Wouldn't it be nice if your boss stuffed some extra cash in your stocking this holiday season? Who doesn't love a nice holiday bonus? However holiday bonuses can be a bit tricky for employers. There's no set of rules or policies to follow. So we've decided to take a closer look at how holiday bonuses are given, and how employees are likely to spend them.
How many workers actually receive a holiday bonus?
23% of employed Americans expect to receive a holiday bonus this season and 12% expect a holiday pay raise. Only 24% of companies offer non-performance-based bonuses at the end of the year. More men than women expect a holiday bonus from their employers. 29% of men expect a holiday bonus but only 22% of women expect one.
Only about a quarter of employed Americans expect a holiday bonus, more companies may start to consider giving them because bonuses keep workers happy and improve employee retention. Whether it be a large or small financial gift, it's the gesture of employee appreciation that counts.
These statistics are sourced from the Society of Human Resources, Bankrate.com, and American Express surveys.
What's the average bonus?
The average American’s salary for 2022 was $52,869, according to data released by the Social Security Administration. The average payout for bonus recipients is $1,900. So, on average those receiving a holiday bonus can expect to receive around 5% of their salary in pay. Usually, employers who offer holiday bonuses give between $100 to $5,000, but considering a bonus is still a gift there is no standard amount that is awarded.
Budgeting for the bonus
It is extremely important to strategically budget the bonus you plan to give your employees. This year's holiday bonus will set the tone for years to come. The bonus should be affordable for the company but still enough for your employee’s to feel valued and appreciated. As mentioned, 5% of an employee's annual salary is the average amount awarded in a holiday bonus. However, the percentage may vary by company and by role.
Generally, middle and senior managers see an end-of-year bonus of around 10-20% of their salary, and supervisors see around 10-15%, according to Salary.com.
Performance-based bonuses vs. holiday bonuses
What is your goal for giving? Is your year-end bonus going to be a performance-based bonus corresponding with those who surpassed quotas or is the bonus simply a holiday gift from the heart? The first rule of end-of-year bonus giving is to distinguish between the purpose of the award.
If you would like to acknowledge the hard work of a select number of employees for achieving certain targets and goals during a fiscal year, you should be titling your bonus as a “performance-based bonus”. Performance-based bonuses are on average worth around 11% of an employee's annual salary. That is more than double the average holiday bonus of 5%. Performance-based bonuses are more popular within organizations.
Different types of year-end bonuses
Salary Percentage Bonus
This holiday bonus is easy and fair. The employees will not wonder why they received what they did because they will know that it was a bonus based strictly on their annual salary.
Performance-Based Bonus
This bonus is a great way to incentivize employees to perform well and meet company goals. The performance-based bonus does not only reflect the performance of the employee but also reflects the performance of the company as a whole. If the company performed poorly and struggled all year, it is less likely for the employee to receive a large bonus. Performance reviews are a great way to determinewho gets what when it comes to year-end bonuses.
Flat Rate Bonus
The flat rate is the fastest and easiest way to show your appreciation to your employees. With this type of bonus, the same amount will go to everyone, no questions asked. Keep in mind that this type of bonus may leave some higher paid/higher titled employees questioning the fairness of this bonus relating to their contributions to the company.
Non-Cash Bonus
The non-cash bonus is a great way to show employee appreciation if your budget is low. Gifts like more paid time off, flexible holiday hours, holiday parties, or even broadway show tickets are great ways to remind employees that they are valued, especially during the holiday season.
How do Americans spend their bonuses?
How will you be spending your holiday bonus this season? After discussing the Gift Giving Guidelines to assist employers when making decisionsregarding bonuses, we would also like to share some facts about how most employees spend their holiday bonuses after disbursem*nt.
Debt and savings were the two most popular ways that Americans decidedto allocate their bonus funds in 2021. 18% of employees surveyed said they planned to use the money to increase their savings.
22% of Americans surveyed said their bonus would go toward paying down debt. Credit cards are extremely popular when it comes to holiday shopping in December, but this credit card debtdoes not simply disappear in the New Year. A holiday bonus could help get that holiday debtin control.
Employees Human Resources Benefits
FAQs
How much your employer withholds from your bonus depends on several factors, but generally if your bonus is equal to or less than $1 million, your bonus will be included with your regular pay and subject to standard payroll withholding or subject to a flat 22% withholding rate.
What is the average holiday bonus for employees? ›
How much is a holiday bonus? Employers usually base holiday bonuses on a percentage of your salary. They usually range from 5-10% of your year's earnings. For example, if your salary is $50,000 a year, your holiday bonus can vary from $2,500 to $5,000.
