3 Ways to Give Employees Year-End Bonuses

by Suzanne Kearns on November 8, 2011
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Given the current economic climate, small-business owners may hesitate to award year-end bonuses. However, financial uncertainty should give them even more reason than ever to make the effort, says Art Jacoby, a business-growth adviser at JACOBY.

“A Christmas bonus during these difficult times is worth its weight in gold to you.” he says. “It’s the gift that will keep on giving, because your employees know how bad the economy is — and a small amount of economic thoughtfulness when the chips are down will build extra loyalty and be remembered and appreciated for years. Anybody can be thoughtful when things are going well. It takes a special leader to be thoughtful even when it’s tough to be.”

And employers won’t be weighed down with government regulations when it comes to giving bonuses. The U. S. Department of Labor considers them to be an agreement between an employer and employee, so they’re not covered by the Fair Labor Standards Act. Likewise, the IRS gives employers the flexibility to choose between an optional flat rate withholding or using the aggregate procedure if the conditions permit it.

Here are three types of year-end bonuses to consider:

Longevity bonuses. According to the 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. For example, NorthStar EMS, a private ambulance company in Texas, offers employees up to $5,000 after 5 years of continuous employment, and Wil-Trans, a trucking company, offers drivers who have worked for it at least 5 years a $10,000 bonus. When awarding longevity bonuses, divide employees into groups according to the number of years they’ve worked for you and then give the individuals in each group a specific amount of money based on your budget. For instance, you may choose to reward $500 each to employees with 5 years of service, $1,000 each to employees with 10 years, and so on.

Non-performance bonuses. Some business owners prefer to reward everyone in the company with a bonus as a means of showing their appreciation for a collective job well done. This can be tough to do amid economic turmoil, but it’s still possible if you use a little imagination. Consider offering employees a percentage of their salary (which, of course, would give larger bonuses to your higher-paid staff) or give a set amount to everyone on staff. If your cash flow isn’t sufficient to cover monetary rewards for the entire staff, think about giving turkeys or holiday baskets filled with holiday treats, grocery store or gas cards, gift certificates to a favorite local restaurant, or paid time off. By making sure that everyone in your company receives a fairly distributed bonus, you’ll avoid any hard feelings among employees, says Jacoby.

Performance bonuses. Jacoby says that he supports paying for expected results and that to get the most for their money, many business owners are turning to performance-based bonuses. Each employee is given an individual goal at the beginning of the year and rewarded with a bonus at the end of the year if they achieve it.  This, he says, will work to motivate employees to do the best job they can, which typically results in higher profits for the business. You can keep employees on track with quarterly reviews, so they can chart their progress toward meeting their goals. Jacoby says that will result in fewer hurt feelings when bonuses are handed out, because everyone will understand up front that if they don’t meet their goals, they won’t receive a bonus. The best way to do that, says Jacoby, is to communicate large bonuses as a percentage of an employee’s salary to be given only if they achieve specified results.  For smaller bonuses, he suggests setting a specific dollar amount up front, and then making the bonus contingent on the employee reaching the goal.

Do you plan to hand out bonuses this year, and if so, what’s your strategy? Share your thoughts with us in the Comments field below.

Suzanne has been a full-time freelance writer for 20 years. She’s written for numerous business and financial publications such as Entrepreneur, Reason Magazine, Home Business Magazine, and Money Crashers.

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