Are Staff Christmas Bonuses Tax Effective?

by | Sep 17, 2025 | Help Articles | 0 comments

What to Consider When Paying Staff Christmas Bonuses

As the year winds down and Christmas gets closer, many business owners start thinking about rewarding their staff. A Christmas cash bonus might seem like the simplest way to say “thank you”, but before you commit it’s important to understand the tax and super implications.

Cash bonuses are treated as wages, which means PAYG withholding applies and super contributions are also payable. This can increase the overall cost to the business, while staff may receive less in hand than expected.

Below we’ve outlined some of the key considerations, along with other options employers sometimes look at. This isn’t about one being better than another, but about being aware of the different outcomes so you can make an informed decision.

Key Considerations with Staff Bonuses

  • PAYG Withholding – You’ll need to withhold tax at your employee’s marginal rate. A $1,000 bonus might leave them with around $650 in hand.

  • Super Guarantee – Because it’s classed as wages, you’ll also need to add super (currently 12%). That $1,000 bonus actually costs your business $1,120.

  • Payroll Tax – If your business is close to the payroll tax threshold, bonuses can push you over the limit.

  • Expectation Setting – Once you start giving cash bonuses, staff may come to expect them every year, turning a one-off gesture into an ongoing obligation.

Other Options Employers May Consider

Some employers also choose to recognise staff in different ways:

  • Non cash gifts under $300 – These may be exempt from FBT under the minor benefits exemption, but remember this also means they are non deductible to the business.

  • Staff functions or team experiences – End of year events can boost culture and connection. Costs and FBT treatment will depend on the type of event and location.

  • Gift cards – When provided within ATO guidelines, these can be an alternative to cash.

  • Extra time off – An additional day of leave or early finishes may be valued by staff.

  • Professional development or wellbeing perks – Covering training or wellbeing initiatives can provide long term value.

The Bottom Line

Paying a cash bonus is a common way to reward staff, but it’s important to understand the obligations that come with it. There are other options available, each with their own tax treatment, and it’s up to you to choose what works best for your business.

Disclaimer: The information in this article is general in nature and cannot be relied upon as advice. It does not take into account your specific circumstances. We recommend speaking with Avoda Business Advisory, or your own tax adviser, before making decisions regarding staff remuneration, bonuses or gifts.