The end of year is not only a time for celebrations and reconnecting with family, but also a time when practice owners often express appreciation to their dedicated team. There’s no doubt, recognizing the hard work and loyalty of staff members through holiday bonuses is an impactful way to foster a positive work environment. However, determining the right approach for your specific situation often leads to some questions.
In this post, I want to tackle the top three questions we receive from dental practice owners about holiday bonuses and help provide you with some specific best practices to make your holiday recognition efforts a success!
Can my practice afford to give a bonus?
It all starts with this question, right? Holiday bonuses are generally awarded before the year ends to be included in the current year’s expenses. It starts with going through your budget and getting a clear idea of what you can afford. Conducting a financial review informed by your pre-defined budget enables practitioners to gauge the feasibility of providing bonuses without compromising the stability of the practice.
If you haven’t prepared a budget for the practice, then consider these two financial items to determine if your practice can afford a holiday bonus.
- Checking account balance – does your practice have enough cash on hand to cover two to three months of total expenses? This is the first test. If you pass it, keep reading…
- Practice profit – if your practice produces between $1-$5 million in collections each year, your annual profit should be at or above 10%. Take a few minutes to review your practice’s Profit & Loss Statement. If your YTD profit is over 10% AND you have 2-3 months of cash on hand, then you can afford to pay a holiday bonus.
Bottom line, while expressing your appreciation is important, it’s essential to strike a balance between generosity and fiscal responsibility. After all, preserving the longer-term financial health (and continued employment of your staff) is considerably more important than providing a monetary year-end bonus.
What form should the bonus take and what are the tax implications?
While a monetary gesture is the most common form of holiday bonus, there are other options. Dental practice owners can consider customized benefits that cater to the specific preferences and needs of their employees. The options are only limited by your creativity, and might include things like a tangible gift, additional paid time off, or a paid-for weekend getaway.
It’s very important to keep in mind that many types of bonuses are considered taxable by the IRS. For example, cash, a gift certificate, gift card, and similar items that can easily be exchanged for cash are typically considered taxable wages, regardless of the amount (see IRS Publication 15-B). If you give employees holiday bonuses, any monetary bonus, whether paid out via paper check or direct deposit, it must be reported on an employee’s W-2 form as taxable income.
Remember also that giving an hourly employee paid time off has the same tax consequences as if the employee was on the job during that time, meaning that the pay is reportable and taxable. Some employers opt to pay both the holiday bonus amount and the tax amount.
However, if your practice gives a turkey, ham, or other item of nominal value for the holidays, it’s generally not considered taxable income.
How much should be given to each employee?
While a year-end, review-based bonus often varies by years of service, base salary, and of course job performance, a holiday bonus rarely does. In most cases, holiday bonuses are a flat-rate amount (or physical gift) provided across all employees. The amounts vary widely among dental practices, but a common range is between $250 and $750.
Although less common, some practices award holiday bonuses based on some percentage of salary, with 1 week’s salary being the most common.
Whatever you choose, remember that maintaining fairness in the distribution of holiday bonuses is crucial for morale and team cohesion. ALWAYS guard against favoritism or the perception of bias in bonus allocation. Following a standardized and objective process, combined with transparent communication to your team, helps avoid any concerns related to fairness. This approach ensures that every team member feels valued and appreciated.
Regardless of your approach, awarding a holiday bonus separate from your employees’ performance-based rewards is a powerful way to show your appreciation!
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7 Key Financial Practices That Separate Thriving, Growing Practices From The Rest.
There’s no denying it. Creating a thriving practice is about much more than practicing medicine!
Topping the list of “other” priorities is your practice’s financial management. In this short guide, the experts at STAC Bizness Solutions outline 7 financial best practices that differentiate struggling practices from those which are highly profitable and experiencing healthy levels of growth.