3 Reasons for Year End Bonuses
Who’s Been Naughty or Nice?

Author: Larry Chester, President

It’s time for the holidays, and along with lighting candles and decorating trees, drinking mulled cider and champagne, it’s time for the Year End Bonus, something anticipated by every employee.

As a business owner, first decide why you’re giving the bonus. That will determine the timing of the bonus, and how you calculate the amount that you’re giving.

The bonus can be a uniform holiday gift, a reward for the company’s performance in the prior year, or a reward for the work each employee did. Whatever you do, each employee will remember exactly what you gave them last year.

1. It’s a holiday present – The bonus is a uniform gift from the company. It might mean that everyone gets the same dollar amount, or it might mean that each person gets the same percentage of their base wage, and it’s usually a small, token amount. At one company, employees might get a check for $250. At another, everyone gets a small percentage of their annual wage. This is given to each employee regardless of their work or the company’s performance, because it’s a present.
2. Bonus for Company performance – Everyone’s worked together to get the job done, and the company benefited from everyone’s work. If the company did well, the bonus will be larger, if the company did poorly, it will be smaller. This is therefore done as a uniform percentage of their base wage, regardless of each employee’s performance. An executive has a greater impact on the company results than a line employee, so he/she gets more money.
3. Reward for individual work done – This is quite clearly a Performance Bonus. It’s going to require quite a bit more work than any of the others, because there needs to be a performance review given to each employee before the bonus is given. That means each supervisor must complete performance reviews, and determine how much each employee should receive.

When will you pay this? If it’s a holiday present, you want to make sure that you pay it before the holidays, so that your employees can use the money to buy holiday presents. Performance bonuses should also be paid before year end. If it’s based on company performance, the IRS requires that bonuses be paid before the middle of March, if it’s going to be an expense of the prior year.