Oh, Christmas! A season and holiday often associated with the sight of caroling children and colorful parols, the smell of noche buena, the sweet sound of classic Christmas tunes, and, more importantly, everyone’s much-awaited Christmas holiday bonus! The Christmas bonus is one of the joys of Christmas for many as it makes holiday celebrations much, much, happier, as it also marks the end of a year’s worth of hard work. And, of course, the little extra money can help defray the costs of food and gifts.
If you are a new business owner or are looking to just start your own, you may be asking, what are employee bonuses? Additionally, you might be wondering whether these bonuses are mandatory and how the payout of bonuses will benefit your company. Fret not, ‘tis, after all, the season to be jolly, so we are gifting you with an ultimate guide to employee bonuses here in the Philippines.
Often, these bonuses are rewards that a company gives employees for achieving certain goals and to reward behavior. These can be based on company performance, employee performance, or a combination of both. Proper accounting and auditing of financial statements is necessary to determine and compute the correct bonuses.
However, this bonus is often conflated, especially when it comes to the mandatory 13th month pay. It is normally mistaken for the Christmas Bonus. The 13th month pay is mandated by law for regular employees to receive one-twelfth of the total basic salary earned by an employee within the calendar year. Business owners are allowed to dived its distribution in the mid-year and towards Christmas.
Non-Discretionary and Discretionary Bonuses
Discretionary bonuses are at the behest of the employer and are not mandatory. Additionally, these types of bonuses cannot be demanded by employees, and there are no set limits for the amount of each bonus.
Non-discretionary bonuses are the exact opposite. Essentially, these bonuses are set in advance by the employer, almost like an incentive, regarding what an employee must do and the standards they must meet to fit the bonus criteria. If they meet the criteria, they get a bonus. The bonus can vary depending on what is stipulated in the contract.
Different Types of Bonuses
- Long-term incentive plan
These are bonuses that usually apply to senior regular employees. These are bonuses that take more than a year to earn, hence the name long-term.
- Performance bonus
Performance bonuses are bonuses granted based on the performance of the employee. These are usually given out when sales targets, business goals, and desired profits are met.
- Spot bonus
Spot bonuses live up to the name. They are offered to employees literally on the spot, usually for a job well done on projects or other vital tasks.
- Christmas bonus
Christmas bonus is the bonus you give your employees on the Christmas holiday! These are usually voluntary, unless stipulated in a contract, or when a Christmas bonus is customary. While you are not obligated to provide Christmas bonuses, the handing out of such bonuses is a long-standing tradition for many, if not all, employers. Again, do not conflate this with the 13th month pay, which is required by law.
How Giving Bonuses Helps your Business
Bonuses are, innately, a kind gesture. They go a long way in terms of making your people feel valued and appreciated. These bonuses can then act as an impetus or motivation for them to keep up and continue their good performance in the coming years.
Do note, however, that bonuses may also put you in a bind. Getting bonuses wrong, underpaying promised amounts, or even showing personal bias may tick your employees off and cause them to feel alienated and, consequently, less motivated.
When utilized properly, to their full potential, and given with good intentions and a generous heart, bonuses are a great way to make people loved and appreciated, especially during one of the jolliest seasons of the year. But remember that kindness does not stop at Christmas time, and it is always a great trait to practice all days of the year.
Be kind to your people each working day, encourage a conducive learning environment, communicate with employees properly, and do not forget to acknowledge them at the end of every day. If you need help accounting and computing for bonuses, give our team of CPAs a call. We offer free 30 minute consultations.