Employee Bonuses: How to Create a Bonus Structure that Works for Your Business

An employee bonus program can be a powerful way to motivate your daycare staff and reward their best work. In this guide, we’ll walk through the bonus types small business owners commonly offer and lay out best practices for building a childcare employee bonus structure that actually works. Read on to find out more.

The Purpose of a Childcare Employee Bonus Structure

A well-designed bonus program delivers real benefits to your childcare business. For example, it can:

• Motivate your daycare staff to reach their full potential by rewarding hard work and dedication
• Build positive culture by creating a sense of accomplishment for your team
• Help you, the owner, communicate genuine appreciation for above-and-beyond effort
• Keep the team aligned on shared values, vision, and goals — with rewards along the way
• Level the playing field, giving everyone a chance to earn rewards regardless of title

For more on building team culture, read our guide to childcare staff appreciation ideas.

Different Types of Employee Bonuses

You have several options when it comes to rewarding your team. Here are the most common bonus types to consider for your daycare:

• Annual bonus – A once-a-year bonus tied to base salary. Owners typically award it when employees hit pre-set performance goals.
• Discretionary bonus – Also called a spot bonus. Managers hand it out on the spot for exemplary performance — a one-time reward for going above and beyond.
• Project bonus – A bonus tied to the completion of a major project. You can award it to a single employee or a whole team, depending on who contributed.
• Profit-sharing bonus – A share of the company’s annual pre-tax profits, usually based on wage, role, and tenure. Of course, this one only kicks in when the business turns a profit.
• Holiday bonus – A seasonal bonus, usually around the winter holidays, that thanks staff for a year of hard work. You can tie it to performance or simply pay it across the board.

You can mix and match — running just one of these or layering several. However, before you build the program, weigh the best practices below.

Quick note on bonus taxes

Bonuses are considered supplemental wages by the IRS. As a result, they have specific withholding rules. The IRS Publication 15 (Employer’s Tax Guide) covers the federal flat rate and aggregate methods. Your payroll provider — for example, Gusto — will handle the calculation automatically once you flag the payment as a bonus.

Childcare Employee Bonus Structure Best Practices

To build a bonus structure that drives the culture, morale, and performance you want, follow these best practices.

Tie at least one bonus to individual performance

Holiday bonuses and profit-sharing are great. However, they don’t push individuals to stretch the way performance-based rewards do. Keep the holiday and profit-sharing programs — staff love them — but also build in a bonus tied to the hard work you actually need to see day to day. Gallup research shows recognition tied to specific behaviors is one of the strongest drivers of engagement.

Make the bonus structure measurable

For performance-based bonuses, root every reward in measurable goals. Have you heard of the SMART framework? It stands for goals that are Specific, Measurable, Achievable, Relevant, and Time-bound. The performance goals tied to bonuses should always be SMART goals. For more on the framework, see Mind Tools’ SMART Goals primer.

Communicate the structure to your team

Want a regular bonus program? Tell your team about it. For example, include bonus details in your onboarding for new hires. In addition, walk through the program in a team meeting. As a result, employees know exactly what they’re working toward — and they’ll bring more effort day in and day out. Document the program inside your employee handbook so the rules are clear and consistent.

Carve out budget room for bonuses

It may sound obvious, but you need to budget for bonuses. This matters most if you plan to hand out discretionary or spot bonuses throughout the year. Set aside the money in advance so you’re not scrambling — or skipping the reward entirely. While you’re at it, make sure you’ve also planned for paying yourself as the owner.

Practice equality in your bonus structure

Fairness should sit at the heart of your program. It’s fine to scale bonuses by salary, role, or tenure. However, every team member needs a real opportunity to earn a bonus. For example, if only the lead teachers in one room qualify, you’ll demoralize teachers in other classrooms and discourage them from pushing harder. The same goes for limiting bonuses to your assistant director. Use your bonus program to encourage all of your team — not just the people you see as most important. The Society for Human Resource Management (SHRM) publishes ongoing guidance on equitable incentive pay design.

Make sure your bonus encourages the right behavior

It’s great to reward teachers for student retention. However, what if that pushes them to avoid tough conversations with parents about behavior issues — or to let families fall behind on payments rather than suspend service? As a result, your bonus structure must consider every possible outcome. Close the loopholes before staff find them.

Wrapping Up

Building an employee bonus structure takes planning and forethought. However, the payoff is real — your team feels appreciated, and you reward the work that grows your daycare.

Want to partner with an accounting team that helps you plan bonuses, payroll, and growth all in one? Schedule a call with Honest Buck Accounting today.