What to Consider for Year-End Bonusing

We’ve seen it countless times: The holiday season rolls around, the company had a great year and the CEO is throwing out bonuses like Oprah does her favorite things.

Generosity is a great company culture trait. But when it touches money, business owners need to be thoughtful about how they go about it. Not doing so will almost certainly lead to financial headaches in the new year.

Here’s what we suggest our clients think about when they’re dolling out year-end bonuses.

Plan Bonuses with Your Finance and Accounting Teams

Rewarding employees for their commitment and hard work is admirable, as long as you carefully plan financial incentives. By working with your finance team or accounting partner, you confidently plan for this investment in a fair and equitable way, without letting your good intentions strain cash reserves.

Remember Outstanding Bills and Upcoming Expenses

Before you set aside funds for bonuses, sit down with your accountant to review cash flow, looking specifically at accounts payable and accounts receivable. Are there outstanding payments on invoices? Unpaid bills or expenses? Are there upcoming loan payments due?

By thoroughly reviewing your payables list, you can plan for holiday bonuses that fit within your budget, avoiding surprises and stress in 2025.

Account for Upcoming Tax Payments

While you’re making a list and checking it twice, so is the IRS.

Confirm with your accountant any quarterly tax payments or other obligations due January 15.

Missing or underestimating tax payments results in IRS penalties and additional financial pressure in the new year.

Run Bonuses Through Payroll to Avoid Tax Headaches

Once you’ve finalized your budget and are ready to spread holiday cheer, take the time to process bonuses properly, instead of rushing to hand out checks.

Remember, holiday bonuses are taxable. By running them through your payroll system, you’ll protect employees from tax surprises.

Plus, your payroll system makes it easier to accurately track and report on bonus payments, when tax season arrives.

Get Creative with Non-Cash Rewards

After going through this process with your financial consultant, you may realize holiday bonuses just don’t fit into the budget this year.

Feeling financially stretched doesn’t mean you cannot show your teams appreciation and generosity. Instead of monetary compensation, get creative and consider non-cash alternatives.

You could give employees additional paid time off or more flexible work arrangements.

If your business is too busy during this season to support additional time off, you could offer a future floating holiday or schedule these “freebie” days for a slower business month.

And if there truly isn’t much wiggle room, you could purchase small gifts or gift cards to celebrate your employees’ dedication, without breaking the bank. Because sometimes it’s the thought that counts.

Balance Holiday Cheer and Financial Health

Celebrate the team that made your year a success, without undermining your financial health.

By working closely with your accountant or finance team, planning for upcoming expenses and taxes, and running bonuses through payroll, you can still recognize employees’ commitment and productivity, without facing unintended financial consequences.