Holiday Bonuses in Hard Times

Shop owners discuss whether they paid holiday bonuses to their employees, and how they feel about it. March 12, 2014

How many of you paid Christmas bonuses? I didn't to the general crew because of where we are financially, but I gave a tip to our cleaning lady, and also when one of my employees said she was having a particularly tough time, a deer totaled her car, I gave her a bonus to help out.

I know some people give even though they don't really have the money, and others don't when they really do have the money. I would just like to see a straw poll of how many gave bonuses, and maybe comments of how important you think Christmas bonuses are to give every year.

So for me, most years I give a small bonus, none this year. The one I gave was an exception.

Forum Responses
(Business and Management Forum)
From contributor H:
I have one employee and I gave him a 500.00 bonus, which is around one week's pay. I also told him that he would be getting a 2.00/hour raise as of Jan 1.

He was touched as he is aware of the difficult times. I told him how lucky I was to have him as a trusted employee and that I hope as things improve I will be able to give him more. As a one employee shop, I regularly give him an extra amount after a real heavy week of installs. The extra 100.00 here and there and my gratitude are always unexpected and I feel honored to have him as a dedicated craftsman. He is not perfect, but a gentleman and an honest individual.

From contributor T:
I was not able to give bonuses for the preceding 3 years. Gave 2 employees a small woodworking gift and cash. They were very happy. It made me feel good to be able to make their holiday a little better, and show them I appreciate that they are there producing for me in my shop.

From contributor L:
While my sales numbers were much better this year as with most of us, there's never any cash in the bank. I gave my guys (2) $200 each in gift certificates. Honestly they deserved so much more for all the extra things they have done to help me keep the doors open!

From contributor B:
Pre-2008 I gave large bonuses. Then it went down to very small for 3 years. Last year and this year I've been able to begin to increase the bonus size again.

From the original questioner:
Contributor B, do you pay these bonuses because of your financial situation, or in spite of it?

From contributor J:
My fellows worked hard, basically stuck to my rules for what was needed to be done to keep our livelihood intact. Yes, we paid bonuses this year - they earned it.

From contributor B:
I give them the bonuses for the same reason - they deserve it. The size is dependent upon the financial situation. Even through the bad years of 2008, 2009 and 2010 they received a bonus as an expression of our appreciation. Nowhere near as large as 2007, but something. They were well aware of the situation and appreciated anything extra that came their way.

We also gave one very tiny raise during those bad years. It wasn't enough to make much of a financial difference to them or us, but it let them know we cared about their wellbeing. I will say that I enjoy doing this, so that makes it easier.

From contributor G:
We gave no bonuses for the last three years since we were broke, but this year paid out net $300 each for all five guys. We are still struggling on cash flow, but things have picked up a lot so if we have the cash, we pay them something.

From contributor D:
I paid about 80% of a week's pay - after taxes - to my one employee, as a year-end bonus (not Xmas). I state year end to stress this is a financial reward, not a gift (therefore could be thought of as entitled). Comes right out of my pocket, since we are a small shop.

If he had shown some more planning strengths and willingness to work when the extras hours were needed, he could have gotten twice that. As it is, I am lucky to have such good help, and the bonus is to underline that, and keep him motivated to stay.

In 2007 and 2008, I gave bonus amounts closer to 2 week's pay, to each of 6 employees, but we were doing over one million a year back then.

From the original questioner:
To all of you that are paying bonuses: Are you paying because you would feel guilty if you didn't, or because this is part of a spoken/unspoken contract, or because you think your workers expect it and might think about leaving without it, or will perform better with it? Or? I have difficulty with 'because they deserve it' because they deserve much more than I can afford to pay, and any actual bonus is arbitrary in proportion to what they deserve. I only ask because bonuses and benefits are costly, and I want to understand them better.

From contributor B:
You obviously can't give out what you don't have. If the business is that tight then the financial situation is going to dictate what you do. Even $50 with a note saying you wish you could do more is worthwhile (note I didn't say "will be appreciated" since there are all kinds of employees). The employees have to know this is a genuine expression of regret though and not, well... not true.

I suppose some may give a bonus out of a sense of obligation, or fear of losing a good employee, or other financially driven perspectives. Personally I feel that sharing what has been gained - when something has been gained - is just the right thing to do.

From contributor G:
I paid it because the workers put up with late paychecks and short hours during the depression and helped me to stick around to fight another day. Just a token of my gratitude to them for supporting me and the company during hard times. If I had more I would have given more to them. They don't need a bonus to focus and work hard for us as they have always done that.

From contributor T:
It's the season for giving, and when I am able, I like to do so. Also, the employees on your shop floor are helping you, the owner, earn your way. For the past 4 years it has been very, very lean, and I am fortunate to have eked out a living, and there have been little to no bonuses during that period. This fall and into summer, things look good, so I felt more able to share a little. Goes a long way toward saying you appreciate their help.

From contributor O:
Ditto what contributor H said. The last quarter of this year was better than any in the last 5. Since raises have been slim-to-none in the last few years, bonuses for heavy install weeks help bridge the gaps. A truly reliable employee in a small shop can make the difference between staying afloat and falling off the cliff.

From contributor M:
Every year, every one of my employees gets from the 23d of December to January 1st off, with pay. 2 or 3 get an extra week's pay, because of their performance/contributions to the business. I am fortunate the last four years have been great. It slowed substantially the last two months of this year but I was okay. Things are looking up again.

Are you paying because you would feel guilty if you didn't, or because this is part of a spoken/unspoken contract, or because you think your workers expect it?
Yes, to some extent, but overall, most of them deserve it. And I enjoy the break in the routine at this time of the year.

