PEMBROKE, Mass. — Most coin laundry owners don’t give Christmas bonuses to their employees. One operator told me, “Why should I give a Christmas bonus? They’re paid to do the work, period. They receive adequate wages. That’s enough.”
Other “Laundromateurs,” moved by the spirit of giving, give modest sums at holiday time. “To show appreciation, I hand each of my staff a $100 gift certificate to an upscale restaurant,” says one operator.
I believe that, starting this year, you should show appreciation by tying Christmas giving to profit bonuses, and by being more generous than you ordinarily are. By tying the bonus amount to company performance, it provides staffers incentive to do everything in their power to see that the company succeeds. Furthermore, by individualizing bonuses, the employee is committed to doing his/her very best.
Say you have three stores and six employees. Estimate your annual profit at year’s end. If you’re one of those operators who don’t compute profit, take revenue, deduct expenses, and deduct a reasonable salary for yourself. This is an example:
Revenue of three-store operation ... $850,000
Operating costs, including interest on debt ... $750,000
Reasonable owner draw ... $70,000
Profit ... $30,000
Next, decide how you want to carve up this profit. In this case, 60% of the profits go back into the business for capital replacement, working capital, etc. Twenty percent goes to you, the boss, as a bonus. And 20% go to your six staffers; they divide 20% of $30,000, or $6,000.
Rather than give each staffer $1,000, create a formula of value based on your assessment of employee value. In this example, the owner values contribution and loyalty. Contribution can be restated as “pay.” How much a staffer makes roughly corresponds to contribution. Loyalty can be recast in terms of years employed. So, the formula might be 1 point for every thousand dollars earned and 1 point for every year employed.
The staffer who has been an employee for eight years and earns $22,000 annually receives 30 points (22 points for his wages and 8 points for longevity).
Add up points for all staffers—let’s assume that the total is 120 points. This staffer earns a bonus worth 30 points out of the 120-point total, or 25% of the pie. That would equal $1,500 (25% of $6,000). The other five staffers earn varying amounts depending on their point totals, but the entire $6,000 bonus is fully distributed amongst the six staffers.
Make up your own formula. You might decide to give 10% as a bonus rather than 20%. Or, if you really want to incentivize your staff, you could choose to give away 50% of profit. Or, you can choose different characteristics or assign different percentages.
You may believe that longevity is the most important employee characteristic, and give 100% of the points based on years employed. Maybe you think that weekend workers deserve better bonuses than weekday workers; for every $1,000 in salary, every weekend worker gets 2 points and every weekday worker gets 1 point. Or, you could reward wash/dry/fold workers at a level higher than those who don’t perform that service, say 3 to 1. A wash/dry/fold worker with a $9,000 salary would earn 27 points instead of 9 in that formula.
I can hear your questions now. Why give out hard-earned profits when I don’t have to? Because this uncalled-for generosity shows your staffers that you appreciate their contributions. Moreover, this aligns them with company success.
They will be more considerate of customers. They will never close early. They will take the extra effort to make sure that the place looks spic and span. They will bend over backwards for the customer. They will make sure their fellow staffers are equally committed. In other words, they will do what it takes to be successful, because company success puts money in their pocket.
Why make such a complicated formula? It’s not complicated, really. You can figure this all out, roughly, using pen and paper and a calculator. The point is, you are trying to assign importance to contribution. The formula I described reflects the level of employee contribution. Design any bonus system you want, but remember that it’s a motivational system.
Why give varying amounts, creating envy and distraction among my staff? You create the formula, and you can articulate it so that your people understand. My example—“I want to reward contribution, which is reflected in pay and longevity. That’s how I determine how valuable the employee is”—is easy to understand.
How can I determine end-of-year profits when it’s not the end of the year? Let’s say your year-end is Dec. 31, so the figures won’t be ready until the new year. The answer is to project expected profits. Work with your accountant. Use past years’ figures as a guide. This is a volunteer payout system, so no sum has to be etched in stone.
Why combine holiday bonus with profit bonus? Because it kills two birds with one stone. It’s the perfect time, as everyone needs money. Since the sum reflects both a charitable nature and an awareness of their performance, your staffers will be extra appreciative for whatever they receive.
How can a bonus be included in expenses? Just issue the checks as payroll, as though there are 53 weeks instead of 52 weeks in the year. Then the bonus becomes a payroll expense. Company profit is appropriately lowered (below the computed figure used to determine bonus amounts), and you pay a lower tax liability.
Should I give a Christmas profit bonus when I only have one or two staffers? Absolutely, for these are the people who will make or break your business. In fact, it is more important to incentivize staffers in a tiny shop than in a larger operation, where the heavy workload is often a good incentive.
Think of a Christmas profit bonus as a way to show your appreciation to your employees and as a way to get them to care more deeply about bottom-line results.
Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an attorney or tax adviser for advice regarding your particular situation.
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].