Good employees can be hard to find. When you do find them, you want to keep them as long as possible. It can be tempting to pay a cash bonus to show your appreciation. Everybody loves cash. Accept accounts! Here’s why . . .
What’s Wrong with a Cash Bonus?
Of course accountants love cash too, but paying cash bonuses can make for a bookkeeping nightmare! When you pay employees with cash, there’s no paper trail. There’s no way to prove to the Canada Revenue Agency (CRA) that you incurred those expenses.
As much as you want to show your appreciation for your staff, you don’t want to do it at the cost of having to pay more tax than necessary. By providing a bonus that goes through the regular payroll system, you’re rewarding your employees and claiming a deduction you are entitled to.
Plus, the CRA can charge penalties if bonuses aren’t put through regular payroll. Processing a cash bonus as a payroll advance will cause employees to earn less on their next cheque when the bonus is taxed.
What You Can Do Instead?
If you’ve been paying your employees cash bonuses as a way of saving them tax, there are other ways to do this. Paying a lump sum increases tax deductions for employees because the payroll system treats the bonus as if the employee has received a massive raise and puts them in a higher tax bracket.
Consider paying the bonus spread throughout the year. Yes, everyone loves having a lump sum Christmas bonus, but what if your employees could keep more in their pocket if you spread the bonus out or gave them a raise instead?
Paid time off or additional vacation days is another way you can show your appreciation. Most payments or reimbursements to your employees will be taxable, but here are a few that aren’t.
- Professional dues paid on behalf of your employee as a requirement of their job.
- Moving expenses paid by the employer (specific criteria must be met).
- Transit passes supplied to employees of a transit company (includes airlines).
Non-Monetary Ways to Show You Care
There are other ways to show your appreciation that don’t involve cash.
Give employees a voice
Employees are more likely to continue working somewhere they feel their opinion matters.
Optimize the employee experience
Opportunities to work from home or have a flexible schedule can be more valuable than cash. This is especially true for people with families trying to juggle everyone else’s schedules.
Support employee goals
Do you know what your employees hope to accomplish in their career? Can you help them achieve that by paying for training or courses? Yes, this will be a taxable benefit but it’s cash the employees don’t have to fork over themselves and you’ll both benefit.
Showing appreciation for your employees is vital for the success of your business. It’s important to do this in a way that allows you to claim business expenses you’re entitled to. If you’d like to show appreciation for your employees but aren’t sure they best way to do that (for both you and your employees), give us a call. We’re happy to help!