5 things to keep in mind about holiday bonuses
By Dan Cook
’Tis the season to be confused, at least among businesses considering whether to give out holiday bonuses.
Primarily, these employers are uncertain and perhaps even pessimistic about holiday sales, surveys tell us, and fewer of them are planning to give their employees bonuses this holiday season than last year.
In fact, just 27 percent of small businesses are planning to offer holiday bonuses this year, compared to 35 percent last year, according to an American Express survey.
Still, for those who are getting ready to cut a holiday check or hand out some other sort of recognition, guidelines exist that will make the giving smoother and with fewer unanticipated negative consequences for giver and recipient.
1. It’s either a gift or a bonus, but not both.
The first rule to keep in mind is that holiday bonuses are distinct from year-end bonuses. The latter are based upon performance, measured against specific bonus-triggering standards. The former are, at least in theory, given from the heart by a compassionate and grateful ownership team. If you are truly giving out holiday gifts, either of cash or something else, make sure everyone knows that’s what it is. Don’t call a year-end, performance-based bonus anything but that: a performance bonus. Different rules govern these two types of recognitions.
Note: Some employers separate the giving of the two rewards by more than a few weeks. If you are doing a performance-based bonus, you can distribute it in mid- to late January. By giving your holiday bonus around Thanksgiving, you create more space between the two.
2. Everyone gets a gift or bonus.
If you are doing holiday gifts or bonuses, make sure everyone gets one.
3. Gifts don’t have to be equal, but should be consistent.
Be careful how you determine who gets what gift. Giving everyone the same gift, from managers on down, is the easiest course to choose. If you must give tiered gifts, make sure the tiers are clearly delineated: one type for management, another for staff. No favoritism based on any other criteria. Word will get around.
4. Gifts don’t have to be the same as last year.
If you have a good internal communications system, people will know by November how the company has done this year. They will, in general, understand that holiday bonuses may vary in “value” from year to year. If you simply can’t justify a holiday bonus or gift after years of handing them out, let employees know in advance that this will be the case. A better bonus around the holidays is always good news; a lesser one, or none at all, should never come as a just-before-Christmas surprise. 5. Giving time off counts, too.
If you can’t afford a monetary or alternative type holiday gift, you can always offer employees a day or two off around the holidays to recognize their efforts during the year. This can also become your holiday recognition, if you want to change things up or don’t have a regular holiday bonus plan (you’re a startup, for instance). Many employees appreciate paid time off in lieu of other types of holiday recognition.
If you plan on giving out monetary bonuses or, as an alternative, gift cards, consider the following advice from Chicago lawyers Richard Y. Hu and Rachel L. Schaller of Shefsky & Froelich Ltd.:
- Financial holiday bonuses must be reported as taxable income on employees’ W-2 forms. “Employers should also be mindful whether they agreed to a gross-up arrangement with the employee as the employer will have to pay the entire bonus amount and the tax as well,” the lawyers advise.
- Employers may deduct bonuses “if they are ordinary and necessary business expenses. Namely, bonuses must be reasonable, as additional pay for services performed rather than as a gift, and paid or incurred in the year in which the deduction is claimed. … Employers can also deduct the costs of a holiday party for employees as a business entertainment cost.”
- Folks who receive company gift cards also must declare them as taxable income, unless the amount on the card is so small “that accounting for it is unreasonable or administratively impracticable. … For example, giving a low-cost theater ticket to an employee may not be taxable, but giving the employee the cash for the ticket would be.”