Trying to decide when to distribute employee bonuses? The choice you make can impact both morale and financial planning for your company and your team. Let’s take a look at the pros and cons of paying out bonuses in December versus January.
Taxes
Taxes are the biggest point of consideration when timing your employee bonuses. That’s because they’re considered income for your team members, but they are tax deductible for your company. In general, if you pay bonuses in December, you can deduct them from this year’s taxes, but your employees will have to claim them for this year. If you wait until January, they won’t have the tax liability until their 2025 taxes, but you’ll also have to wait a year for the deduction. However, employee compensation can be an incredibly complicated area of tax law, and special rules may apply depending on exactly how your bonuses are structured. It’s important to talk to your accountant or tax attorney before making any decisions.
Tradition
Holiday bonuses are traditionally paid in December. Annual bonuses are often paid in January. Some companies offer both, and some offer one or the other. In addition, corporate traditions can be very important to some people (think Clark Griswold in National Lampoon’s Christmas Vacation and the “Jelly of the Month Club”). You don’t necessarily have to stick with tradition, but if you’re breaking the mold, be sure to communicate that fact to your employees as early as possible.
Individual Preferences
When in doubt, sit down for an honest chat with your employees. What do they prefer? Some like to get their bonus early, so they can use it to buy presents for their families. Others would rather have extra money come in January when they’re facing the holiday bills. You can hold a team meeting or send out surveys by email. Either way, make it clear that you’re open to all points of view.
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