Small Business Owner’s Guide to Year-End Employee Bonuses & Holiday Gifts: Part 1

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holidaybonusThere is no one right way to show gratitude for your employees during the holiday season, other than to not show it at all. If you were to ask 20 small business owners what they do for their employees as a year-end reward, you’re likely to get 20 different answers. Many offer a cash bonus, some take the team to a nice dinner, some give individualized holiday gifts, and others throw a party for employees and their families. Small business owners can make their employees feel valued and appreciated, even on the smallest budget.

3 Ways to Give Year-End Employee Bonuses

If you’re planning to offer a cash bonus to employees, there are a few ways you can go about it. Here are three types of year-end cash bonuses to consider for your small business:


  • Performance Bonuses. Many employers are turning to performance-based bonuses to save themselves money and keep employees from expecting a given amount at the end of the year. The best way to do this is to give each employee individual goals to work toward at the beginning of the year, and then evaluate their performance based on those goals and other factors at the end of year. Goals may need to be adjusting quarterly, according to the employee’s progress. Scheduling a year-end interview with each employee will help you evaluate their performance and decide on an amount that works for you. This may end up being a percentage of their salary, or perhaps a flat dollar amount that is contingent upon them reaching their goals. This will motivate employees to work hard and give them some incentive to carry out their goals to the end of the year. This method can reduce hurt feelings if the bonuses are not even because employees know up-front how the amount is decided.
  • Non-performance bonuses. Some small business owners prefer to award year-end cash bonuses just to show their appreciation, without basing them on performance. Non-performance cash bonuses can also be a portion of the employee’s salary or a flat dollar amount. With non-performance bonuses, you’ll just need to make sure that everyone gets a fairly distributed amount to avoid contention and hurt feelings among employees who may not have been awarded as much.


  • Longevity bonuses. U.S. Bureau of Labor Statistics, people 35 years and younger change jobs every 18 months, and people of all age groups do so every three years, which motivates some companies to offer employees an incentive to stay put. Many employers offer bonuses for employees who have been with their 5, 10, 15, or 20 years, with a set amount for each milestone of employment. This can end up being less or more expensive for employers at the end of the year, based on how many awards must be given out and the years of service being rewarded. However, with this method, not everyone will get a bonus every year.


A Few Tips on Giving Year-End Employee Bonuses

  • Before you let yourself get overwhelmed with which type of bonus to offer, consider if offering a cash bonus is even in your accounting budget this year. If it’s not, choose another way to reward employees for a job well done. Many small business owners change their year-end bonus policy every year, based on the profits of the company during that year–and that’s completely fine. If your accounting and small business bookkeeping is up-to-date, you’ll likely have an easier time deciding how much to give.
  • If your company offers employee bonuses every year, but is unable to this year, be sure to let employees know as soon as possible so they don’t feel start prepping for their backyard swimming pool, like Clark Griswold in National Lampoon’s Christmas Vacation.
  • Be as fair as possible. While the actual dollar amount doesn’t have to be the same for each employee, bonuses do need to be distributed evenly and fairly. Make sure all employees are recognized during the holiday season–not just some. Bonuses should be consistent and unbiased.
Ben Sutton

Ben Sutton

Ben Sutton is the founder of Mazuma USA, an accounting firm providing tax, bookkeeping and payroll services to small businesses. Since founding Mazuma, Ben has established himself as an expert in the small business world. He’s still driven by that same desire to provide accounting help to all small businesses – from photographers, bloggers and creatives to lawyers, doctors, and dentists, everyone needs affordable accounting help. Ben is a Certified Public Accountant, and a member of the American Institute of Certified Public Accountants. But Ben considers his greatest achievement and credential to be his happy wife and four children.

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