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.

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.

References & Resources

• quickbooks.intuit.com
• inc.com