‘Tis the season to be jolly, at least if you are one of the 66% of American employees looking forward to receiving a holiday bonus this festive period. For decades now, the Christmas bonus has been a treasured and regular part of the working year. It is a way for employers to show gratitude to their loyal team, especially during what has undoubtedly been one of the most challenging years in history.
It is also often an important boost to the finances of workers, who may use their bonus to recoup their Christmas shopping expenditures. If you are planning the holiday bonus for the first time, you might be unsure of how to go about it properly. Fortunately, we have got you covered. Here is everything you need to know about holiday pay for your workers.
1. What is the Holiday Bonus?
First of all, let’s cover what the holiday bonus actually is. Some employers believe that it is different from an end-of-year bonus. This is because an end-of-year bonus is typically a salary top-up based on the amount of time an employee has worked for you. Meanwhile, a holiday bonus is more considered as a gift from an employer to all employees during the festive period.
A holiday bonus can consist of several things. It can be a straight-up cash bonus, or it can be a non-cash gift such as vacation time, hampers, hotel stays, or just about anything else you can think of.
2. How Much Should It Be?
Calculating the holiday budget can be a daunting task. Research has shown that the average holiday bonus given out to employees is around $858, but it can be a lot more or a lot less than this. First, you need to decide how you will calculate the bonus. Many employees simply calculated based on a certain percentage of annual pay.
Others decide to simply add the equivalent of an additional monthly or fortnightly paycheck as a bonus. Others may consider how long an employee has worked for the company. Whichever way you do it, you will need the right record of your employee’s history, pay, and contributions.
If you are a smaller company, you may not have this information on file. In that case, have you used this pay stubs generator for your employees? It allows you to quickly and easily calculate and document the regular and holiday pay for everyone at your company, including yourself.
3. Is Holiday Pay Taxable?
Finally, you might be wondering whether or not holiday pay is taxable, especially if you are creating your own pay stubs. The answer is yes. Federal income tax requires a 25% tax levy on all supplemental income, which includes bonuses.
There will also be FICA deductions including a 1.45% tax for Medicaid and 6.2% for social security taxes. In order to make it clear how much each employee is getting, you should always issue a separate check for bonuses.
Pursue Better Business Practices in 2021
Planning the holiday bonus in advance is just one way that you can be a better boss in 2021. For more essential guides on business best practices, we are here to help. Make sure to consult our expertly-curated Business Section today to learn more.