mars 22, 2023


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Christmas Bonus – Costs and Considerations

Christmas parties have been cancelled, but employers who can afford them are still celebrating the holiday season by giving employees a Christmas bonus.

The practice of paying bonuses as a reward to employees for their contribution to the success of the business during the past year, is a tradition that is very much welcomed by employees.

“Where they can afford it, many employers are choosing to gift or reward employees to celebrate the holiday season and recognize their contribution rather than traditional Christmas parties and events, in light of COVID restrictions,” said Maeve McElwee, Ibec Director. Employer relations.

Carolyn Reddy, managing director of HR Suite, said the Christmas bounty is a « great way » to recognize people’s efforts. « Employers are eager to give them a token of appreciation and to recognize that many of them have worked in very difficult circumstances this year. »

It’s been a tough year for many companies, but not all employers are in a position to give employees something extra this year.

And there’s a lot businesses should think about before paying out Christmas bonuses.

If the company pays a bonus to employees in 2020, should they pay a bonus in 2021?

The primary precaution an employer should take is to make it clear that bonus payment is purely discretionary — a simple step to guard against any suggestion that employees expect a guaranteed bonus, said Patrick Walsh, partner and labor law expert at law firm Philip Lee.

“A wise employer has already dealt with this issue in employment contracts or employee handbooks,” said Mr. Walsh.

« There is no harm in pointing out the fact that bonuses may be paid but making it clear that employees do not have an automatic right to receive them. »

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Does the company have to pay a Christmas bonus to all employees?

No, but that is not in the spirit of Christmas and no business owner wants to be considered an Ebenezer miser in the modern age.

A selective Christmas bonus system can lead to discontent in the workplace, or, as Mr. Walsh put it, “a bonus scheme available only to the senior staff is more likely to generate a non-festive spirit in the unfortunate poor who are inferior to the totem pole.”

If the Christmas bonus system is truly discretionary, the employer has the right to choose who receives one, but bosses must be careful if they inadvertently violate the discrimination rules.

“Probably the best approach for an employer when considering a birthday bonus is to pay one across the board, or not pay it at all,” said Mr. Walsh.

What are the tax implications for the employer when paying employees a Christmas bonus?

It’s really important for employers to remember when planning year-end bonuses or dealing with that in terms of taxes, reasonable earnings for PRSI purposes include: salary, wages, fees, commissions, and bonuses.

Barry Cahill of said: « Christmas bonuses paid to employees by employers, intended to encourage loyalty and productivity, or simply to say thank you for all their hard work, are treated as part of employees’ wages and are included in their gross subject income. tax for the year.

Bonus payments are subject to income tax, USC and PRSI at an employee marginal rate of up to 52%.

Ms. McElwee highlights the small exemption from benefits.

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“Where an employer offers an employee a small benefit, i.e. a benefit not exceeding €500, tax, USC, and PRSI do not need to apply to that benefit.”

Cahill said the main condition for the exemption from small benefits is that it must not be cash and cannot be transferred in whole or in part to cash.

« If the value exceeds €500, the full value of that benefit will be taxed. The small benefit is traditionally given as a receipt. »

Are employers choosing to give employees a Christmas gift rather than a Christmas bonus?

Coupons are very popular, according to Caroline Reidy and HR Suite, as are personalized gifts.

She noted, however, that delivery costs are a consideration given that many employees work from home.

McElwee said gift baskets and gift vouchers are popular choices for the Christmas season, similar to last year, and businesses are choosing to buy them from Irish businesses.

“Many companies are keen to issue employee vouchers to small Irish companies that have been negatively affected by the pandemic – hotels, craft businesses, restaurants and other businesses in the experience economy.

« These businesses need support now more than ever, and employees will have the opportunity to enjoy some of the highest quality offerings from locally grown, local businesses, » she said.

Global & Open gifting platform, which recently announced that it To create more than 100 job opportunities In Ireland, she noticed an increase in inquiries about her service after workplaces began canceling Christmas parties.

Jonathan Legge, chief executive, said upcoming orders for food items are coming with Irish products like chocolate, whiskey and cheese.

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« Another thing we’ve seen this year that has proven popular are subscription vouchers for things like Master Class where you can learn about gardening, cooking or presentation skills, as well as mental health subscriptions for apps like Calm, » he said.

Gift prices from & Open range from €20 to €275, and the company finds companies to be more generous when buying gifts for employees because of their hard work during the pandemic.

Are there tax implications for giving employees a Christmas gift?

There is no independent position asserted by revenue regarding Christmas baskets, according to Mr Cahill,, “but the probability for most employers and employees is that they will be covered by the small benefits exemption – as long as the value is less than €500 and the exemption has not been used previously. In the year « .

Ms McElwee, Ibec, said there has been a longstanding practice on revenue that seasonal parties will not attract taxable benefits in kind – as long as the expenses are reasonable and available to all employees.

In December of last year, the Department of Revenue asserted that benefits in kind will not arise when an employer incurs reasonable costs in hosting a virtual seasonal party for their employees.

« Affordable costs include the costs normally incurred in hosting a face-to-face event. This includes the cost of delivering or providing food and drink to staff before or during the event, » she said.