Christmas Bonus: What Is a Typical Bonus?

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A Christmas bonus is an incentive that employees receive during the Christmas season. Employees often expect a Christmas festivity bonus, but some organizations don’t provide it each year — if at all.

Many people mistake a holiday bonus for a year-end bonus, which is not the case. A holiday bonus is typically a gift as a token of appreciation or gratitude equally distributed among all staff members. An employer can consider the performance, the number of years served, or base pay during a year-end bonus calculation, but these factors aren’t determined in a holiday bonus.

How Much Is a Typical Christmas Bonus?

Known sometimes as a “13-month-salary,” the Christmas bonus is one given to employees at the end of the year. This practice will depend on the company’s size, resources and financial performance, but the average holiday bonus is reportedly around $1,800, though the range could be anywhere from $100 to $5,000.

An employer may also base the bonus amount by offering a percentage of the employee’s salary. Holiday bonuses may also be structured and awarded differently when stated in an employee’s contract.

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The following are some of the circumstances surrounding the Christmas bonus payment:

  • When it’s stated in the contract of employment
  • When the company has a usual practice or custom of providing one

Depending on the organizations’ management, holiday bonuses often come in different forms, including:

  • An additional amount of cash or check before the holidays
  • A gift specified by the company
  • Extra days or time off
  • Food, such as turkeys, hams and desserts
  • Gift shopping vouchers or certificates like entry to relaxation centers or spas
  • Tickets for sporting events or theme parks
  • Miscellaneous reward baskets

Here is all you need to know about the Christmas bonus and how to make the most out of it.

Are Christmas Bonuses Common?

Christmas bonuses are increasingly common, and few companies offer non-performance-based holiday bonuses.

For contracted employees, Christmas bonuses payments largely depend on the contract term. In cases where employees have bonuses based on target achievement stated in the contract, employees should be paid when they achieve their targets unless they agree to adjust their rights to get the incentive or agree to get only a part of it.

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Guidelines for Giving Christmas Bonuses

There are no standard set rules for Christmas bonuses, but these guidelines are often what employers use to determine holiday bonuses.

Communication

In circumstances where your company has previously offered bonuses to the employees but won’t issue one for the year, they should inform employees as soon as possible. Many employees rely on that bonus and consider it part of their income when creating a budget.

Fairness

Employers should consider a fair and equitable distribution in addition to consistency and uniformity. This means letting no employee feel shortchanged unfairly and remembering to include everyone. Even if the budget doesn’t allow monetary gifts, employers might consider gifting time off or additional vacation days.

Professionalism

Despite the holidays being festive, everyone must remain professional. This means no harmful or inappropriate gifts — things that are considered NSFW or “not safe for work,” in other words. It’s also a time to set aside any personal feelings for employees unrelated to work performance when giving out monetary bonuses.

Confidentiality

Holiday bonuses should be treated like employees’ salaries and not be disclosed to anyone outside the payroll processing. Holiday bonuses are tokens that employees can celebrate, enjoy and not compare with others.

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Transparency

Many companies give yearly performance-based bonuses. These bonuses are typically developed to motivate employees to achieve year-end goals. Employers should clarify and be open about which additional money is a Christmas bonus compared to a year-end performance bonus if both are provided.

Christmas Bonuses Tax Rules

Bonuses are considered income, which means they are taxable, along with retirement savings, health care payments and anything else that may be automatically paid from your salary. Keep this in mind as you look at your paycheck — the the amount deposited will be less after taxes.

An employer who provides employees with Christmas bonuses, there are some tax obligations and reporting requirements. The obligations depend on factors such as:

  • Whether employer provided giving tangible gifts or cash bonuses to employees
  • Whether the employer gave employees gifts that could be resold or not

As an employee, you’ll pay a higher tax upon receiving cash bonuses as the rate applies to your income. However, the government will tax a flat rate of 22% for bonuses of $1 million when you receive it separately from the paycheck.

Benefits of Giving Christmas Bonuses

For employees, receiving Christmas bonuses has numerous benefits. It can add a cushion to your paycheck, which is incredibly helpful during a time of year that can often be expensive, between traveling, buying gifts and hosting holiday parties. It also provides benefits to you as an employee. Here are some of them.

  • Boosts morale: A Christmas bonus, irrespective of its value in terms of a check or even days off, has a way of making employees feel valued. Giving your employees Christmas bonuses can help increase morale at work.
  • Eases burnout: The holiday can be a much-needed respite for some. A holiday bonus lets employees know that their employers are thinking about them and that they are valued, which in turn, could help dampen some of the effects of burnout.
  • Increases productivity and engagement: A Christmas bonus can help incentivize employees to be more engaged and thus boost productivity. A study by Oxford University found that a motivated and happy workforce is 13% more engaged and productive.

How To Spend Your Holiday Bonus

With so many holiday sales (and even after-Christmas sales!) available, it can be hard to pass up a great deal. Go all out on that elusive item you’ve been eyeing or plan a trip. You could also consider using it to pay down some debts, especially high interest rate debts. As long as the bills are paid and the essentials are taken care of, it’s OK to spoil yourself every now and then.

Melanie Grafil contributed to the reporting for this article.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

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About the Author

Lydia Kibet is a freelance writer specializing in personal finance and investing. She's passionate about explaining complex topics in easy-to-understand language. Her work has appeared on GOBankingRates, Investopedia, Business Insider, The Motley Fool and Investor Junkie. She currently writes about investing, banking, insurance, real estate, mortgages, credit cards, loans and more. Connect with her on Twitter or moneycredible.com.
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