Lucky employees at thousands of small businesses will be getting cash from company owners as the year wraps up. Some companies will call the money a year-end bonus and others will label it a holiday gift.
Which is which? It depends more on the purpose of the money than what the dictionary says. But although both are given to show appreciation to employees, what many people usually think of as a bonus is used as an incentive and it's often tied to a company's performance.
Sandy Hermanoff, like many other small-business owners, gives year-end bonuses based on how well her public relations firm has done during the year as well as on how well the individual employee has performed.
"Those who have performed well will probably get a higher bonus," said Hermanoff, chief executive of Hermanoff & Associates in Farmington Hills, Mich.
Hermanoff said she would see what her company's cash position was like at the end of the year, decide how big the bonus pool would be and then divide it among her eight employees according to performance and their tenure with the firm.
She said that she had also given gifts to employees, such as hams or turkeys, but that the bonus wasn't intended as a gift to mark the holiday season.
In many cases, bonuses can easily amount to four figures, depending on how well a company has done and how generous an employer is. Holiday gifts are more likely to be a little more modest -- often below $500.
Many employers and human resources professionals advocate letting employees know early in the year that they stand to earn a bonus if the company does well. That's where the incentive component comes in.
But planning for bonuses early in the year is also a good idea because that enables an owner to set money aside.
If you start trying in December to figure out how much of a payout you can afford, chances are it's going to be smaller rather than larger, unless your company enjoys a late-year revenue windfall. Many owners who hope to pay bonuses budget for them in January.
If you're not sure what kind of formula to use in computing a bonus amount, a human resources consultant can guide you. Or you might ask owners of similar businesses to see if there's an industry standard you should consider. Remember, bonuses can be a good recruiting tool, and they also can help you retain good staffers.
