How Do Holiday Bonuses Work? Guide for Small Business Owners

Corporate employee happy to receive a holiday bonus

What A Holiday Bonus Is | Is There A Right Time to Give Out A Holiday Bonus? | Types of Holiday Bonus for Employees | How Do the Bonuses Vary by Company and Position | Things to Consider Before Giving Out Holiday Bonuses | FAQs | Final Thoughts

For most of us, the upcoming holiday season signals joy and celebration as we celebrate with family and friends. But for many fortunate employees, this festive time also brings something else: a holiday bonus! 

Holiday bonuses are becoming an increasingly popular way for businesses to reward their employees for quality work during the year. It makes them a great incentive that motivates staff to perform at their best. 

In this post, I will discuss how holiday bonuses work and what companies should consider when deciding when and how much to give. 

Keep reading!

What Is A Holiday Bonus?

A holiday bonus is an extra compensation for employees during the holiday season. It helps the employer to show appreciation for a job well done and reward dedication throughout the year. This type of compensation typically comes in cash or gift cards. 

It is common for employers to give out bonuses at the end of November or the beginning of December, making it a festive time for employees who value the extra treat from their workplace!

Is There A Right Time to Give Out A Holiday Bonus?

Generally, employers should determine the timing of bonuses based on their company’s financial situation and when it makes the most sense for their budget. For example, end-of-year bonuses are most common since that’s when companies can benefit from the most tax savings. 

Alternatively, if a major business milestone has been reached or an employee met a particular goal, more timely bonuses could still demonstrate appreciation without an impact on finances.

4 Types of Holiday Bonus for Employees

Person holding an envelop with the word bonus written on it

During the holiday season, many companies reward their employees for their hard work throughout the year. After all, it’s a perfect time for showing appreciation and celebrating successes. Bonuses can come in different forms, such as –

1. Cash bonuses: 

The flat-rate cash amount gives all employees the same additional funds regardless of the role, making it fair and equitable. The cash is typically added to their upcoming payroll check or issued as an extra paycheck before December 25th to comply with tax laws.

2. Performance bonuses: 

These bonuses reward employees for their hard work and overall company performance, which can motivate them to do their best. Companies may distribute these rewards based on individual or collective achievements at the beginning of a year or quarterly. 

Performance-based bonuses also can improve team dynamics when group objectives are encouraged or linked to particular outcomes such as increased earnings or customer satisfaction.

3. Year-end bonuses: 

Giving a year-end bonus is the perfect way to cap off a successful, productive year at work. It can be an extra reward and financial boost for all the hard work the employees put in throughout the year. Depending on a particular company’s policy, this bonus may come as one lump sum or as a holiday bonus that overlaps with the end of the year.

4. Non-cash gifts: 

Many employers opt to give a non-cash gift in addition to or in place of a cash bonus. They sometimes do it to thank employees beyond monetary rewards. These gifts may include additional vacation days, gift cards to popular stores, discounts on company products and services, or food hampers. 

In some cases, companies will even provide a celebratory dinner or a holiday get-together for staff members to build morale and create a sense of connection between colleagues.

These bonuses are great motivators that help increase productivity and improve employee retention rates.

How Do the Bonuses Vary by Company and Position?

Bonuses vary drastically, depending on the field in which employees work and their performance level. Bonuses also usually count on the employees’:

  • Attitude
  • Enthusiasm
  • Flexibility
  • And dedication 

Employees with better work attitudes receive more significant rewards than those with poor attitudes or lack of commitment. Additionally, company size and location may affect bonus awards due to differences in the regional economy and hiring practices.

Things to Consider Before Deciding to Give Holiday Bonuses to Your Employees

Before deciding whether or not to give out holiday bonuses to your employees, it is important to consider a few key factors carefully:

  • Consider the impact on employee morale. Giving out holiday bonuses can help motivate and encourage your employees, promoting loyalty and productivity in the workplace. 
  •  Can the business afford it: Financially, businesses should weigh their budget and consider alternative rewards that may be more practical such as additional vacation days or flexible working hours.
  • Salary expectations: Bonuses could conflict with pre-existing salary expectations or expectations from other employers in the same industry, so businesses should research to decide if their incentive programs are competitive enough to match those of their competitors. 

In all cases, using a structured system to distribute bonuses would be beneficial to ensure fairness and consistency among employees.

How Do Employees Feel about Getting a Bonus during the Holiday Season?

Employees feel very grateful when they are rewarded with a holiday bonus. Such a gesture lifts morale and encourages motivation throughout the workplace. It helps to make the festive season even more special and shows that their employer appreciates their work.

Final Thoughts

The holiday bonus is a great way to show your employees how much you appreciate their hard work throughout the year. By understanding how it works and how to get the most out of it, you can ensure that your team is motivated and excited to receive their bonuses. 

Thanks for reading! I hope this post helped you understand how holiday bonuses work. Stay connected to know more such guides.


How does a holiday bonus work?

A holiday bonus is an extra pay for employees during the holidays, typically around Christmas/New Year. The bonus amount can vary by company and policy, but it often delivers an additional boost in income that many employees enjoy. This bonus is usually based on hours worked, seniority, and performance.

What is the average holiday bonus?

The average holiday bonus varies significantly from year to year depending on the size and type of organization, the current financial state of the business, and other factors. Other factors can also play into why one person may receive more or less, including their direct involvement with the company’s successes or struggles throughout the year and individual job level within the company hierarchy.

How are holiday bonuses calculated?

Holiday bonuses are typically calculated based on an employee’s performance, contribution to the business, and the length of time they’ve worked for the company. Companies may also factor in their financial situation and industry standards when deciding how much a bonus should be awarded.

How are bonuses usually paid out?

Bonuses are typically paid directly through a lump sum payment or an increase in base salary. Generally, incentives like bonuses are based on performance, calculated as a percentage of annual salary, and awarded after review and approval by senior management teams. Depending on company policies, employers may pay out bonuses annually or quarterly.

Do most employers give Christmas bonuses?

Many employers believe a tangible reward during the holiday season is an effective way to show gratitude for employees’ hard work throughout the year. Employers can boost their performance and morale by providing employees with monetary bonuses or gifts before Christmas or during the holidays.

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