As the holidays approach and the year ends, many employers want to reward their employees with bonuses for their hard work and dedication throughout the year. Additional compensation is often offered during the holiday season in the form of a Christmas bonus.
Before you decide to give a Christmas bonus to your employees, you should assess what steps you need to take before giving any bonuses or alternatives.
In this guide, we’ll explain what a Christmas bonus is, what you need to know about them, and other ways to show employee appreciation during the holiday season.
What is a Christmas Bonus?
A Christmas bonus is an amount paid to an employee over and above their regular salary in or around December.
Bonuses are amounts paid to an employee during the holiday season to show recognition, to award employees who met their yearly goals, or even as a kind gesture of giving back as per holiday tradition.
What Kind of Ways to Pay Christmas Bonus?
A Christmas bonus can be amounts paid to an employee in various forms. The most common form is an amount paid (e.g. cash) year after year.
The bonus can be an amount that is subject to the employee’s performance. It can also be a fixed amount not subject to an employee’s performance. Additionally, Christmas bonuses are completely discretionary, which means it is up to you whether to give employees a bonus at Christmas or not.
You may also give bonuses in the form of gift cards or non-cash gifts. For example, you can give employees gift cards to popular restaurants around your area.
How Much Should a Christmas Bonus Be?
The amount you give employees for their Christmas bonus may be discretionary or a fixed amount. Generally, entitlements to a Christmas bonus are outlined in the employment contract.
Sometimes, the parameters of a bonus can be determined through criteria set by the employer. For example, the amount of an employee’s Christmas bonus may be determined by levels of success throughout the year. As the employee reaches each level of success throughout the year, the amount increases.
Are Christmas Bonuses Taxable?
Christmas bonuses, just like many other bonuses, are taxable benefits to employees. A taxable benefit means that you must include the amount in the employee’s income and may have to deduct income tax, Canadian Pension Plan (CPP) or Employment Insurance (EI) on the employee’s paystub.
Gift cards and some non-cash gifts are considered taxable benefits as well. You should speak to your payroll administrator or accountant to determine how much Christmas bonuses should be deducted as a taxable benefit.
Are Christmas Bonuses Mandatory by Law?
It is not mandatory under employment standards legislation to pay employees a Christmas bonus.
A Christmas bonus is seen as an amount paid to an employee that is above their regular salary. You should establish at the start of employment whether employees are entitled to a Christmas bonus in their employment contract.
Generally, Christmas bonuses in Canada are under a contractual framework between the employer and the employee. However, as they are discretionary, you still decide to provide a bonus even if it is not stated in the contract.
Can I change a Christmas bonus during the employment?
An employer may wish to reduce or eliminate a Christmas bonus during the holiday season. The ramifications of reducing or eliminating a Christmas bonus will entirely depend on how the bonus is given to employees.
For example, if the Christmas bonus has been provided year after year, the employee may rely on it. If it is outlined in the employment contract, it may be deemed as a fundamental component of an employee’s compensation. If you were to remove the Christmas bonus, the employee may commence a complaint against you.
Before reducing or eliminating any bonus, you should seek tailored advice on the matter.
Can a dismissed employee claim their Christmas bonus?
Under Canadian employment law and common law, employees are generally entitled to their bonuses if they are terminated without cause.
For example, if the Christmas bonus (or any other bonus) is provided under the employment contract and would be paid out during their notice period, the employee may include it in their claim for payment in lieu of reasonable notice.
Additionally, an employee will not typically be entitled to their Christmas bonus if the bonus falls outside of their reasonable notice period.
Alternatives to a Christmas Bonus
There is no denying that employees would appreciate a Christmas bonus from work. However, it can be a daunting task for small and medium-sized businesses to give Christmas bonuses to their entire workforce.
Luckily, there are many options that you can implement during the holiday season to show employee recognition and improve your workplace culture that don’t involve cash Christmas bonuses.
There are hundreds of ways that you can give back to your employees during the holiday season.
They do not need to be extraordinary gifts, as long as you show a genuine gesture of gratitude to your employees.
Many employers have workdays dedicated to celebrating the holiday season. Throughout the day, employers often cater food to the office, promote wearing festive clothing such as ugly Christmas sweaters, and encourage socializing with colleagues.
The holiday season is about spending time with the people you care about and often, that can be the people we work with.
You may opt to organize a Christmas dinner at your local banquet hall or restaurant. A Christmas dinner is a special evening with your employees and their families to show your thanks and efforts for the year.
Get Advice on Christmas Bonuses with BrightHR
A Christmas bonus is a great way to show employee appreciation, especially during the season of giving. However, a Christmas bonus can be tricky, especially if employees are terminated.
If you are thinking of implementing a Christmas bonus in your workplace but cannot afford to give substantial bonuses to your workforce, there are plenty of other options that you choose from to show employee appreciation.
If you need assistance with drafting a Christmas bonus policy or require assistance with managing a pre-existing Christmas bonus policy, our BrightAdvice service allows you to receive quality advice on any employment issues you may have.