It’s the holidays, shopping is in full swing, people are planning holiday vacations—and many are hoping for a holiday bonus.
While bonuses may be hoped for or even expected, there may be some bumps in the road for your multinational business when it comes to working out the details of your holiday pay and bonus payments.
Here’s what you need to know to avoid snags.
Know what’s required when paying bonuses
Deciphering between mandatory bonuses, cultural expectations and perks for a job well done can be a compliance headache—that only gets more complicated as your company grows geographically.
Here’s why it can be confusing:
Some countries mandate 13th-month pay bonuses. This cultural practice started in the Philippines has caught on around the world. While the details vary by country, mandates typically cover when and how much is to be paid. These bonuses are often paid near the holidays and are colloquially referred to as holiday bonuses.
Some cultures expect a holiday bonus. Even if a bonus is not required, many countries consider the practice as customary or expected. Employers may legally decline participation but risk hurting morale and losing good talent to competitors with better offers.
Bonuses may trigger tax implications. Bonus payments are typically subject to taxation and may affect withholdings and income tax rates based on individual circumstances. If you’re paying out large bonuses, it’s a good idea to remind your employees how the extra check might affect their tax filing.
What's the difference between holiday pay and bonus payments?
Holiday pay typically refers to a customary payment of wages on a designated holiday. While most employees take the day off with pay, scheduling arrangements can vary. Some employees may receive holiday pay on top of wages for hours worked. The extra pay is added to the employee’s regular paycheck.
While a holiday bonus is typically an extra paycheck that is issued around the holidays to fulfill mandated requirements and/or boost employee morale. These payments are not tied to hours worked. Some companies may use flat-rate bonuses for discretionary holiday bonuses. But the most common arrangement is to calculate bonuses based on a percentage of the employee’s base salary.
Considerations around bonus structure
The “bonus check” seems to be the most universally understood bonus option, regardless of language, culture or common practice. This added financial incentive paid in addition to an employee’s regular salary may come in the form of:
13th and 14th month pay bonuses
Deciding when to pay bonuses and how much to cut the checks for can vary by company—and sometimes by country. As long as the bonuses meet legal requirements, employers are free to structure bonus payments as they see fit.
You’ll need to work out details as to what bonuses you might offer to employees, when you will pay bonuses, what the criteria are for receiving a bonus, and how the bonus amount will be calculated.
For mandatory bonuses, you're a the mercy of the local government—which decides what, when and how you are obligated to comply. Mandatory bonuses are typically based on salary and paid one to two times per year.
For performance-based bonuses, it’s best to keep things simple. These incentives are designed to motivate employees to meet goals. In order to work, they need to be clear and easy to follow with fair and uniform enforcement. These bonuses can be paid monthly (like sales commissions), quarterly or annually.
For salary-based bonuses, choose a percentage and a frequency. For example, it’s common to pay a holiday bonus equal to 5% of an employee's annual salary once per year on December 1st.
A look at holiday bonuses around the world
Knowing what is common practice or legally required in each country you operate in can help inform your bonus structure. Here are some bonus examples:
- The Philippines: Employers are legally obligated to pay a 13th-month bonus in December that is equal to one month’s base salary.
Brazil: Employers are legally obligated to pay a 13th-month bonus in two installments within specific dates.
Germany: Employers are free to voluntarily offer holiday bonuses. Currently, about half of the employers in Germany adopt this practice.
Mexico: Employers are legally obligated to pay at least 15 days’ worth of wages to employees as a bonus at Christmas. However, it’s customary for many companies to voluntarily increase this amount to 30 days.
United Kingdom: The UK does not mandate a holiday bonus. But workers are entitled to a generous allotment of holiday pay that they can utilize throughout the year.
United States: The U.S. does not mandate a holiday bonus, but many generous employers provide them anyway. About one-quarter of Americans expect to receive a holiday bonus.
The bottom line on holiday and bonus pay
For many, the holidays are a time of giving and heartfelt thanks to the people in our lives that matter—and your employees are certainly at the heart of that. However, it’s important to stay apprised of what is common and culturally acceptable when it comes to bonus pay, as well as what is legally mandated; by doing so, you can avoid fines and penalties due to non-compliance while also retaining top talent by offering them a great incentive.
But keep in mind that the holidays aren't the only time you can sweeten the pot by offering your employees a well-earned bonus. However, at the end of the day, your global bonus structure should be carefully constructed while keeping both your bottom line and your employees in mind. And with the right global payroll partner, paying bonuses—holiday or otherwise—is a cinch.
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With the right global payroll partner, paying bonuses