Finding the Ideal Christmas Bonus
The Ideal Christmas Bonus
Below is a detailed article from Paycheck Plus’s CEO Anne Reilly which first appeared in The Irish Business Post, 7th November 2021
With the end of the year looming, and so many employees having worked long hours in isolation throughout 2021, businesses are turning their attention to finding the perfect christmas bonus to reward employees for their dedication. However, a challenging year may have exhausted any cash reserves from which to do so, and many managers will have to carefully consider their incentive programs.
Motivating employees can be challenging at the best of times but when it’s combined with financial incentives it can often create unwanted problems. Putting a monetary value on an employee’s contribution often invites comparison, which can result in resentment among colleagues.
The potential for error is high, as a poorly constructed or improperly implemented bonus scheme can discourage the very behaviour it is meant to incentivise. This can lead to jealousy, anxiety, a de-motivational sense of entitlement or a lack of trust amongst employees. In recent years most traditional reward schemes have been partially or completely discredited as they can actually decrease employees’ intrinsic motivation and impair performance.
- Flat rate bonuses do nothing to reward individual behaviour and can demotivate workers and teams.
- Salary percentage bonuses can elicit resentment especially where pay disparities are high.
- Performance-based bonuses are difficult to implement and prone to subjective biases.
- Profit Shares can lead to sharp practices, and when not applied equally can foster resentment amongst workers.
- Stock options are subject to market forces, can create a tax liability for employees, and may not reward individual performance.
In addition to this, cash bonuses are subject to taxes such as PAYE, USC and PRSI. The evitable consequence of these taxes mean that the take-home figure is often significantly reduced, even for low-income earners, making them less effective than may otherwise have been expected.
So what is the alternative?
In recent years many employers have turned towards non-cash alternatives to reward their employees. Provisions within the Small Benefits Exemption Scheme afford employers the opportunity to gift employees a non-cash gift of up to €500 in value, tax free, each year. It is exempt from PAYE, USC and PRSI and is therefore an ideal alternative to costlier cash bonuses. While these taxes may not sound significant, the savings can be quite considerable, with employers potentially paying hundreds of euro in taxes per employee to make a €500 payment through payroll.
One way to give this gift of up to €500 is through the use of reward cards. These cards are a type of prepaid credit card which can be spent in any location where credit cards are accepted. They are not limited to certain stores and can also be used online. A multi-store gift card also falls into this remit.
One key item to note, however, is that if the value of the rewards card exceeds €500, then the full amount is subject to tax and not just the excess. Or to put it simply, if a business were to issue a €550 rewards card to an employee, it would fall outside the scheme and all €550 would be subject to tax, not just the additional €50. It is also worth noting that unused allowance amounts cannot be carried over, meaning employers who neglected to avail of the scheme last year cannot avail twice this year.
In addition, organisations should be aware that under section 112B of the Taxes Consolidation Act 1997, only one tax-free voucher per year can be given to any employee. Where more than one benefit is given, only the first one qualifies for tax free status. So if, for example, you give an employee a €250 reward or gift card early in the year and another one for the same value later in the year, they will have to pay tax on the second gift. Worth noting, however, that the Government has made an exception for 2020 and 2021 in light of the Covid pandemic and are allowing the €500 to be gifted over two occasions, with the total value still needing to come in at no more than €500 cumulatively.
While working from home is here to stay, there will still be a requirement for many to attend the office on various days. As a result, it’s worthwhile reviewing the various schemes available whereby the employer pays for bus, train or bike travel to enable people travel to and from work. The ‘Cycle to Work‘ scheme, for example, involves the employer gifting this to the employee (to a value of €1,000) or it can be deducted from the employees pay before tax is applied to the remaining salary.
Another option is to offer employees paid days off. At Paycheck Plus, like many other companies, we gave all employees a “wellness” day before their return to the office to do whatever brought them joy. For some that might be a chance to spend time with family, go for a walk, have a lie-in or indeed a duvet day, read, watch a movie, take a longer weekend – whatever was going to make them feel happier. And there were no tax implications for anyone!
As we approach the commencement of statutory paid sick leave, another subject altogether, employers will have to prepare for additional costs to pay employees while they are out sick. As a result, a “wellness day” will not only appeal to most employees and cost the employer less, it will also create a more positive relationship between employer and employees without impacting the tax liabilities of either.
During Covid lockdowns, we, as did many others, sent occasional gifts to our team such as wellness hampers and chocolates for St. Valentine’s Day. While the gesture is in good faith, it is important to know that giving gifts (even a simple box of chocolates) does have tax implications for both parties and, in order to avoid negative impacts for the employees, the employer will potentially end up paying twice the cost of the gift item to “gross up the value” of the gift to ensure the tax deductions do not impact the net pay of the employee. A small gesture really does mean a lot when it comes to rewarding employees for their dedication and it’s a shame when either employer or employee is significantly financially penalised for doing so. This is something we suggest that Government should look at addressing in the future.
Looking for a budget-conscious Christmas Bonus?
If you are looking for the ideal Christmas Bonus for your employees, consider Paycheck Plus’ prepaid credit cards. These can be spent in any location where MasterCard® is accepted. Unlike other cards which are limited to certain stores, it can be used in more than 53 million locations worldwide, including on-line. This PAYE, USC & PRSI free gift card is fully compliant with the Small Benefit Exemption Scheme, has no commission fees and gives your employees the freedom to spend their voucher anywhere they like.