Year-end holiday bonuses have been a staple of many businesses and industries. Some bonuses are given as part of corporate or personal performance reward programs, while other bonuses are given simply as gestures of appreciation. As a small business owner, you may be considering how to reward your own employees during the upcoming holiday season. Find out what you should consider before handing out any extra dough.
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How-To Guide for Small Business Holiday Bonuses
Benefits and Drawbacks to Paying Bonuses
Small business owners typically don’t have the benefit of large budgets for giving out year-end bonuses for their employees, but that doesn’t mean you can’t make smaller bonuses that are just as meaningful to your staff. If you have just a few employees, giving out gift cards along with notes expressing your gratitude for all of their accomplishments throughout the year gives a personal touch that other types of bonuses might lack. Bonuses can be a great employee retention tool as well. With so many people changing jobs every couple of years, a thoughtful bonus can provide an incentive for employees to stick around.
On the other hand, distribution of a bonus can quickly become an expectation among your employees. Give careful consideration to how much you distribute out every year. A larger bonus during good times seems to make sense, but following it up with a lower bonus during a particularly tough year can lead to disappointment or the appearance that jobs might be in danger.
Three Different Types of Bonuses
Holiday bonuses normally fall into one of three categories:
- Performance bonus: These are typically constructed around the financial performance of the business or the successful completion of a particular business goal. This can be an all-or-nothing incentive or a tiered bonus that can become larger on meeting certain benchmarks.
- Annual bonus: This bonus is usually paid to all employees around the holidays. It can be based on longevity, meaning longer-tenured employees get larger bonuses, or it can be a flat figure. These types of bonuses are sometimes built into employee or union contracts.
- Recognition bonus: This simple employee appreciation gift is often smaller than performance or annual bonuses. It can be in the form of a gift card, a gift basket or another nominally priced good.
Determining If You Can Afford to Pay Bonuses
While the desire to reward employee bonuses is understandable, you should get a good idea of your overall financial picture before committing. Be conservative at first, so you don’t set your employees up for disappointment later. Offering a simple gift card as a token of appreciation is often a good start until you can successfully get your business in a good financial position. Small businesses often need cash at the ready throughout the year, so avoid being too generous too quickly.