With the holidays right around the corner, we got to thinking about our all-time favorite seasonal movie, Christmas Vacation. This holiday classic calls to mind a rather relatable business question — “to bonus or not to bonus?” Or, if you’re Clark Griswold on the receiving end, “will they or won’t they?”
A holiday bonus is a time-honored tradition, and a great way to express gratitude to your employees. But, it can be tough, especially on a tight budget. Because of this, many companies are getting creative with holiday compensation. Whether you’re going with a traditional holiday bonus, planning a different way to say “Happy Holidays,” or still figuring out how to spread the cheer, here are a few tips to help you navigate the holiday bonus season.
Evaluate your budget.
Sure, holiday bonuses are a great way to express your appreciation, but handing out extra cash isn’t always in the cards. While the holiday bonus is typically a monetary gift, it may make more fiscal sense to consider an alternative gratuity that could be valuable to employees. Evaluate your budget and see what your bottom line can handle. If you’ve had a particularly lean year, offering paid time off, flexible holiday hours or even hosting a holiday party are alternative ways to give thanks to your employees.
Have a strategy.
If you are distributing a monetary holiday bonus, make sure you’ve thought about how to scale the extra wages. Some employers decide on a flat rate in which to distribute company-wide, while others base it on pay scale, longevity, or seniority. Once you determine what you’d like to distribute, you’ll need to have a plan for how you’d like it to show up for employees. You have a couple of options here. If you want employees to see bonus amounts in the year-to-date section of their regular paycheck stub, schedule bonus payrolls with a live paroIl. However, if you do not want employees to see bonus amounts on their regular check, you must process bonus payrolls as a separate payroll after you process regular payroll. If you’d like to turn off pay-statement viewing in the Orbit Payroll system, notify your client service representative (CSR).
Holidays are hectic, and they’ll be here before you know it. And while you can get away with buying presents last minute (just us?), holiday bonuses require more planning. To make sure employees get their bonus by a certain date, plan your holiday payroll in advance. Orbit Payroll makes this easy, as you can schedule holiday payroll before busy year end and holiday time off. Just do so on or before Dec. 27, 2019 for a Dec. 31, 2019 pay date.
As you’re planning, also make sure to check post office, courier, bank and Payroll Data schedules. Since many businesses are closed on certain days during the holiday season, you’ll need to factor in those days and allow enough time for holiday checks to arrive or be picked up before year end.
Know the difference.
Don’t fall into the trap of combining the holiday bonus with an anticipated year-end bonus. Year-end bonuses are typically part of performance-based compensation, whereas a holiday bonus is a show of goodwill and appreciation on the part of the employer. If distributing both, you can make a clear distinction by providing a holiday bonus between Thanksgiving and Christmas, and your year-end or profit sharing bonus in January.
If your company will be discontinuing holiday bonuses this year, it may behoove you to inform employees. While bonuses should never be “expected,” the likelihood that your staff is relying on the financial windfall they’ve received each year thus far is high. They’ll have to accept the loss, but they’ll appreciate the advance notice instead anxiously anticipating that extra envelope – à la Clark Griswold.
Don’t forget the IRS.
Lest you forget, the government is going to want a piece of your holiday cheer. Monetary bonuses are taxable income and must be reported to the IRS. You’ll need to automatically deduct the taxes from employee paychecks. If you’re using Orbit Payroll, you’ll need to have a proper earnings code set up for this. And as your bonus, you can deduct the additional wages as a business expense if you are an S corporation or C corporation. Just check with a tax professional if you have any questions.
Need more year-end help? We’re here for you!
There’s a lot to think about at the end of the year, but not to worry, we’re here to help. Make sure you don’t miss any fourth quarter must-dos by joining us for one of our year-end webinars. We’ll be giving guidance on critical end-of-year checklist items, including bonus information. If you’re an existing client, you can register here now!