Christmas Bonuses for Employees: What Employers Should Know

Around Christmas time, some employers will be distributing Christmas bonuses for employees. What you give and how you give them can greatly influence the impact that they will have on employees. In all cases, there are certain obligations to be respected and Christmas bonus guidelines to be followed.

Reporting Christmas Bonuses for Employees

Employers may have to report any Christmas bonuses for employees to HMRC and pay tax and National Insurance on them.

For cash bonuses, employers should add the value of the bonus to the employee’s earnings and deduct PAYE tax and class 1 National Insurance through payroll. Bonuses count as earnings so must be reported.

For goods, if they can’t be counted as trivial benefits (so small that you can ask HMRC to exclude them) employers must report on form P11D and pay class 1A National Insurance on the value of the benefit.

Value to be Reported

  • For cash bonuses, the value will be the amount paid to the employee.
  • For goods, use the amount the goods have cost.
  • For goods with a cash resale value, use the higher amount between the resale value and the amount it has cost.

Deciding on Christmas Bonuses

Employers can decide to give Christmas bonuses for employees based on performance or not, depending if they want to show their appreciation to everyone for a job collectively well done or if they prefer rewarding individual’s performances. Small businesses or charities that don’t have a lot of resources to allocate to bonuses can always find small ways to show appreciation to their employees – remember that words can have a great impact as well!

Rewarding a goal achieve or a high performance with a bonus can be a good way to motivate some employees to perform better, but employers should keep in mind that employees are not all motivated by materialistic rewards, and bonuses should not replace essential feedback and performance management during the year.

Whatever you decide for this Christmas, don’t forget to thank your employees for this year and reflect on what can be improved next year. If you’re looking for ways to increase your team’s performance, why not talk to us?

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