As we approach the festive season, the topic of Christmas bonuses for employees is a common theme of conversation in businesses across the country. The Christmas bonus is a common and popular way for employers to show a little gratitude for the festive season.
The Christmas bonus can sometimes be more trouble than it’s worth. A question that employees and employers often ask during the festive season is whether the employer has an obligation to pay a Christmas bonus at all. Some employees depend on bonuses to buy Christmas presents for their families or cover other expenses over the season, and so it my shock them and cause financial problems if a bonus isn’t paid, especially if it has been paid in previous years.
It is usually safe to assume that if your contract says you’re entitled to a Christmas bonus, your employer must give one since, they are bound by the terms of the contract.
If there is no reference to a Christmas bonus in your contract, that doesn’t necessarily mean you won’t get one. Many companies have a policy of giving bonuses at Christmas, though this doesn’t mean this will always be the case. Employers sometimes make a point of not including references to a bonus in their contracts or other documentation, so that they won’t be required to pay.
However, other documents such as offer letters and covering letters that accompany the contract might say that a discretionary bonus may be paid at Christmastime. This gives the employer the opportunity to decide whether or not the bonus should be paid, as it means they are not bound to do so by contract.
If your contract doesn’t mention a bonus and none of the other documentation mentions one either, then an employer will need to consider what precedent, if any, has been set in the past. If it has been customary for the employer to give employees a bonus at Christmas for a number of years, it might be possible to argue that this has become almost an obligation. However, if bonus payments have been paid some years and not others, it is less to be considered an expected practice..
If you’re an employer and you’re thinking of rewarding your employees with a bonus this Christmas, then it is important to be aware of the Small Benefit Exemption and how it works. Small Benefit Exemption is a tax efficient method of rewarding your employees.
Under this concession, an employer can make a one-off non-cash gift/bonus e.g. gift vouchers, to each employee up to a value of €500 completely tax free.
What this means is that the employee is not subject to PAYE, USC and PRSI on the bonus and the employer is not liable for Employers PRSI.
The bonus must not be in the form of cash and only one bonus per year is covered.
If you reward an employee with several bonuses throughout the year only the first one is covered even if the sum total of the bonuses paid is less than or equal to €500.
Michael has one employee who he gave two lots of gift vouchers to throughout the year as a bonus. He gave him €250 in June and €250 in December.
Only the first bonus of €250 is covered by the exemption. The second bonus is fully taxable and Michael must operate payroll taxes on this payment.
Also, if the bonus is in excess of €500 then the full amount of the bonus is liable to tax and not just the balance over €500.
Michael gave his employee gift vouchers worth €525 in December as a Christmas bonus. The full €525 is liable to tax and Michael must operate payroll taxes on this payment.
For more information on how we can help you with your tax situation at Christmas and the rest of the year, please contact Roy Finucane on 061 513320 or firstname.lastname@example.org