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It’s Bonus Time!

Are you one of the lucky ones getting a year-end bonus? Many companies appear to be in a generous mood this holiday season, at least when it comes to providing bonuses to their employees. A recent survey conducted by Accounting Principals found that 75%of the companies surveyed planned to give out a year-end bonus or gift. This is up from 67% last year. About half of those awarding bonuses plan to give a traditional monetary bonuses based on company, department, or employee performance.

Survey results also show that companies are feeling somewhat more generous this year than last, with the average expected bonus to be $1,081, up from $858 in 2015. That’s a 25% increase! While a third of survey respondents planned to give workers bonuses of $1,000 or more, most planned to give between $100 and $500.

bonusWhile a tradition in many places, some employers often question whether, when and how to offer holiday or year-end bonuses to employees. The decision to give a bonus – and the size of that bonus – may be tied to the company’s overall performance. Tradition or not, bonuses are gifts, not entitlements. If bonuses are a tradition in your workplace and you decide not to offer a bonus for financial or other reasons, you should communicate that fact to your employees as soon as possible since some may be making plans for that money (Think Clark Griswold & the Jelly of the Month Club!).

Whether large or small, cash or a gift of another kind, these bonuses are not commissions as a form of payout for sales or performance. A bonus is a discretionary gift to employees, usually to say thanks for a job well done. Even though a bonus is designed to say thanks, it is still a form of compensation and, with that, comes certain rules.

As with other forms of compensation, bonuses must be nondiscriminatory. In other words, eligibility criteria for bonuses must be applied in a nondiscriminatory way, and employees who are bonus eligible must receive nondiscriminatory amounts. HR360 recommends using a “standard grading system to measure employee performance fairly and consistently, and to document your reasons for offering a particular reward, including specific examples of performance.”

Of course, end of year bonuses also come complete with tax implications for both the giver and the recipient, making that monetary gesture of gratitude slightly less appealing from certain perspectives!

If you need help with payroll administration of bonuses or determining the tax impact, give us a call. We hope you are among the many who will receive a year-end bonus this year!

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