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Christmas Bonus Guide for Small Business Owners

Have your employees been working hard throughout the year? Do you want to show your appreciation for that hard work? A Christmas bonus is a great way to reward your employees. 

In our handy QuickBooks guide, we’ll walk you through giving out Christmas bonuses. Including, what they are, whether your business should give them, different ways to distribute them, and potential tax implications.

What is a Christmas Bonus?

A Christmas bonus, also known as a holiday bonus, is an additional sum of money that employers provide to their employees during the festive season. Typically, businesses give bonuses as an expression of gratitude to recognise the hard work of their employees. 

Why Should You Give a Christmas Bonus?

A Christmas bonus is not mandatory in Australia, but there can be several benefits for your business. You can consider the following reasons for offering a holiday bonus to your employees:

  • Motivation - Christmas bonuses can act as a powerful motivator for your employees. Recognising and rewarding their hard work does wonders to improve morale and productivity.

  • Employee Retention - Providing bonuses can help retain your valuable team members. When they feel appreciated and acknowledged, employees are more likely to stay with your business.

  • Competitive Advantage - A Christmas bonus can make your business appear more appealing to potential new hires, giving you a better chance of attracting the best talent for your business. 

  • Enhancing Holiday Spirit - A Christmas bonus contributes to the festive atmosphere, fostering a sense of goodwill within your organisation.

Are Christmas Bonuses a Requirement?

Giving Christmas bonuses is not something you are required to do. As a business owner, it's up to you to determine if providing bonuses aligns with your financial capabilities, company culture, and overall business needs. 

While some businesses have a tradition of providing holiday bonuses, others may prefer alternative ways to recognise their employees. If you decide to offer Christmas bonuses, you should communicate your decision to your employees and establish a fair and transparent system for determining eligibility and the amount of the bonus.

Christmas Bonus Options

Christmas bonuses can come in many forms, and the one you choose depends on your budget constraints and what your employees would appreciate the most. Let’s take a look at a couple of ways you can hand out bonuses: 

  1. Cash Bonus: This is a common type of Christmas bonus, where you can give your employees a monetary reward. The bonus can be given in the form of a fixed percentage of their annual salary or a flat rate where all your employees get the same amount. Something to consider is the individual performance of employees and the time they spent at your business. 

  1. Profit sharing: If your business had a successful year, you can distribute a portion of the profits among your employees as a bonus. This method links employee rewards with your business's performance.

Learn more about a different kind of bonus with our guide to 13th-month pay.  

Other Rewards or Perks 

If you have established that you cannot give a bonus this year, there are other options to reward your employees. Here are some examples of other perks and rewards:

  1. Gift Cards: You can give your employees gift cards from popular retailers or online platforms. Gift cards allow employees to select their own holiday gifts, making them a good way to reward employees.
  2. Additional Paid Leave: Offering extra paid leave during the holiday season can be valuable. It gives employees the chance to spend more quality time with their families for the festive period.
  3. Company Gifts: Instead of cash, you have the choice to purchase thoughtful gifts for your employees. These could include personalised items or useful technology. If you decide to buy the gifts yourself, you may need to know your employees well to avoid disappointment. 

The Tax Implications of Christmas Bonuses

It is possible to motivate and retain your employees with a Christmas bonus, however, you will need to take into account the tax implications as well. Let's explore what you can expect when distributing these bonuses:

Superannuation Guarantee (SG)

The Australian Taxation Office (ATO) considers a Christmas bonus to be part of an employee's salary or wage. This means that you are required to contribute at least 11% (From 1 July 2023 to 30 June 2024) of an employee’s ordinary time earnings to their superannuation fund, this includes any Christmas bonuses you provide.

PAYG Withholding

Christmas bonuses are considered part of your employee's taxable income. This means that it is important to withhold the appropriate amount for PAYG when giving out Christmas bonuses, taking into account your employee's annual income and tax bracket.

Learn more with our guide to PAYG withholding

Payroll Tax

Payroll tax is a state-based tax imposed on businesses in Australia. Since a bonus is considered to be part of an employee’s wage or salary, your business will need to pay payroll tax on the bonus. The rate you have to pay depends on the state or territory your business is located in.  

Fringe Benefits Tax (FBT) 

If your reward is given in a form other than a bonus, such as gifts, entertainment, or non-cash benefits, it's essential to consider the Fringe Benefits Tax (FBT). As of October 2023, if the value of the gift you give your employees is less than $300 per person then it wouldn’t be considered a fringe benefit. 

How QuickBooks Can Help Your Business

Managing employee bonuses, including Christmas bonuses, can be a complex task, particularly when it comes to handling the associated tax implications and ensuring accurate financial records. You can use QuickBooks Payroll to set up your employee Christmas bonuses quickly and accurately. 

To get started, simply login to QuickBooks Online and follow these steps: 

  • Go to Payroll
  • Select your employee
  • From Pay types, select start or edit
  • Search for the Bonus category and click it
  • Select save

Sign up for QuickBooks Online today with a free 30-day trial. 

While every care has been taken to ensure the accuracy of the information presented as of 01 October 2023, Intuit is not providing you with professional advice and we recommend you obtain your own professional advice. Intuit is not liable for your use of the information presented.

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