As the calendar year is winding down, many employees look forward to a year-end bonus. Bonuses are at a company’s discretion and companies don’t have to put themselves in the red to be generous at this time of year. Just a reminder that year-end bonuses are subject to the same payroll taxes as regular pay. This includes withholding for federal and state income taxes.
If your company is considering giving year-end bonuses to show gratitude to your employees for a job well done, you will want to make sure that you are being unbiased to avoid any misconceptions. Some examples to consider are giving all employees the same type of bonus such as a week’s wage or paying bonuses based on their longevity with the company. Give the employee a dollar amount per year of their employment. Another example would be tying bonuses to their performance. Be sure you are upfront and clear so that employees understand how this works, what the expectations are, and how they are going to be measured. For an employer to tie bonus compensation to performance effectively, you must communicate the program in the beginning of the performance year. You need to both document and communicate progress to goals if you wish to avoid poor morale and lack of trust from the employee when bonuses are not what they expected.
In addition, there are other ways companies can show appreciation and generosity to their employees other than giving them cash bonuses. Consider giving employees extra time off, closing the office early, or increasing compensation for the coming year. My final thought is to never underestimate how far a genuine thank you goes!
Article Written by Laura Goad, HCM Consultant