Solving your payroll and HR issues with insights, answers, and action.

  • Startup
  • Payroll/Taxes
  • Human Resources
  • Employee Benefits
  • Business Insurance
  • Compliance
  • Marketing
  • Funding
  • Accounting
  • Management
  • Finance
  • Payment Processing
  • Taxes
  • Overtime
  • Outsourcing
  • Time & Attendance
  • Analytics
  • PEO
  • Outsourcing
  • HCM
  • Hiring
  • Onboarding
  • Recruiting
  • Retirement
  • Group Health
  • Individual Insurance
  • Health Care
  • Employment Law
  • Tax Reform

Holiday Bonuses, Gifts, and More: End-of-Year Appreciation Considerations for Your Small Business

Human Resources

As the season of giving approaches, you may be wondering about the best way to thank your employees for their hard work over the last year. While a holiday bonus is feasible for some businesses, others utilize different ways to celebrate their staff around this time of year. If your company wants to celebrate, you don't need to give anything lavish. Instead, aim for something your workforce will value.

Is it a year-end or holiday bonus?

Year-end bonuses are generally considered performance-related rewards, but a holiday bonus is often a gift expressing gratitude, which is given equally to everyone. Years of service, base salary, or performance are often considered when determining a year-end bonus but rarely considered when deciding what holiday bonus to offer. Holiday bonuses can range from a personalized, company-specific gift, to an extra day off, or a monetary award given around year-end.

holiday bonus

Consistency is important

Consistency is one of the best practices when it comes to a company's holiday giving. Any changes to the type or amount of bonus have the potential to raise questions among employees. That’s why it's wise to set expectations early, no matter if you give a monetary amount or a small handout like a holiday gift basket. If your company does award bonuses and it was an exceptionally great year profit-wise, you may consider adding to the typical bonus amount. In the case of a one-time increase, it helps to explain why – perhaps with a simple note saying, "We had a great year, so here's something extra."

As with all company expenses, holiday bonuses should be included in the annual budget to ensure they're covered. Although they may be a surprise to employees, the cost should be planned in advance and never a surprise to management.

Reporting a holiday bonus

If you give employees holiday bonuses or gifts, make sure you understand how they will be reported. Year-end gifts in monetary form can be recorded as supplemental income or a discretionary reward. Smaller, non-monetary holiday gifts worth less than $100 (such as a holiday basket or a personalized gift with the company logo) are typically considered a "de minimis" fringe benefit and are not taxable. However, according to IRS guidance, gift cards or gift certificates are taxable. As for timing, holiday bonuses are generally awarded before the calendar year-end to be included in the current year's expenses.

Do you really need to give a holiday bonus?

In the end, company culture can vary widely, and a formal holiday bonus may or may not be the best way to reward your employees at year-end. Before spending the money, it helps to consider the other ways your company may celebrate the holidays — with an office party or extra time off, for example. The current status quo may indeed be enough to keep your staff happy and feeling valued. Although employees would most likely appreciate the extra gift, there are other ways to motivate them and let them know you appreciate their hard work.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
View More in Human ResourcesView All Categories