Holiday bonus time can be stressful for both the employee and the employer. Employees wait for this time of year to find a little extra in their paycheck to help with those holiday bills. But is there a right way to issue bonuses? Bonuses can be a strategic investment in morale, retention, and company culture. When handled thoughtfully, bonuses reinforce appreciation, motivate staff heading into the new year, and strengthen employee loyalty. Here’s how to design and deliver holiday bonuses that feel fair, meaningful, and aligned with your organization’s values.

It is important that employees understand what bonuses are based on. Is it a reward for performance, a share of the company’s success or is it a flat number for all employees? The why is important for employees to understand so they don’t feel slighted when the bonuses are handed out. Be sure to establish consistent criteria and apply the guidelines uniformly among the staff. Documenting the policy by adding it to the employee handbook can help with any confusion when it comes to bonus time.

Not all holiday bonuses are monetary. Some are gift cards, extra paid time off or personal gifts. It is important to know what is most important to your employees to understand how the bonus will be received. Consider including a thank you message and highlighting any specific achievements. When employees feel truly valued, their loyalty will be clear.

Many small businesses cannot afford extravagant bonuses, so it is important that the gift is thoughtful and consistent. A bonus of $50 can go a long way, if the employee understands how much you value them.

Make sure, as the owner, to set a clear budget for yourself. Extravagant bonuses may be great in the short term, but not if it creates a short fall going forward. A large bonus can also set the wrong expectations going forward. The bonus should feel generous, but sustainable. Inconsistent bonuses can undermine morale, so budget conservatively enough that you can repeat the gesture annually.

If a cash bonus is given, it is important to understand the payroll and tax implications. Speak to your payroll provider to ensure taxes are taking out properly. If there is no payroll company involved be sure to explain any tax implications to employees. Proper planning prevents unpleasant surprises for both HR and employees.

Consider the timing of the bonus. Although holidays are a traditional time to give a bonus, it is not necessary. If employees understand that bonuses are given in March, then they will not expect anything during the holidays. If the bonus is given during the holidays, consider the timing. When will the employees appreciate it most?

Lastly, evaluate the bonuses every year. Ask employees for feedback. An employer may consider a personal gift as thoughtful, while their employees may prefer a little extra in their paycheck.

Holiday bonuses are one of the most appreciated and memorable ways to recognize your team. By planning thoughtfully—balancing fairness, sustainability, and sincerity—you can create a wonderful working environment.