annual bonuses are given once a year. They’re often given at the end of the year or the beginning of the new year as a retention incentive. These are typically performance based. Often, executives get higher bonuses than non-executive employees.
Payment in Lieu of Benefits
A payment in lieu of benefits is a payment made to employees instead of a benefit, such as healthcare. According to the Bureau of Labor Statistics, “In some cases, the employer offers cash to employees who waive employer-sponsored benefits, such as sick leave.” Businesses that offer cash instead of health insurance have to follow strict rules and must do so as part of an IRS Section 125 Cafeteria Plan.
A referral bonus is a bonus given to an employee after someone they’ve referred for a job is hired and remains with the company for a certain period of time. The nature of the bonus varies by company. In many cases, it’s a cash bonus, but in other cases, it’s paid days off, a dinner for the family at a restaurant, or even a trip. The value or amount of the bonus varies, as well, with lower dollar amounts being awarded for recruiting hourly employees and higher amounts for highly skilled workers or executives.
A longevity bonus is typically either cash or a gift given in recognition of an employee’s years of work for the company.
Holiday Bonus FAQs
- What is a Christmas bonus?
Christmas bonuses, also called holiday bonuses, are usually extra pay given out to employees during the Christmas season. Usually, they’re given as a discretionary perk, and given out equally to all employees to show a company’s appreciation for their work.
Sometimes, however, they’re required as part of a labor contract. In Atlanta, for instance, drivers at a tire recycling factory will be getting a holiday bonus in 2022 as part of a newly negotiated union contract with their employer. And in some locations, such as Puerto Rico, holiday bonuses are mandated by law.
- Why do companies give bonuses?
Companies give holiday bonuses to let their employees know their work is appreciated, to boost morale, and to foster employee engagement and retention.
- What’s the typical performance bonus rate?
Because businesses differ, there’s no one standard or normal rate for performance bonuses. Reports from job sites and salary comparison sites show rates that range from 1 to 10 percent of an employee’s annual salary when goals are met. But executive bonuses may be much higher.
- Do companies give the same bonuses every year?
Companies may change their yearly bonus offerings depending on each year’s earnings and profits. During lucrative years, a company may throw lavish holiday parties, give out expensive gifts, and pay generous cash bonuses. In lean times, they may do none of those things unless obligated to contractually or by law
- When did companies start offering bonuses?
Cash bonuses date back to 1899, when Woolworth’s gave employees a cash bonus of $5 for each year of service, up to a maximum of $25. Non-cash bonuses, such as food, have been around even longer.