Bonus Programs for Employees: Reward and Retain Top Performers
When your employees feel appreciated, they’re more likely to stick around. Bonuses are a way to show your gratitude and thank employees for their hard work, beyond their usual salary and employment benefits.
Offering these bonuses can be simple and rewarding, as long as you have an employee bonus program in place. This will keep your whole team on the same page—and keep them around for the long haul.
Let’s go through how to set a budget and goals, which types of employee bonuses to offer, and how to introduce the program to your team.
What is a bonus program for employees?
Employee bonus plans reward high performance with incentives like extra pay, time off, gifts, or other perks.
By creating a bonus system for employees, you can:
- Boost employee morale, productivity, and overall job satisfaction
- Keep all-star team members around long-term
- Motivate and encourage the type of behavior you want to see
- Show employees how they contribute to company goals
How do I create a Bonus Plan for my Employees?
1. Set a budget and goals for your bonus program
When you’re starting an employee bonus program, there are two things you need to decide: how much you can spend and what business goals you’re trying to reach.
Set a budget to determine what you can afford to invest in the bonus program. You should also know where that money will come from, so review your cash flow statements with that in mind.
You’ll also need to set goals for your program. Ask yourself: What behavior do you want to encourage? For example:
- Productivity: Give your employees a bonus for finishing jobs early, which frees up room in your schedule for new clients. Measure this by tracking how quickly each job is finished (time and job tracking software can help with that).
- Repeat business: Your clients might request the same employee for repeat jobs if they do great work, so reward employees based on the number of requests they get. Use a CRM to manage your client list and make sure you’re winning (and keeping) repeat customers.
- Customer service: Reward employees for being named in a five-star review, or for turning a bad review into a good one. Try using Nicejob to ask for client reviews, and track the number of five-star reviews your business is earning.
Whatever your goals might be, just make sure your employees’ efforts can actually help you reach them. For example, a field employee can’t make clients pay you faster, but they can accept payment on the spot.
2. Choose from these bonus program ideas
There are several different employee bonus program ideas to choose from, depending on what you’re hoping to gain from your program.
Start with one or two types of bonuses below. We’ve even included employee bonus program examples to give you an idea of how a program could look for your business.
A performance bonus is related to the employee’s contribution to achieving company goals. These bonuses range widely—a bonus could be $50, or up to 15% of an employee’s salary.
You can give them out each quarter, at year’s end, at the end of a project, or as holiday bonuses. They’re often a regularly scheduled bonus, so employees know to expect them around certain dates or milestones.
Performance bonuses can go to individual employees or to an entire team, depending on who’s responsible for the high performance.
💰 Example: Give an employee a $1,000 bonus for hitting productivity targets that year.
Spot bonuses are small thank-yous that you give on the spot to reward great work. These bonuses can come as surprises so your team always does their best work—but employees should know they’re always a possibility.
You can even empower employees to nominate each other for spot bonuses. This can be useful if your field teams don’t have direct supervision and hold each other accountable for the quality of their work.
💰 Example: Give an employee a $10 coffee shop gift card for their positive attitude during a stressful time.
You can award a referral bonus when a current employee refers a new hire as part of an employee referral program. This bonus can be any size, depending on how easy or hard it is to find qualified candidates.
Make sure to create rules and policies around the program. This helps you set expectations with employees, like how much they earn and when they’ll receive it.
💰 Example: Give the referring employee a set of movie tickets when the new hire reaches 30 days on the job, followed by an extra vacation day when the hire reaches 60 days.
If you’re hiring for a high-responsibility position or trying to attract someone you know will level up your business, you can offer a signing bonus to sweeten the deal.
As a small business, you’ll likely want to reserve signing bonuses for special hires and not use them all the time.
💰 Example: Offer an additional 10% of the annual salary as a signing bonus when hiring a new team lead.
Pro Tip: To help keep the new employee around for longer, spread out the bonus over a few months instead of paying it out all at once.
Retention bonuses help keep your highest-performing employees around. You can use them to encourage long-term careers by giving bonuses at certain employment milestones, like a hiring anniversary.
Or, if your business is going through a major shift, like a merger or acquisition, you can offer your best employees a retention bonus to encourage them to ride out the change.
💰 Example: Give employees $100, $200, and $500 in cash for their one-, two-, and five-year anniversaries. If you’re going through change, offer a bonus of 10% of their annual salary, split into two payments—5% at the time you offer the bonus, and the remaining 5% at a later date.
Pro Tip: If you’re giving out retention bonuses at a future date, make sure the employee knows when they’ll get it—and put that date in writing. That way they know you’ll keep your promise.
READ MORE: What is a virtual assistant and how can they help your business?
After employees have been with your business for at least a year, give them a percentage of your quarterly or annual company profits. (Some companies also do this based on revenue, with a much smaller percentage.)
Show your team how their efforts affect your bottom line and help contribute to profits. This will motivate employees to work harder because their efforts will pay off—literally.
💰 Example: Distribute 15% of net profits among employees, adjusting based on their seniority, responsibilities, and performance.
Pro Tip: Make sure you have the funds available ahead of time so you aren’t scrambling when it’s time to share them with employees.
Employee tips are a special kind of bonus—they come from the client, not from you. When clients tip an employee, it’s a reward for a job well done.
Tips are usually optional, and the amount can vary. That said, businesses that use Jobber get tipped 15% on average.
💰 Example: A client tips your employee 10% of a job’s value for doing such great work.
3. Decide which employee bonus incentives to offer
All effective bonus programs for employees need the right incentives. Not sure what yours should be? Just ask your employees what rewards will motivate them to go above and beyond.
These are a few examples of the incentives you can suggest to get the conversation started:
- Cash or paycheck top-ups
- Gift cards for fuel or restaurants
- Vacation days or paid trips
- Meals, snacks, or treats
- Events or social gatherings
The value of these incentives can vary depending on how big you want a specific bonus to be.
You can also offer non-material incentives like public recognition, promotions, or learning and professional development opportunities.
⚠️ Disclaimer: Check your local employment legislation and tax information to see if your employee bonuses will be taxed as fringe benefits or otherwise counted as compensation.
Employee bonus program example: My Amazing Maid
My Amazing Maid wanted to reduce turnover, so they created an employee bonus program structure that rewards great work.
After cleanings, they send client surveys asking for a rating. If all reviews are four or five stars, senior cleaners get a $0.50/hour bonus for that pay period, and supervisors get $1.50/hour.
The system allows My Amazing Maid to set clear employee expectations and reward great work very quickly.
4. Launch your employee bonus program
When you’re ready to launch your employee bonus program, write it down in a one-page document. Then hang it in the office or give a copy to employees so everyone can refer back to it.
Make sure to cover:
- Who’s eligible to receive bonuses
- How performance is assessed (e.g., milestones, requirements)
- How payment is calculated and awarded
- Time restrictions
- Who to talk to if they have questions
Next, set up a meeting with your entire team and go through the program in detail. Explain it clearly and simply, and be prepared to answer questions and receive feedback.
The goal of this meeting is to help your employees understand what they have to do to earn bonuses. Once they’re all on the same page, you can roll out the employee bonus program anytime you like.
READ MORE: Kristen Hadeed’s 5-minute team-building activities
You’ll need to adjust your small business bonus program over time as your team grows and your goals change. There are always ways to improve, so be ready to make updates as needed.
Looking to recruit all-star employees and keep them around long-term? Learn how to attract employees and build a business where they want to work.
Originally published July 2019. Last updated on April 8, 2022.