How to work out a staff bonus scheme


Bonuses are a great way to reward your team for their hard work and help motivate them to achieve even more. However, if not done correctly, it can have an opposite impact on what you intended. In this blog, we will discuss how to work out how much to pay your team in bonuses, and what to consider to avoid potential issues.

Firstly, it is crucial to communicate clearly to your staff members that bonuses are subject to taxes. You don’t want to appear to shortchange someone once you’re paying out that bonus. Additionally, you need to set out the criteria for the bonus. Without clear criteria, staff won’t know what to focus on, and they won’t be able to help you achieve that bonus. They could also be getting paid for something they didn’t add to your business.

Bonuses can encourage individual performance or team performance. You need to consider what you want to encourage before creating the bonus structure. If you create a bonus structure that encourages individuals to pull in their direction, it could lead to toxicity in your business. In contrast, a good bonus structure is about teamwork and encourages the overall growth of the business.

You also need to consider if you can afford to pay the bonus. Typically bonuses are discretionary, but if you promise a bonus to your team and then can’t afford to pay it, it will break the promise you made to your team. You need to calculate your bonus payments correctly and have enough cash flow to cover the bonus.

Finally, it is essential to maintain a certain level of flexibility with your bonus scheme. Even if you’re trying to encourage teamwork, some members of your team may work harder than others, and some may be happy just to get dragged along and share in the glory. You need to have enough flexibility with the bonus scheme to reward the right members of your team and not reward the ones who didn’t contribute as much.

In summary, to get bonuses right, you need to communicate them effectively, mention the tax bit, let people know the criteria they’re being assessed on, try and create a bonus that encourages teamwork, make sure you can afford to pay the bonus, and maintain a certain level of flexibility. Remember, bonuses are discretionary, not contractual, which means you can have some flexibility around delaying that bonus or potentially not paying it in case of unexpected business events.

If you follow these guidelines, you will be able to create a bonus structure that rewards your team fairly, encourages teamwork, and motivates your staff to work hard to achieve the overall growth of your business.

Scroll to Top

Get Your Free Guide

6 Secrets to Maintaining Healthy Cashflows as You Grow Your Team

Get Your Free Guide

6 Secrets to Maintaining Healthy Cashflows as You Grow Your Team

Search a topic or subject