The concept of employee bonuses is, admittedly, a complex one. The types of bonus, for starters, can translate any number of ways; from sign-on bonus to retention bonus.
With the holiday season practically upon us, however, let’s think about bonuses as a factor of end-of-year (EOY) celebrations. You’re making a gesture of goodwill and going above and beyond for the team that has hopefully done the same in committing their time to the success of your business.
Before opening the checkbook freely like a post-haunting, charitable Ebenezer Scrooge, take a step back and think through the financial logistics. When it comes to handling employee bonuses, here are three considerations to keep in mind.
Understand the Numbers Before Committing
From a financial standpoint, your holiday bonuses should be directly tied to profitability, not revenue. Think of bonuses as a thing you can do with profit to reinvest in your company, because profit — at a very basic level — is what’s leftover.
Committing to bonuses as an X percentage of revenue fails to take into account operational costs accrued by your business. To simplify further, say you have $10,000 in revenue but $12,000 in business expenses to be paid out for supplies, office space, online tools and services, etc. Already, without even taking bonuses into consideration, you’re at a loss. Not only will you have to make up for that additional $2,000, you’ll have to make good on the 10% of revenue (i.e. $1,000) promised in bonuses to your employees and/or contractors.
This is why year-end financial analysis and strategy is crucial for small business owners. If you have a plan already in place, you have a numbers-backed understanding of how to handle employee bonuses when the time to pay up rolls around.
Make Sure the Incentive for Employee Bonuses is Clear
The one exception for linking holiday bonuses back to revenue is when speaking in terms of salespeople. The reason being that these individuals are directly incentivized by revenue; it is their job to bring cash flow in.
At the end of the day, bonus structure should be aligned with the job you expect each person on staff to perform. This doesn’t have to be a one-size-fits-all deal; set reasonable, individualized criteria for employees to meet based on established business goals.
Employee bonuses, after all, should work in the mutual favor of both your team and your business. When one benefits, so does the other. Having a clear definition of this relationship takes the grey area out of how to handle employee bonuses of all shapes and sizes.
Listen to Your Team
Lastly, don’t box yourself into a corner by failing to listen. The workplace of today has been reinvisioned by millennials, motivated by incentive programs that were, more or less, non-existent 10-years-ago.
If you want to provide the entire team with some kind of holiday reward at the end of the year, it doesn’t have to take shape in the form of dollar signs alone. Instead, maybe it’s realized as a holiday party, an extra day off, or an in-office masseuse hired for a Friday. Survey the team and ask them what would make their working environment — over the holidays and beyond — one they would feel motivated to be a part of.
It’s worth mentioning that while payroll bonuses are taxable, those that are more “non-traditional” in nature are not. You can literally get more bang for your buck and show employees your appreciation.
Eager to put some processes in place that make employee bonuses more fun and less burden come holiday season? Let’s get that free consultation started — contact the Officeheads team today.