What’s wrong with a Holiday Bonus?
So what could be wrong with that? Holiday bonuses can actually cause more problems than you may have thought of.
Here are a few pitfalls of Holiday Bonuses:
- Expectations – Holiday bonuses quickly become the expectation of the employee – leading to the feeling of entitlement. The first year you award a bonus, or the last year you awarded a bonus, you set the standard for the amount, as well as the expectation that the employees will receive one every year and the amount will be the same, or at least very similar. If one year, you are for some reason unable to pay bonuses, the employees are shocked and disappointed, maybe even disgruntled.
- Mixed Messages – Holiday bonuses can mean different things for the business owner than they do to the employees. Employees may think of the Holiday bonus as a gift from the boss. The boss may consider it a reward for performance and they are awarding them because the company had a good year and the boss wants to share in the profits. The problem with the difference in meanings is back to #1, expectations and see # 4, reward for hard work.
- Compliance Problems – Companies often don’t pay bonuses in compliance with IRS regulations. Unless the bonus is minimal – you will have to pay taxes on the money. Here is where you can find some details from the IRS https://www.irs.gov/government-entities/federal-state-local-governments/de-minimis-fringe-benefits.
- Confusion – Be careful not to confuse a Holiday bonus with reward for performance. Sometimes even the business owner is not clear about what the bonus is for. If the employee receives a one-time per year payout and the payout is based on performance it is probably a performance bonus not a Holiday gift. It can be easy to mix the two, after all it is the Holiday Season – and the problem is that the employee doesn’t associate their performance with the amount of the bonus – but the boss does. In this case, the employee doesn’t realize the reward was earned by their hard work and that they are likely able to influence the amount for the next year by working harder and performing better.
- Gift & Reward Catch-All: The Holiday bonus can be a catch-all for all rewards throughout the year. Here’s the holiday gift, Happy Holidays. And here’s your reward for hard work, a performance bonus and yes, it is also what should be thought of as an increase in pay for the year. In this case, the employee could be working at a job for 5 years, stuck at the same pay rate and rewarded with a Holiday gift or bonus. The employee is at risk for being scooped up by the competition because his/her base pay is low. Top that off with the employee feeling they have been treated unfairly, because in their mind, they have never received a raise – and the employee is out the door to your competitor.
Give your employees a turkey or a ham – or a small bonus – less than $1,000 as a Holiday Gift. You can base the amount on the length of service of the employee and of course, your budget.
In January, after your financials are wrapped up for the year, give employees a performance bonus if you have the funds that year and tell them it is based on company profit and their performance.
Complete a written performance review on all of your employees at least annually and consider whether their performance warrants an increase in their pay rate or not. When considering the pay increase, which is based on performance, also consider where the employees’ pay rate falls as compared to similar jobs in your industry and their years of experience. Make corrections in the pay rates if needed, for your top performing employee’s!
Finally, if you are guilty of one of the pitfalls above, start over and communicate clearly to your employees your plan going forward and how they can influence their pay rate in the future.