From contributor J:
Similar to contributor H. Committed to one guy a $2 hour increase starting 2013. $100 gratitude envelope for hanging in there during the pre-holiday cram. 24th and 25th off paid.

From contributor U:
We've always paid out 25% of our profits as year-end bonuses. When there was no profit it was just a $100 bill. The best year's saw everyone get several thousand dollars. I'm less than convinced year-end bonuses are a good idea. Seems like it would be better to spread them over the entire year.

From contributor C:
Bonuses are better than wage increases. Wage increases are appreciated for a very short while but taken for granted pretty quickly. A bonus, however, is something that even the wife notices. How many times have you heard guys say "the pay sucks but the benefits are great!" Better to sell the sizzle.

From contributor N:
Ours was about 3.5%. It's a gift. When we called it a bonus, one employee that quit before Thanksgiving years ago came around after Christmas looking for his bonus and went to a lawyer, so we call it a gift and it's discretionary. If you make some money it costs less to give a buck to the employees based on your tax basis and I would rather the employees had it than Uncle Sam.

From contributor X:
I gave bonuses this year for the first time in 4 years. One guy got $1,000, and the rest got one week's pay, tax free. Not one guy out of 5 said thank you!

From contributor B:
You know, now that you mention that, neither of my guys have said thank you yet either. At this point I'll give a little leeway because I gave them the envelope while we were out to lunch on the Friday before they were off for 12 days for the holiday. However if the subject doesn't come up in a couple days I'll probably ask them if "they found it helpful." I didn't give it to hear them thank me, but it would be nice nonetheless. In their defense they have always been appreciative in the past so it's probably just a bit of forgetfulness from the nearly 2 weeks between when they got it and saw me next.

From the original questioner:
What do you mean by tax free? Anything you pay your employees is legally taxed.

From contributor X:
Well, I wonder if they appreciate it, or think they should have gotten more, or have bad manners... Regarding the tax free bonus, we added up their hours and wrote the check for that amount. Since it was below $600, we won't need to 1099 them. The one guy that got $1,000 we wrote him a check for $500, then cash for the remainder. They should pay the tax on their own, but probably won't.

From contributor C:
Not exactly sure if this is germane but thought I would throw it out there anyway.

I hired a guy one time as a laborer. I only paid him $10 an hour because he didn't know anything and that was about $3 above minimum wage at the time. Every time I got ready to raise his rate he would do something egregious that I simply could not reward.

He made ends meet by living in a rooming house. He didn't even have a room of his own. He shared it with another guy. The problem was that he cranked his overhead so low that whenever he would get a full check of 40 hours he was twice as rich as anyone he knew. Being fairly prosperous he wouldn't make it in to work on a predictable basis.

The poor guy was always starving so I kept lending him cash. His debt became significant enough that I needed to get it on the books so I gave him a payroll check for his regular hours plus a bonus equal to the amount he owed me. I figured he could now afford to pay me back what he owed.

He wasn't of course able to pay me back just yet so now I'm out double the first amount. When the next payroll came around he picked up his check then came storming in about ten minutes later wanting to know where his "bonus" was.

The drift of this story is that the effect of bonuses is short lived. As business owners we perceive this one way and as perfect capitalists they perceive it another way. Bonuses are mostly to make business owners feel better about themselves. They very seldom make workers feel better about their boss, at least for very long.

From the original questioner:
That won't fly with the IRS when they get around to auditing you. You will be responsible for those taxes. Just to give you a heads up.

From contributor W:
I agree that writing a non-payroll check or giving cash to an employee won't fly with the feds. They are employees, and as such any compensation needs to go through the payroll system. Did you know that if someone has a company car and uses it for personal business they are required to report the personal mileage, and then you are required to report the value as compensation in Box 1 on their W-2?

In the past we have given employees cash, because I think it feels more like a bonus that way. Plus, they are given the choice of not telling their SO how much it was... The way we did it is that I decided how much I wanted to give them, then calculated how much gross I needed to pay myself to net that amount. Then I cashed that check and gifted them my personal cash. The IRS is happy, because not only did they get the PR taxes, but they got income tax at a higher rate than they would have if the employees were paid directly.

However, this year I decided not to do it that way for a couple reasons. For one, the amount was the largest we've ever done and I didn't feel very comfortable about the thought of carrying that much cash around. The other reason was brought up earlier in the thread - most of our employees never say thanks. Why should I go out of my way and add extra expense to make them feel good when they don't even appreciate it?

As to the principle of bonuses, we have always intended to give them whenever we can afford it. It's mostly because they expect it and not because I think it's a good practice. We give our employees as much as we can all year long, from the amount of wages we pay, benefits we provide - both conventional, as well as things like company paid deep sea fishing, meals at shop meetings, even as far as making sure they always have the tools, supplies and equipment they need to make their job as easy/fun/rewarding as possible. If we didn't pay bonuses we could afford to pay a higher wage. But they'd rather have a bonus, so that's what we do.

There is a potential benefit to the employer to give bonuses rather than raises though: it's much easier to scale bonuses back (even to nothing) than it is wages. For some reason, employees think their wage is a right, not a benefit.

Our bonuses this year were roughly equal to a weeks' pay. Also, as (almost) always, we did a Cost Of Living raise which was 1.7%. We also do annual reviews at the end of the year, so there were a few people that got merit raises as well.

My last thought is this. Employees are one of the most important things a business has (the other two, equally important, are customers and vendors). In the same way that everyone has the occasional problem customer or vendor, you can't expect the employee relationship to be all golden either. While on the one hand you can't allow employees to run your business (unless that's what you want), keeping them happy is one of your most important jobs.