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DECEMBER, 2017

PAYROLL
HR

Holiday Bonuses: To Give or Not to Give

Holiday bonuses: to give or not to give, that is the question. While holiday bonuses aren’t a life or death situation, they do pose an interesting dilemma. Bonuses have a significant impact on employee morale and productivity, and companies who give them are perceived as cultivating a positive, rewarding work environment. On the other hand, they can pose possible complications for employers. Whether or not companies choose to dole out holiday cash this year is ultimately up to them, but here are some things to consider in the meantime.

Holiday Bonus Presents

Spreading Holiday Cheer

Picture this: You’ve worked hard all year, met every deadline, and even attended every meeting with a smile. You repeat the mantra in your head, “Holiday bonus, holiday bonus,” reminding yourself you can count on that yearly gift. Well, that is, if you are employed by one of the 63% of U.S. organizations that plan to give a monetary holiday bonus this year. 

Research from an Accounting Principles survey shows that more and more companies are moving away from monetary bonuses and shifting to other forms of supplemental compensation for special occasions. 39% of HR managers say their company would rather give their employees other perks instead.

Stocking Stuffer: Bring on the Bonus

For those employees who will be receiving a monetary holiday bonus this year, we have good news. Numbers from the same survey show individual holiday bonuses will be increasing on average from $1,081 last year to $1,797 this year.

While you can likely think of thousands of uses for that bonus, don’t go out and treat yourself just yet. This bonus, even if awarded in the spirit of the holidays, is considered taxable compensation just like your paycheck. To combat this, some employers might “gross up” the amount of the bonus in order for the employee to actually receive the intended amount, but remember that federal and state income taxes will be deducted. Even so, some bonus amount is better than no bonus at all!

Ho-Ho-Hold Your Horses: No Holiday Bonus?

Now, picture this: Your holiday bonus is nearly signed, sealed, and delivered…just as it is every year. Instead of a bonus, however, you receive a company-wide email informing you that “Management has decided holiday bonuses will not be distributed this year. Best Wishes and Happy Holidays!”

For those companies that have regularly given their employees holiday bonuses in the past and suddenly change policy, employees will equate this to receiving giant lumps of coal in their stockings. It may be your company simply cannot financially afford to distribute bonuses this year or is opting for gifts more personal than cash, but if your company does plan to change its bonus policy, be sure to communicate the changes to your employees ahead of time.

Having an up-to-date bonus policy in place within the company handbook will create clear expectations come holiday time. Otherwise, those employees who have become accustomed to the holiday gift will feel a bit cheated and question whether or not the naughty and nice lists were in fact checked twice.

The Double-Edged Sword

Let’s face it, holiday bonuses can be somewhat of a double-edged sword. In theory, receiving supplemental compensation should create happy employees, but that is not always the case. Here’s the catch:

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Employees love to receive them, yet are not always satisfied with the given value. In truth, modest bonuses given to a number of employees can be expensive for companies.

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They appreciate the company’s holiday generosity, yet learn to expect and rely on it year after year, creating a sense of complacency. This creates an unclear cycle of expected vs. earned bonuses and puts employers in difficult positions to satisfy employee expectations and continue to motivate employees.

The Alternatives

Because of the complications that arise from having an undefined holiday bonus or the high expense of giving one to numerous employees, the majority of companies are expected to use other forms of bonuses distributed throughout the year.

Annual/Quarterly Bonus

This bonus structure can be done on an individual or team basis. Rather than reward employees to fulfill a calendar expectation, reward your high-achieving employees for reaching milestones or predetermined goals. This is a higher performance motivator and potentially more affordable as it is a bit more selective.

Non-Cash Bonus

Non-cash bonuses that are not subject to tax withholding are a great way to show your employees you appreciate them and are invested in employee retention. Showing company involvement in smaller, non-monetary ways can be as simple as having holiday company parties or bringing in coffee or lunch on occasion.

Profit Sharing

Rather than awarding employees bonuses at year-end simply for being employees, companies may choose to implement incentive plans that are based on company growth. With profit sharing, employees may receive bonuses that are a direct result of a company’s profitability. This acts as a motivator for high performance throughout the year.

The Spirit of Giving: Parting Thoughts

Before the holidays are fully upon us this year-end, take some time to determine the best choice of action for your company: to give or not to give. While visions of sugarplums might not be dancing in your employees’ heads, visions of holiday bonuses might be.

Be mindful of their expectations and clearly communicate the guidelines your company will use to determine bonus distribution. Using a performance-based tracking system and ensuring company-wide visibility will encourage and incentivize employees and help companies implement alternatives to the traditional monetary holiday bonus that could be more suitable.

How APS Can Help

APS provides a unified suite of solutions to easily manage standard employee payroll, additional bonuses, and maintain appropriate withholding. Our online system offers the capability to easily pause payroll distribution via direct deposit, add bonus amounts to specific pay periods, or even print supplemental paper checks when desired. With APS’ online platforms, eSelfServe and Manager Self-Serve, managers can paperlessly assign and track employee performance, achievements, and goals to simplify incentive programs and maintain accountability among employees.

For more information, please visit www.apspayroll.com or call 855-945-7921.

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