The plot to one of the most iconic Christmas movies of all time, Christmas Vacation, centers on one holiday hope: the year-end bonus.
Clark Griswold, as “the last true family man”, decides he will use his promised year-end bonus to install a pool in his family’s backyard. When the dream fails to materialize, Clark gets upset at his boss and explains how he was planning on the bonus for his big family gift.
The point is clear: don’t plan on a holiday bonus — that you don’t know is coming — for the bulk of your giving.
But the plot presents an interesting question for business owners: to give year-end bonuses or not?
It’s not my place to tell you what you should or shouldn’t do. However, if you do decide to give year-end bonuses to your employees this year, keep the following in mind…
Giving Out Year-End Bonuses? My Tips to Keep in Mind
“New Year’s Day is every man’s birthday.” -Charles Lamb
Chances are, if you’re just now thinking about bonuses, it might be too late. (But with Amazon, I guess there is still hope). Yet with 2020 on the horizon, you can begin with 2020’s holiday gifts in mind. It really is important to factor year-end bonuses at the beginning of the year so that you can budget and plan accordingly. In addition, you’ll want to consider questions such as:
- Who on your team will receive bonuses?
- Will the bonuses be the same across-the-board or differ based on merit?
- How will you present the bonuses to your employees?
If you don’t have a solid system for year-end bonuses, your budget might take a hit.
When you think of budgeting the bonus, don’t just think in terms of cash bonuses.
Many employees, although happy with cash-based bonuses, also appreciate other gifts like vacation time or additional time off. Even a couple options like that require you to budget accordingly, so make sure you’re thinking ahead. Your employees will thank you for it.
Make it Legal
This one is thicker than it seems, but there are legal ramifications tied to your year-end bonuses — in short, these gifts are not tax-free. It’s illegal to withhold taxes from such gifts. Please let me know ASAP if you have any questions on the legal side of your gifts! I would love to help any way I can.
Federal income tax, Social Security and Medicare all take a chunk from bonuses. But you have options. Among them is to round up taxes so that, after taxes are withheld, your employees receive the actual amount you intended to give in the first place.
Report on W-2
Sticking with the subject of taxes, make sure you report bonuses on W-2 forms accordingly. The IRS needs to know about your efforts as the best boss ever, so remember to include bonuses on each of your employees’ forms. Also, if your “year-end” bonus isn’t received by an employee until January, don’t mark it down on their 2019 W-2 form. Again, you can give me a call if you have any questions in regard to bonus taxes.
As I mentioned before, I won’t tell you if you should give out bonuses or not.
Is it a way to give back to your employees for all their hard work? Yes. Does your business budget mean sometimes you need to cut back? Of course. Whatever you choose, just make sure you regularly convey how much your employees mean to you.
And not just during the holidays.
I’m grateful for our chance to serve you through these blog posts — and we are dedicated to your businesses success, in every measure.
BE THE ROAR not the echo®