My start point would be to ask why you are considering a Xmas bonus. (If you are agonising over it then this suggests it is a marginal decision and you may be better off not bothering for the likely impact it is going to make)
There are probably two reasons for considering a Xmas bonus
- As a form of recognition, a thank you for your efforts in 2018
- As a retention tactic for 2019 in the face of a tight recruitment market
There are 4 options available:
A token gift (such as a bottle of wine)
This can be tax free if all the following criteria apply:
- It costs less than £50 to provide and isn’t cash or a cash voucher
- It isn’t a reward for work or performance
- It isn’t in the terms of the employment contract
The impact here is more on how it is done rather than the gift itself. One Senior Partner used to dress up as Santa and gave a bottle of wine to each and every member of staff with a thank you and a quick chat as he walked round the office in the days before Christmas.
The Xmas party
This is tax exempt if it costs £150 or less per head, is held annually and is open to all employees.
So far, so good.
- If you have other staff events over the course of the year, then cumulatively they are still tax exempt so long as the total cost is still below £150/head
- Don’t confuse your workers with contractors/freelancers. It might be tempting in the season of goodwill to blur the lines and invite some contractors and not others. This may open the door to a conversation that really the contractor is an employee and this act of kindness may backfire.
- You are vicariously liable ie you as MD are still responsible for the acts and omissions of others. So ensure you and your managers are aware of the boundaries and, if anything goes wrong, investigate immediately as part of your disciplinary policy and procedure.
Enough cold turkey but go into the season with your eyes open.
As a form of recognition, this will be subject to tax and NI so £100 bonus to an employee on the basic rate of tax will be worth net around £62.
If this is a last minute thought then this might be the simplest to introduce as a thank you for efforts in 2018 and as a way of bringing some Xmas cheer at an expensive time of year.
In terms of impact it is clearly going to mean more to someone earning £20K a year than someone on £30K a year.
Think through the implications of this. Do you offer a cash bonus every year? To all staff? If given every year, there is a risk of it being seen as contractual and if not offered to all staff, may lay the claim for a grievance based on discrimination.
Possibly a bit late to be considering this at this stage of the year – assuming financial year end is December – but it is an option. But remember that the bonus will be subject to tax and NI.
Things to think about:
- Affordability – although this overall cost reduces corporation tax it will still have an impact on cashflow particularly if it is to be a meaningful amount paid to all staff.
- Should it be targeted to key individuals or paid to everyone?
- Should it be proportional to salary ie 5% of monthly salary or a lump sum. The lump sum has a benefit of recognising the lower paid staff more.
- Should it be proportional to service during 2018 – what if an employee joined in February? Or October? What was said during the recruitment process about any bonus payments?
- How are you going to communicate this? What are you going to say to individual staff members? What are the reasons for this discretionary bonus? What are you going to say, if anything, about future bonuses. Do comment on the business positives and thank people for their efforts.
- What is bonus strategy for 2019
- Does it depend on company performance?
- Will it be discretionary next year? Is this the beginning of a trend to ‘custom and practice’ because l paid it last year as well.
- Will you say ‘no’ next year if performance is ‘below expectations’
- Avoiding that pratfalls
- Keep it simple and avoid social engineering. If this is a last minute consideration it is safer to pay similar amounts to people based on their salary. Be careful to avoid grievances around discrimination or equal pay.
My own view is that MDs, if you are going to do anything at all, should aim to keep it simple and focus on the delivery of the message. I saw a recent stat saying that 59% of companies don’t explain the reason for the bonus implying that there is almost an embarrassment at giving one and so the impact is lost.
If you want to talk this through then why not contact Stephen Cowburn by emailing email@example.com or call 07974 425361, for a focused discussion. Also look out for his next blog in the New Year for things to think before you setup up a performance related bonus scheme in 2019.