Saying thank you to your staff can help to boost employee engagement and morale. And when this is backed up by a physical token of appreciation like a Christmas bonus, it can mean so much more.
Though we often think Christmas bonuses are presented in cash, a Christmas bonus can be just about anything. From parties to gift vouchers to turkeys (we’ve seen it happen!), employers can offer personnel a whole range of benefits to say thank you for a job well done.
And though the provision of Christmas Bonuses has remained relatively consistent over time, certain trends have emerged in recent years, moving employers away from traditional cash benefit offerings to more budget-friendly options.
With this in mind, we’re exploring the evolving landscape of Christmas bonuses, including the tax and national insurance (NI) implications and alternative suggestions that could help you show your appreciation in a whole new way.
The Changing Face of the Christmas Bonus
Christmas bonuses are a great way to show appreciation and reward staff for their hard work over the previous 12 months. However, this type of employee benefit is by no means a given in UK workplaces, with only 47% of employers planning to award a bonus at the end of last year[1].
The most significant barrier is usually affordability (followed by getting organised on time!). In recent years, UK employers have begun to limit their Christmas bonus outlay, for example, by moving from the fully-funded Christmas party to a subsidised or lower-key format.
Personally, we’ve seen a significant increase in the provision of gift cards, partly due to the tax and NI implications under HMRC triviality rules.
The Tax Implications of Christmas Bonuses
Your Christmas bonus spend doesn’t merely come down to the bonuses’ outlay but also the tax implications of offering these rewards. Effective tax planning is, therefore, key when considering if it’s the right move for your organisation and will depend on how you want to reward employees and the desired scale of that reward.
If you want to offer a bonus with a cash value above £50, there will be varying tax and NI implications for employees. For example, awarding a 21% Scottish taxpayer £100 leads to them having an extra £67 in their pocket come Christmas. However, a higher rate taxpayer will only receive £56 net.
Plus, when a cash payment is made via Payroll, we can’t forget about your additional national insurance contributions (NIC), as every £100 gifted will cost you, the employer, an additional £13.80 in NIC payments.
These considerations could be contributing to an increase in the gift card approach. As gift cards are considered “trivial benefits” according to UK tax legislation and therefore not subject to income tax or employer NICs, presenting employees with these tokens of equal value gives employees the same amount to spend, regardless of their tax status, and saves you money on your NIC!
Christmas Bonuses in the Current Economic Climate
Household budgets are invariably stretched to the max during the festive period, now amplified by the cost of living crisis. Therefore, employees may appreciate a Christmas bonus now more than ever.
However, if, for whatever reason, you can’t afford to provide employees with a Christmas bonus this year, there are other options to consider that will help you recognise your team’s hard work by giving them more flexibility. For example, offering your staff time off that is staggered throughout December can help employees make the most of the festive season and source Christmas gifts at less frantic shopping times. Similarly, closing early on your last working day can gift your employees precious time with their loved ones or allow them to make earlier (and potentially cheaper) travel plans to beat the Christmas rush.
No matter what you’re able to offer, the underlying facts remain – it’s nice to be appreciated, and a thank you goes a long way. For many employers, workloads drastically increase at Christmas, and a bonus, in whatever form, can be a great way to show appreciation for extra effort and commitment during such a busy time, particularly when your employees are most likely busier in their personal lives too.
[1] Corporate Christmas Rewards Study, Just Eat for Business, November 2022
Editor’s notes:
The information provided is the opinion of Anne Lawson, Employee Benefits Consultant and should not be regarded as advice or recommendation. Readers should seek appropriate guidance from their employee benefits consultant.