Figuring Out a Bonus Plan for Your Employees

Many small businesses offer employees a bonus at the end of each year. Some base bonuses on the meeting of specific goals that were set at the beginning of the year.

Other employers offer across-the-board bonuses that are not merit based.

Some experts say that non-merit based bonuses can actually be bad for business, but others disagree.

You'll need to decide what is best for your business. One thing you need to keep in mind is if you give a bonus every year, employees are going to expect that bonus.

Proceed With Caution

You should make it abundantly clear each time a bonus is given that you are thrilled to be able to do it, but that you don't know if you'll be able to do it next year.

This could help soften the blow should a future financial situation prevent you from being able to offer bonuses.

Facilitating merit based bonuses are less tricky than across-the-board bonuses. You simply set goals for each employee.

Employees that meet their goals get the bonus. For some department, such as sales, it's easy to set goals.

Get Creative

For departments and jobs, such as administrative workers, you may need to be a bit more creative with your goal setting. Consider offering bonuses for those who do not use any sick days or who consistently arrive to work on time.

The amount of across-the-board bonuses can be based on length of service or on the amount of the employees' current salary. You could, for example, offer a bonus of 10% of the annual salary. Or, you could offer a set amount per year based on the employees' years of service.

In addition to being a nice way to reward employees for a job well done, you should also talk to your accountant about the possible tax breaks involved.