Year-End Bonuses Aren’t Compulsory But Maybe They Should Be…

Does your business pay bonuses? Do your employees expect you to give them a little something extra at the end of the year or for a job well done?

As a business owner, you are not required by law to pay your employees a bonus at the end of the year unless it is specifically stated in your employee’s contract that a bonus will be paid. In fact, the thirteenth cheque (as it is known in some corporate circles) has come under fire from various quarters as not as effective as you might imagine it to be. And employers are finding other ways to incentive and reward their staff, rather than those of a monetary nature, for exceptional service or great performance. But there are still some benefits to a year-end bonus, for both your employees and your business.

end-of-year-bonusMoney, over and above an expected salary, can still be a great motivator for staff. If they are chasing an incentive scheme, they may be encouraged to be more productive or engaged throughout the year. If they are being rewarded for a job well done or going the extra mile for a client, extra money might be welcomed (and appreciated) much more than other types of reward as the choice of what to do with this reward is the employee’s own.

Motivated, productive employees who feel valued by their employers are also good for business. They may not stay with your business (for a number of reasons) forever but they will probably be loyal to it as long as they are there. And they will add to the positive nature of your organisational environment, which has been shown to drive up employee productivity and client satisfaction.  Which in turn affects sales and your bottom line.

Properly structured and administered bonuses can reinforce the kind of good employee behaviour that will lead your company to success, especially if you are rewarding people for making a specific contribution to your business. Bonuses that are dished out haphazardly will most likely lead to unhappy and unproductive employees.

A word of caution – in whatever way the option of a year-end bonus is presented to your employees, it needs to be properly structured, aligned with your business’ culture and values, and clearly communicated and understood. This will help to avoid any confusion or disappointment. So, it’s not necessarily the bonus that’s the potential problem, it’s the way it is rolled out that counts.  From the start, employees need to understand if their year-end bonuses depend on individual performance or company performance (or both) and if it is a given or a possibility.

And, if your employees are expecting a bonus and you are not going to pay, it is best to communicate this as soon as possible and face the disappointment early on.

If you are going to pay bonuses, there will be an impact on your payroll, cash flow, and tax obligations. Don’t assume, for example, that bonuses can be treated as a tax deduction – it all depends on when and how you are paying your employees’ bonuses. While a deduction may have been allowed in the past where it could have been argued that the bonus provision was an unconditional legal obligation at year end, since 2013, bonuses are no longer allowed as a tax deduction until such time as the bonuses are actually paid out to the employees. This impacts on how a business calculates taxable income (you can read more about the tax implications here).

Do you need help working out all these elements and getting everyone paid on time, plus bonuses? Contact us – we’ll make sure your books are in order and your payroll is administered efficiently.  And remember – your first meeting with us is free! Let us evaluate your needs and help your business run more smoothly.

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