How to Start an Employee Bonus Program: 5 Tips to Boost Loyalty and Engagement
When your employees feel appreciated, they’re more likely to stick around and work harder to help you keep clients happy and grow your revenue.
An employee bonus program is one of the best ways to help your employees feel valued—encouraging them to do their best work and help make your business a success.
In this article, we’ll walk you through how to start an employee bonus program, what bonuses to offer, and how to introduce the program to your team.
Learn how to start an employee bonus program:
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 rewarding employees, you can:
- Boost employee morale, productivity, and job satisfaction
- Increase employee satisfaction and keep your best team members around for the long-run
- Encourage the behavior you want to see
- Improve employee recognition and make employees feel like an essential part of the team
At Sparkle and Shine, we try to create a culture of celebration and encouragement. When our team does something really well, especially our top performers, we stop and celebrate.
We give out badges for doing a job well, when they get a five star-review, and when they’re a team player. I think people just want to feel that what they do matters. And that we aren’t just coming to them when something goes wrong.
How to create an employee bonus plan
Creating an employee bonus program can motivate your team, boost performance, and enhance retention. To develop an effective bonus program, follow these steps:
1. Set goals for your bonus program
Before starting an employee bonus program, you need to decide which business goals you’re trying to reach—this will help you set bonus rewards that tie directly into these goals.
To guide your goals, ask yourself: what behavior do I want to see more of?
For example:
- Productivity: Give your employees a cash bonus for finishing jobs early to free up time to take on new clients. Measure this by tracking how quickly each job is finished.
- 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 field service CRM like Jobber to manage your client list and make sure you’re winning repeat customers.
- Customer service: Reward employees for being named in a five-star review or for turning a bad review into a good one. Use Jobber Reviews to automatically ask for client reviews, and track the number of five-star reviews your business is earning.
Once you’ve chosen your goals, share them with your employees. Give them clear, measurable goals to hit such as, “Get five five-star reviews this quarter,” or, “Bring in three client referrals this month.”
Actionable goals give your employees a clear idea of the exact metrics they need to hit, motivating them towards reaching their target.
2. Set a budget and choose which incentives to offer
Set a budget to help work out what you can afford to give to your bonus program. Without a budget, you may end up spending money you don’t have or not putting enough aside to help make sure your program is a success.
Set a dollar amount and give yourself a 5-10% leeway for any unforeseen expenses.
Once you have your budget in place, choose incentives that you know will motivate your team to do their best work. This could include cash bonuses, an extra vacation day, gift cards, or even tickets to sporting events.
3. Write up your employee bonus program and share it with your employees
When you’re ready to launch your employee bonus program, write down your employee bonus plan in a one-page document to keep your plan easy to read. Then give a copy to employees so everyone knows exactly what to expect.
Make sure to cover:
- Who’s eligible to receive bonuses
- How performance is assessed (e.g., milestones, requirements, target rewards)
- When financial awards are calculated and how a bonus payment is awarded (e.g., specific bonus amount)
- Time restrictions
- Who to talk to if they have questions
Next, set up a meeting with your team and go through the program in detail. Be prepared to answer questions and listen to any 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’re ready to roll out your employee bonus program.
Be open to changing your small business bonus program over time as your team grows and your goals change. Take a look at your plan each quarter or year to see if it’s getting results and make a note of any changes that could help improve them.
8 bonus program reward ideas
There are several different employee incentive 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.
1. Performance bonuses
A performance-based bonus (also called milestone bonuses) is rewarded whenever an employee reaches the company goals you set. These bonuses range widely—it 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. Set a regular schedule for rewarding your bonus, so employees know when to expect them and can work towards reaching their goals before that date.
A performance bonus can go to individual employees or to an entire team, depending on the goal.
Example: Give an employee a $1,000 bonus for hitting productivity targets that year.
2. Spot bonuses
A spot bonus is a small thank-you that you give on the spot to reward great work. These bonuses can come as a surprise to your team, pushing them to always do their best work.
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 busy and stressful time.
3. Referral bonuses
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.
4. Signing bonuses
If you’re hiring for a high-responsibility position or trying to hire 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: Add an added 10% of the annual salary as a signing bonus when hiring a new team lead.
Pro Tip: To help keep your new employee around for longer, spread out the bonus over a few months instead of paying it out all at once.
5. Retention bonuses
Retention bonuses help boost the loyalty of your highest-performing employees by rewarding their hard work. Support long-term careers with your business by giving bonus payments at employment milestones, like a hiring anniversary.
Retention bonuses can also keep your employees with you if your business goes through a major shift, like a merger or acquisition. Give your best employees a retention bonus if they stay and 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 a company 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. This helps them feel confident that you’ll keep your promise.
6. Profit sharing
A profit-sharing bonus works by rewarding your employees with a percentage of your business earnings.
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.
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.
Example: Distribute 15% of net profits among employees, adjusting your rate based on their seniority, responsibilities, and performance.
Pro Tip: Make sure you have the money available ahead of time so you aren’t scrambling to reward employees when it’s time to share with them.
7. Tips
Employee tips come from the client, not from you. Tips can give your employees a real feel-good boost as they see how their work has made a direct difference to a client.
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 great work.
8. Non-cash rewards
Non-cash rewards can sometimes be just as motivating as cash rewards, as they can feel more thoughtful or fun like getting a gift.
Here are a few examples of non-cash employee bonus incentives to choose from:
- Vacation days or paid trips
- Meals, snacks, or treats
- Events or social gatherings
- Company merchandise
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 cut back on turnover, so they created an employee bonus program structure to reward great work.
After cleanings, they sent 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 work instantly.
Employee bonus program best practices
Here are some rules to stick to help make sure your employee bonus program is a success:
1. Keep your promises
Always keep your promises when it comes to employee rewards, put them in writing and reward your employees with what you promised on the date you set out. This will avoid employee resentment and boost loyalty.
2. Create rules and policies around how each bonus is rewarded
This helps you set expectations with employees, like how much they earn and when they’ll get their reward.
3. Stick to your schedule
Choose when your employees will be rewarded and stick to your schedule to provide predictability and improve engagement with your employee rewards program. You can choose to reward employees after each goal is reached, monthly, quarterly, or annually.
The benefits of employee bonus programs for employers
There are a ton of employer benefits to setting up employee incentive programs:
Encourage hard work
81% of employees are more motivated to do their best work when appreciated by their employers. Employee reward programs are a great way to boost employee engagement, encourage hard work, and motivate the kind of behavior you want to see.
Inspire loyalty
Many people feel more loyal to their employer when they receive recognition for their work.
Boost morale and company culture
The more you reward employees for a job well done, the happier they will be, and the more you’ll uplift your company culture.
Potentially higher revenue
If you tie many of your employee bonus plan goals to actions that directly impact your bottom line (such as bringing in new clients), then you should see more revenue within the year.
Why not get started today to see how much of a difference an employee bonus program can make to your business?
Originally published in April 2022. Last updated on October 21st, 2024.