It’s not too late to show your appreciation for a job well done this holiday season!
Celebrate Your Employees!
Holiday bonuses can be a great way to express your gratitude toward employees, promote motivation and reinforce a positive work culture. Planning your bonus structures carefully well before the end of the year allows you to budget for them. Rewarding your staff for a job well done is a key to retaining good employees.
Bonuses = Positive Employee Impact
- Holiday bonuses can boost morale: A holiday bonus, whether a large check or a couple of extra days off, shows employees that you are thinking about them and consider them valuable to the company.
- Holiday bonuses can reduce burnout: Bonuses also ensure that employees are rewarded for their hard work, which decreases the possibility of employee burnout.
- Holiday bonuses can create higher engagement and productivity: Happy employees are often more engaged and productive. Studies have shown that engaged employees produce better work.
- Holiday bonuses can incentivize employees: If you choose to tie bonuses into yearly performance or goals, employees can be highly motivated to hit those goals throughout the year—helping to boost your company’s productivity and performance outside of the holidays.
How to Give a Bonus
Are holiday bonuses taxable? Yes. The IRS characterizes bonuses as supplemental income. Thus, when you do payroll, you have to withhold taxes and pay employment taxes on the bonuses. The amount of taxes you withhold depends on how you distribute the bonuses to employees.
Bonus paid in employee’s regular paycheck:
If the bonuses are included as extra pay in employees’ regular paychecks, they’re taxed at each employee’s tax bracket. You and the employee have less taxes deducted AND there is less paperwork for you and your bookkeeper or CPA.
- State tax: Employees’ holiday bonuses are taxed at whatever rate is required by state law. Check your state’s tax rates to ensure accuracy.
- FICA: The Federal Insurance Contributions Act (FICA) is a law that mandates a payroll tax on employees’ paychecks and employer contributions to fund Social Security and Medicare. The first $168,600 of annual income is subject to this tax, so your employees’ bonuses will be subject to this tax if they have not yet hit that amount.
Bonus paid by separate check:
If you issue the bonuses as separate checks, they’re taxed at a flat 22%. IRS rules require that supplemental checks be taxed at a special, usually higher, rate—so if you make the bonus payment in a separate check, the employee gets less bonus money. Employees will generally have fewer taxes withheld and a higher net bonus if the bonus is paid in addition to the amount of their regular paycheck.
Can’t Afford to Give Individual Holiday Bonuses?
If your company can’t afford cash or gift bonuses to each employee this year, consider other ways you could show you appreciate their work.
- Give additional paid time off. Everyone could use more time off with family and friends. Employees will appreciate an extra day off or two to relax during the holidays after working hard during the year.
- Offer employees a flexible holiday work schedule. Many employees welcome the ability to adapt their work schedule to attend school functions or do other personal chores.
- Give gift cards to local grocery stores, eateries or basic cash cards.
- Host a catered holiday lunch—no potlucks! Pay for catering an in-office lunch or a staff lunch at a restaurant.
Are You a Cardinal Client who would like to give your staff a bonus?
If we do your payroll or you employ through us, email us at paysuite@cardinalservices.com or payroll@cardinalservices.com to let us know the following information:
- How you want the employee’s bonus to be paid.
- The $$ amount of the bonus.
- The exact date you wish it to be awarded.
CARDINAL SERVICES DISCLAIMER
None of the information stated above is intended to be legal, tax, security, or financial advice. Cardinal Services provides the information in this e-newsletter for general guidance only and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Consult your company’s legal counsel or financial professional for the latest city, county, state or federal laws concerning this newsletter topic.