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What Should Employers Know About Distributing Holiday Bonuses?

With the holiday season approaching, many employers are starting to think about rewarding their employees with some type of bonus. It has been a difficult year, so many businesses may still want to reward their employees for persevering through a difficult time. There are options for employers to show their employees gratitude. Regardless of what an employer decides, there are some things they should be aware of before making any major decisions.

What is the Difference Between a Holiday and Year-End Bonus?

Many companies give out holiday bonuses and some give year-end bonuses. These two phrases are not interchangeable as both are two different types of bonuses. Holiday bonuses are more universal rewards given to all the employees of a company. They are an equal amount distributed amongst the employees and can range from monetary gifts to a company-specific gift. They could also include extra paid time off.

Year-end bonuses are more performance-based rewards to certain employees. An employer might tie the amount to a person’s performance for the year or their longevity with the company. These types of rewards are a good way to boost motivation among employees and provide more incentives for the upcoming year.

Some employees may come to expect holiday bonuses from their employers and may even feel discriminated against if there is not one. For those companies that offer both bonuses, they should ensure enough time between when the two are dispensed. For instance, many might choose to give out holiday bonuses around Thanksgiving or early December and the year-end bonuses in January.

How Should I Plan for a Bonus?

There are several steps that employers should consider when determining which bonuses to disburse this year. Some things to consider include:

If it fits the budget: It has been a difficult year for a lot of businesses, with many forced to shut down for extended periods. Some were able to press on by having employees work-from-home, but it has been difficult. As a result, finances have slowed down this year, so employers need to ensure they can afford some type of bonus.

Chose an amount that is fair and consistent: If an employer plans to give out a holiday bonus, it should be a similar amount to previous years. If it needs to change dramatically for whatever reason, the company should announce that ahead of time and explain that it is a one-time thing to employees.

Include everyone: Employers that elect to give out holiday bonuses must include everyone in the office, and they must all receive the same amount regardless of their time or employment status.

Give time: For those companies that find that they can not afford a monetary bonus this year, they might want to consider giving the gift of time. It could mean a few extra days from work outside of the usual vacation and holiday schedule.

What are the Tax Consequences of Giving a Bonus?

Employers who give out monetary bonuses must report it as taxable income on an employee’s W-2 form. In addition, if an hourly employee receives paid time off, it has the same tax consequences as if the person were working. Some employees elect to offer the bonus and pay off the tax consequences as well so the employee can fully enjoy the bonus.

What are Some Non-Monetary Bonus Options?

Given this year’s difficulty, monetary bonuses might not be in the budget for some firms. That is an unfortunate side effect of the past year. Despite difficulties, many employers may still want to show gratitude to employees for remaining with them throughout the past year. There are several non-monetary options for employers. Some possibilities are:

  • Time off
  • Party
  • Gift certificates
  • Company-themed gifts

By explaining to employees that due to the circumstances, the company cannot provide monetary bonuses, should help lessen the sting of the change. However, it should be something that only happens once, otherwise it will start to have a negative impact on employee morale.

If you have any questions or concerns regarding employment matters, call the legal team at MacMain, Connell & Leinhauser. For an initial consultation, call 484-318-7106 or contact us online to speak to someone about your case. Located in West Chester, Pennsylvania, we serve clients throughout Philadelphia, Chester County, and New Jersey.