With holiday season in full swing, it’s easy to let a few details slip through the cracks. While it’s not a big deal if you forget to bring eggnog to the office party, it is a big deal if you’re handling holiday bonuses incorrectly. Because the last gift you want this holiday season is a big pile of compliance issues.
If your company is handing out end-of-year bonuses, here are a few things you’ll want to keep in mind.
The terms of your bonus plan. Many companies have a written policy for bonuses, which is important for clarity and consistency. Make sure you understand the language of this plan, because in certain situations, employees can be entitled to a share of a bonus even if they have been terminated prior to bonus distribution.
Discretionary and nondiscretionary bonuses. Discretionary bonuses are unexpected by employees, while nondiscretionary bonuses are awarded when an employee reaches a predetermined requirement (e.g., sales goals).
Fairness. Employees are protected against unfair bonus practices by antidiscrimination and equal pay laws. It’s a good idea to award bonuses based on predetermined goals that can be tracked to ensure fairness. You can also use these performance goals to inspire better productivity.
Bonuses are almost always taxable. Just like any other form of compensation, bonuses are taxable. They should be reported on the employee’s W-2, and taxes should be taken from the bonus much like they are from a paycheck.
De minimis gifts are not taxable. The only exception to gifts or bonuses not being taxable is in the form of a de minimis gift. These are gifts with a value under $100 that include things like food, event tickets, and a bottle of wine. There is not a specific set of guidelines to determine what exactly qualifies for this type of gift, but a de minimis gift can’t be gift cards or cash.
Tax deductions. You can deduct employee bonuses in many cases if the bonus can be declared a reasonable business expense. That means the bonus can’t be a gift, and you’ll need to be able to prove it was awarded for work-related duties.
You probably have enough to worry about over the holidays—so make sure you have any potential compliance issues figured out before you distribute holiday bonuses. This will save you time, money, and headaches down the road, while helping make sure everyone at your company has a holly, jolly holiday season.
If you have any questions or concerns about holiday bonuses—or anything else related to HR—be sure to contact us.