Year-End Bonuses

Year-end bonuses can be a way to show appreciation to your employees for their passion, dedication, and hard work over the course of the year. While not every business will be able to pay out bonuses, as they are typically dependent on the financial situation of the company and its overall performance over the course of the year, if the business does well, it’s not unreasonable for business owners to want to reward their employees for their contributions. Doing so can have many benefits including helping to boost morale, showing employees that you (the business owner) recognize the value and worth of your employees and incentivizing employees, among other things.

Bonuses are taxable income!

Bonuses should be paid out through payroll subject to applicable payroll tax withholdings. You can use either the percentage or aggregate method for applicable payroll tax withholdings on bonuses; however, whichever method you choose, be consistent!

Be sure to coordinate with your payroll company and/or dedicated payroll representative to ensure you properly include any bonuses in your payroll before year end. Bonuses can usually be included in your normal payroll cycle and/or as part of a separate, additional payroll. Again, speak with your payroll company and/or dedicated payroll representative.

Some businesses, as a retention strategy, may hold off on distributing bonuses until the following January. This is a business decision that as a business owner you’ll need to make on your own.