Rethinking Big Bonuses: Get Creative with Your Incentives
In a super broad, umbrella definition, a bonus refers to cash payments given in lump sums. The term itself is rather exciting – it’s extra, additional… more! And in the language of making money, more is always good. As we’ve been reading, a signing bonus is becoming increasingly popular as employers pull out all the stops to land quality people. A good signing bonus lures a good candidate, in theory.
Here’s where the going stops being so good – when you read the fine print, yes, employees are getting more money. But they’re also being paid a large sum of taxable income in one chunk; unless they’re sitting in some untouchable tax bracket (and they’re likely not), your bonus receivers are quickly going to look at their cheques and wonder where a huge portion of that bonus went. (Or you’ll have to tack taxes on top of the bonus if you want them to take home the promised amount.)
The bonus tax rate is actually the same as the rate for their standard monthly salary, and while any additional income is, well, a bonus, it got me thinking – how can employers really get new hires a bang for their buck (and your own)?
Enter: benefits bonuses. I’m not inventing the wheel here, but this is pretty new territory in terms of monetary incentives in the employment landscape, and the beautiful thing about the notion of a benefits bonus is the ability to make it your own. You can attact top people with other benefits-centred incentives: waive the waiting period, add a bonus-like sum to employee spending and wellness accounts, or match RSP contributions to a maximum. These options alleviate or at least spread out the tax burden.
Consider shifting some or all of an annual bonus or sign-on bonus into a wellness account. This could go towards anything that contributes to employee happiness and wellbeing to keep them productive, committed to the business, and ready to move you forward – rather than go elsewhere.
$2,500 as a lump-sum signing bonus is taxed up the wahoo, whereas A Health Spending Account (HSA) is a cost-effective alternative to traditional health insurance. In simple terms, health and dental benefits offered through this plan are 100% tax deductible to the employer and 100% tax free by the employee. There are no premiums, hidden fees, deductibles, copay, or complex policies. Now that’s a wahoo! I can get behind.
A huge selling point for Health Spending Accounts is their flexibility – like I said before, it can cover anything that contributes to employee happiness and wellbeing. This could mean offsetting a family vacation, buying a paddleboard, paying for guitar lessons, finally getting around to buying a gym membership – the options are virtually endless, and through a benefits bonus, 100% of the contributions are being used.
In a recent interview with Willful, a Canadian online estate planning company, Co-Founder Erin Bury spoke to ramping up its hiring efforts during the pandemic. “These additional [benefits] have helped us to attract and retain talent during a really challenging time.” The company hugely expanded on their existing perks, with the addition of home office allowances and HSA contributions. “They’ve helped us to redefine our total compensation plan to be more focused on what post-COVID employees care about: flexibility, access to mental-health resources and a solid compensation package that includes salary, employee stock options and benefits.”
Employers are setting up wellness accounts with a yearly maximum and a lot of flexibility for employees, including RSPs, which can really help contribute to employees who are also first-time home buyers where employers match RSPs to a maximum each year, helping these employees (finally!) get into the housing market.
When hiring new talent, the interview process is a great time to get to know what’s important to potential employees. You know that question we all hate: “where do you see yourself in five years?” How about “what perks would make this an exciting job you’ll really talk about?” With hiring incentives in mind, questions like these can help us craft the perfect sign-on incentives and benefits offerings.
Ensure you’re advertising flexibility and innovative recruitment incentives – speak to the importance of ensuring employee satisfaction in and out of the office, and really mean it. Though some of these offerings may add a few thousand dollars on top of someone’s salary every year, so do taxable bonuses. Either way, the added cost goes a long way when you’re meeting people’s needs. The most important number of all? Employee retention, wellbeing, and overall satisfaction with meaningful benefits will always remain priceless.