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Give a bonus to employees: what you need to know

As the year draws to a close, you might want to show your appreciation by offering a bonus to employees. If this fits the culture and budget of your business, it's a good thing. But it also made us curious who gives bonuses to employees and why?

General Trends for the Employee Bonus

An annual survey conducted by Business Know-How, showed that 75% of companies with fewer than 100 employees plan to offer a cash bonus to their employees . Many plan to give a fixed amount that varies by employee, industry and the overall profitability of the company. The actual dollar amounts were $ 50 to $ 5,000 and the median value was $ 300.

For employers using specific calculations to determine the amount of an employee bonus, percentages ranged from 1% to 10% or more of the annual salary of the employee. employed . Other employers have used a fixed amount, for example one to two weeks salary.

Accounting principles, which apply to businesses of all sizes, revealed that even though 3% fewer companies were giving bonuses in 2017, the dollar amounts of premiums received averaged $ 716. Furthermore.

For companies that do not offer cash bonuses, 39% will provide other benefits throughout the year and 38% plan to make donations charity instead of a cash bonus. Interestingly, the number of companies replacing cash bonuses by charitable donations increased by 31% over the previous year.

Non-C-Next Jobs with The Highest Employee Bonuses

Each year, LinkedIn publishes a report on the highest annual bonuses. According to the 2016 results, the top five jobs with the largest annual bonus were:

  • Investment Banking Associate – $ 100,000 Cash Bonus
  • Surgeon – $ 60,000 cash bonus
  • Radiologist – Premium of $ 47,500 in cash
  • Investment Banking Analyst – $ 45,000 Cash Bonus
  • Medical Director – $ 40,000 Cash Bonus

Industries with the highest cash amounts in cash

To complete the top five were:

  • Energy and Mining – $ 10,000
  • Hardware and Networking – $ 9,000
  • Computer Software and Services – $ 8,000
  • Consumer Goods – $ 7,500
  • Finance – $ 7,100

The reasons for which an employee bonus is awarded

Tiny Pulse wrote an interesting blog post that talks about the difference between using an employee bonus as recognition and compensation.

If an annual bonus or vacation is just expected and is not really won by extra effort, then it's just a compensation. This does not improve the company's culture or increases the commitment.

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However, if an employee bonus is performance-related and part of a culturally relevant engagement program, it can be very effective in boosting productivity and strengthen retention . But, you must make sure that you meet and respect the performance requirements. If people try halfway and still get a bonus, what will actually inspire the top performers?

Again, everything is like that. If the focus is solely on pecuniary rewards (in the absence of a fully developed recognition culture), a performance-based personal bonus is technically not a gift in the meaning where it is given freely or spontaneously.

The Benefits of a Well-Structured Employee Recognition Program

It makes sense that if you do not feel valued, you will not feel particularly motivated. This is also reflected in these statistics:

  • 50% of employees think that retention would be higher with greater investment in recognition.
  • 40% of employees would not be encouraged to make extra efforts if there really is no tangible reward promise.
  • 90% of employees really do not feel engaged
  • 76% of employees recognized for their hard work are hired.
  • High-performing employees of successful companies share three characteristics: talent, commitment and more than 10 years of service.

Even the bonus time of an employee makes the difference

According to SCORE, a holiday bonus is a gift to show the appreciation that is normally given during the holiday period T4. A performance-based bonus (end of year) is more likely to be awarded to employees at the beginning of the new year in the first quarter.

The timing helps to avoid confusion between the two types of bonuses employed. Although correctly communicating the nature of the premium and its intention to employees is also recommended and very effective too.

Above all, be respectful

Look before you jump. Think before acting. Before distributing a holiday bonus, be sure not to exclude employees. Feeling excluded is not exactly a moment Kum ba yah for anyone.

If your employees' bonuses are based on performance, make sure each employee knows the criteria and what is expected from the outset. It's hard to reach a goal when you do not even know it exists.

If, for any reason, you choose not to offer a bonus after years, inform the employees in advance. If a holiday bonus is a tradition, your employees probably expect this in their vacation budgets. Respect this, explain the change and give everyone time to adapt.

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Reaffirm the importance of confidentiality. If premium amounts vary and are based on merit, remind employees that compensation is a sensitive topic and that it is better to keep this information for themselves.

A short list of alternatives to cash bonuses

In researching this post, it became clear that an employee's bonus does not always have to be in cash. Here are some of the best ideas:

  • A simple thank you – In person, manuscript or sent by email. (Seriously, though a personal touch is always the best.)
  • A Charitable Gift – As culture becomes more and more important, this option is gaining popularity.
  • Flexibility – Understanding that the world does not work in a vacuum dictated by a 9 to 5 schedule goes very far.
  • Events and Meals on Site – It does not have to be sophisticated, just creative and meaningful.
  • Additional Leave – An extra break can make a big difference during the summer, holidays or high season for your industry.
  • Award of Excellence – This could be printed certificates or even trophies of varying sizes. Everyone loves a small office bling from time to time.
  • Appreciation and recognition of the values ​​of the company throughout the year – After all, recognize someone once a year, it is like only see the family at weddings and funerals.

Thinking of alternative appreciation marks, keep in mind that any cash gift is considered taxable – even if it is not a problem. 39, a bonus. Like any gift card. In fact, there are very few things that are not.

How Employees Can Earn a Bonus

As part of their annual survey, accounting principles ask what employees can do to make sure they get a premium. Suggestions include:

  • Stay motivated throughout the year.
  • Be more positive or optimistic.
  • Take additional functions.
  • Remind your employer of your accomplishments.
  • Ask directly to your boss. (Makes sense, but still a gutsy movement.)

Remember, premiums are taxable income

This is something that employees and employers should know. Employee bonuses are a form of income and are therefore taxable.

Companies do not want to know the hard way that they owe taxes on the premiums they've paid and employees must consider taxes in order to know exactly how much money they will have in advance.

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Employers can help employees understand this by contacting them when the bonus is granted.

United States taxes include:

  • Federal, state and local income tax.
  • Health Insurance and Social Security.
  • Federal unemployment and state.

Applicable taxes in Canada include:

  • Federal and Provincial Income Tax.
  • Contributions to the Canada Pension Plan (CPP).
  • Employment Insurance Premiums (EI).

Here are some concepts and terms relating to the imposition of salary bonuses which are useful to become familiar with:

  • Additional Salary – Premiums are considered additional wages. Another term that you can also see is the bonus pay. They all mean the same thing, earned income in addition to regular wages.
  • Taxes for most vacations or one-off bonuses are calculated separately from regular wages. Conversely, some planned or regular bonuses are calculated with regular salaries. For more information and examples, check out our article on calculating bonus payroll taxes.
  • Discretionary Bonuses – Unique holiday and performance bonuses, such as those discussed in this post, are discretionary.
  • Non-Discretionary Bonus – If a bonus is required by an employee's contract, it is not optional and may also be subject to overtime rules.

What are your thoughts? Are you giving an employee bonus or a set of dead against it? Have a story to share or a question to ask? Let's have a conversation in the comments below.

Disclaimer: The advice we share on our blog is intended to be informative. It does not replace the expertise of accredited professionals.

Author: : Blogmaster, content creator and marketing guru entering Wagepoint, Michelle Mire likes to simplify the subjects of Pay complex and generate articles with practical tips for small businesses and startups. When she's not on the keyboard, she likes chocolate, running and TV quality (not always in that order).