Many employers and managers are faced with the annual conundrum of whether, when, and how to offer holiday bonuses to employees. The end of the year is a traditional time for recognizing employees’ contributions to your business. Whether large or small, cash or a gift, it’s important to note that the bonuses we discuss here are not commissions as a form of payout for sales or performance. Rather, a bonus is a discretionary gift to employees for a job well done or loyal service throughout the year. holiday_bonus

However, the decision to give a bonus and its size may indeed be based on a company’s overall performance. As such, employers and managers should keep in mind their plan for bonuses throughout the year. And as much as bonuses are gifts, not entitlements, if you traditionally give some sort of bonus and decide not to in a given year for financial or other reasons, you should communicate that fact to your employees at your earliest possible convenience, as some may be making plans for that money.


As with other forms of compensation, the holiday bonus should be administered fairly and provided on a nondiscriminatory basis. This means the eligibility criteria for bonuses must be applied in a nondiscriminatory way, and eligible employees must receive bonuses in nondiscriminatory amounts. A good practice is to use a standard grading system to measure employee performance fairly and consistently, and document your reasons for offering a particular reward, including specific examples of performance.

Holiday bonuses also come wrapped up with tax implications for both the giver and the recipient. Cash gifts are subject to federal, state, and local withholding taxes, so if you offer them, make sure to take all applicable deductions. On the other hand, the IRS considers certain non-cash items, called de minimis fringe benefits, to be small enough not to be taxable. De minimis fringe benefits include items such as holiday gifts of property with a low fair market value or occasional tickets for entertainment events, generally valued at no more than $100. An essential element of a de minimis benefit is that it is occasional or unusual in frequency. Whether an item or service is de minimis depends on all the facts and circumstances. Be sure to check with your accountant or a financial professional about the tax implications of any rewards you plan to give.

Remember, even in lean years, when you can’t afford to give cash, a token gift is always appreciated because it communicates your gratitude and thanks at year’s end. And everyone can use the gift of time. If your business can accommodate it, an extra day or two of paid vacation over the holiday period would be much appreciated by your employees. Finally, be sure to thank your team personally, and express your gratitude for all their hard work during the preceding year. To learn more about human resources and benefits management, including tips for motivating and rewarding employees, visit us online at

The End-of-Year Bonus:  Rewarding Your Employees for a Job Well Done

Topics: holiday pay

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