How to handle the end-of-year bonus

The end-of-year bonus is a polarizing topic in the business world.

Ah, the holidays. A time of year for festivities, warm seasonal beverages, and of course, gift-giving. Many offices around the country engage in the time-honored workplace traditions of Secret Santa gift exchanges and Yankee Swaps, but there are other ways that companies give back to employees as well.

The end-of-year bonus is a polarizing topic in the business world. Some managers believe it can inspire loyalty and appreciation, while others worry that it's disincentivizing people to work harder. Still, it's a popular way for companies to express gratitude toward their employees. According to Employment Network, 72 percent of employers indicated that they would be providing their staff with some kind of holiday or end-of-year bonus.

But when it comes to bonuses, it's important to do it right. Mishandling the situation can cost your company money, or worse, reduce the morale of your employees. Here are some things to keep in mind.

Make sure your intentions are clear
Perhaps the most important thing to keep in mind is that you should be abundantly clear as to your intentions for providing the end-of-year bonus. Is it a performance-driven "thank-you" to your top employees, or is it simply an end-of-year gift for your staff? It's a simple decision but it can have a huge impact on how your employees react in the situation. Impromptu holiday gifts tend to be viewed more favorably, but they also set a precarious precedent for future years.

How you pay your bonus out will affect which tax implications you should consider.

Determine how it's going to be paid out
Are you going to incorporate your bonus into your employees' regular paycheck, or is it going to come in the form of a separate payment or check? Believe it or not, this is an important consideration you should have worked out. According to CBS News, bonuses as a separate payment are considered supplemental income by the Internal Revenue Service, and it will be taxed as such according to the proper bracket. If you decide to incorporate the bonus as part of your staff members' regular pay, let them know ahead of time that they have the option to alter their withholding amount for the pay period. That way, they'll get to keep more of the money than if it were taxed at the regular rate.

Some companies prefer to offer physical gifts to employees instead of cash. Typically this is the least complicated option in terms of tax considerations, as small gifts are considered de minimis by the IRS, meaning that they're considered non-taxable fringe benefits. But keep in mind this is only true for items that can't be converted into a cash value. A gift card, for example, is considered a monetary bonus and would be subject to tax implications.

"Budget for your bonus immediately."

Stick to the budget
If you decide that you'd like to offer your staff a monetary year-end bonus, budget for it immediately. Inc. magazine noted that many small-business owners don't think to add the bonus to the budget early on in the year, which can limit what you're able to offer come December. By the same token, your yearly revenue will have a large impact on how much you can give. The source noted that it's wise to look at the first 10 months of your business' financial performance to settle on a bonus amount.

Be equitable and discreet
Generally, it's best to try and keep the bonus amounts as uniform as possible across your staff. Especially in instances where your bonus is meant as a gift and not a performance-related reward, offering different amounts to certain departments or management levels can give the appearance of favoritism.

Of course, there are likely those employees whose help has been particularly beneficial whom you may want to reward with a little extra. This is fine, as long as both you and the employees understand the importance of discretion.

This content brought to you by the Marketing Team at Beacon Hill Staffing Group.

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