End-of-year bonuses are a big perk during the holiday season for a growing number of workers. For some workers, bonuses are unexpected sums of cash, while other workers anticipate the additional money and factor it into their budgets.
As the economy improves, employers plan to give out more and larger bonuses. Still, many workers remain skeptical and keep their expectations low.
Bonuses: 2012 vs. Previous Years
About 40 percent of employers gave out bonuses last year, up from 33 percent the previous year. Of these employers, 87 percent gave at least as much as they did in 2010.
Companies with smaller budgets predictably gave out less, with about 29 percent of small businesses providing bonuses for employees. This year, a full 35 percent of small businesses plan to give bonuses, which will average about 9 percent of employees’ salaries.
But this still doesn’t match pre-recession levels; in 2005, 54 percent of small businesses gave bonuses. And while 33 percent of all businesses gave raises during the 2005 holidays, only 15 percent gave raises this time last year.
Lingering recession concerns could be why workers hold onto their doubts. Although studies show holiday bonuses will increase as the economy continues to improve, workers still seem to keep their expectations low. In a survey in December 2011, 84 percent of workers said they expected bonuses of just $100 or less.
What to Do with Bonuses
There’s no shortage of ways to spend extra cash around the holidays, but hold off on that shopping spree and consider these alternatives:
- Pay down debt. Make a resolution to reduce the amount of debt you carry. Put your bonus toward paying off some credit card debt, which will ease financial stress in the new year and reduce future interest payments.
- Add to your emergency fund. If you don’t have money set aside for an emergency, it’s time to start saving. Aim to build up an emergency fund equal to three to six months of paychecks.
- Add to your retirement savings. This works especially well if your employer makes a matching contribution.
- Add to an education fund. It’s never too early to set aside money for your children’s futures.
- Put money toward your home. Invest in home renovations or make an extra mortgage payment.
- Splurge. If you still want to splurge, do so responsibly. Make a budget, then buy extra gifts for loved ones, donate to a charity or treat your family to a vacation.
If you expect a holiday bonus this year, make good use of the extra cash. If your company can’t afford it, sit tight. Companies that don’t dole out bonuses might change their policies over the next few years as they see economic improvements.