Should I give my employees a Christmas bonus? ›
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.
How do you announce a holiday bonus to an employee? ›
As a reflection of our gratitude and appreciation for all the efforts that have been invested into the company by the Marketing Team, we have decided to grant a holiday bonus of $800. We truly believe this team has earned every single dollar of this bonus.
Can a business write off Christmas bonuses? ›
The IRS permits bonuses to be deducted by the employer if the bonus is an ordinary and necessary business expense. If a deduction is made, keep in mind that any bonus must be reasonable. An “ordinary” expense is one that is common or accepted in your company's particular industry.
Can an employer pay a bonus without withholding taxes? ›
Since the IRS views bonuses as supplemental income, employers must withhold taxes on bonuses according to IRS regulations for supplemental income, which is a separate withholding calculation than your regular wage or salary pay.
What are the rules for bonus? ›
Every employer shall be bound to pay to every employee in respect of any accounting year, a minimum bonus which shall be 8.33% of the salary or wage earned by the employee during the accounting year or Rs. 100, whichever is higher.
What is a reasonable Christmas bonus? ›
It is commonly assumed to expect somewhere between two percent and five percent of your salary. Any less than that could make people think about finding a new role, while any more should cause a lot of happiness.
Why don't companies give Christmas bonuses? ›
With inflation and labor shortages at the forefront of employers' minds, it's not surprising that holiday bonuses may take a hit. Surprisingly, some businesses may spend more than they can afford this year just to keep employees on their payroll.
Is $1000 a good Christmas bonus? ›
The majority of respondents think a Christmas bonus equal to a week's pay is adequate. 71% of Christmas bonuses come in the form of cash or one-time paycheck bumps. Over one-fifth of companies give bonuses of more than $1,000. 42% of companies give less than $100 in Christmas bonuses per employee.
A cash bonus is treated similarly to wages, and is taxed as such. You will report the bonus as wages on line 1 of Tax Form 1040. (Or use the expertise of a tax pro to help you do so.)
Can I give my employees cash bonuses? ›
A bonus is any type of financial compensation given to an employee above and beyond their normal wage. It complements their salary. Bonuses may be made to employees in a number of different ways from company stock and ownership, through their paychecks, or in cash.
Why are bonuses taxed more? ›
Bonuses are taxed heavily because of what's called "supplemental income." Although all of your earned dollars are equal at tax time, when bonuses are issued, they're considered supplemental income by the IRS and held to a higher withholding rate. It's probably that withholding you're noticing on a shrunken bonus check.
Should all employees get the same Christmas bonus? ›
How Much Should You Spend on Each Employee's Christmas Bonus? The easiest and simplest method of dividing up holiday bonuses is to give each of your employees the same amount regardless of their position at the company.
Should you thank boss for holiday bonus? ›
Receiving a Christmas bonus is always a delightful surprise, and expressing your gratitude to your boss or the person responsible is essential. Knowing how to say "thank you" in a way that feels heartfelt and genuine can make all the difference in showing your appreciation for their generosity.
What is the bonus letter rule? ›
At the end of one-syllable words that have a vowel (a, e, i, o, u) IMMEDIATELY followed by either an f, l, or s or sometimes z, you MUST double the consonant.
Can I pay an employee a bonus without taxes? ›
There's no legal way to pay employees bonuses without taxes.
Can a company take back a Christmas bonus? ›
Under California law, any bonuses and commissions that an employee receives from their employer are considered earned wages. The law clearly states that employers, for the most part, cannot withhold or deduct wages that the employee already earned.
Do small businesses give Christmas bonuses? ›
Holiday Bonuses for 2021
Only 41.6% of the small businesses participating indicated they were giving holiday bonuses in 2021. The percentage slightly decreased from 2019's survey, which stated that 42.8% of enterprises were giving holiday bonuses.
How should a bonus be paid? ›
You can add the bonus pay to the employee's wages. Or, you might simply add the extra pay on the employee's paycheck for the applicable pay period. You can also give a bonus check that is separate from the employee's regular wages.
Here is the basic run down of the rules for reporting compensation, including bonuses paid to employees vs. independent contractors: If the recipient is an employee, the employer should always report wages, salaries, fees, bonuses, commissions, tips and other compensation as income on the employee's W-2, not on a 1099.
How do you account for bonuses paid to employees? ›
Bonus accrual example
Say an employee receives a flat rate bonus payment of $500 for the quarter. Debit your Bonus Expense account $500 and credit $500 to your Accrued Bonus Liability account to record the bonus accrual.
