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What to Do If You Can't Pay Quarterly Bonuses

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Imagine this: you are a small business owner who has paid quarterly bonuses to certain employees for many years. You enjoy showing them how much you care. And of course, they enjoy receiving the additional compensation.

Then something happens. Your business takes a turn for the worse, and you are no longer generating as much revenue. It is your job to keep the ship afloat, which means taking a strong look at your finances.

One of the first things you will notice is how much you are paying in quarterly bonuses. Should you do away with all bonuses for the time being? Should you simply cut back?

Telling Employees

Breaking the news to workers that bonuses have been cut or eliminated can be a tricky conversation. You need to explain why this is happening, making it clear that it is nothing the worker did in terms of his or her performance. At the same time, you need to smooth things over to the point of avoiding a confrontation.

The Society for Human Resource Management covered a similar topic in its article entitled "When Year-End Bonuses Don't Materialize."

Here is one of the most important passages from the article:

"Most employers qualify their policies by stating that bonuses are discretionary, meaning they cannot be guaranteed and that the health of the business may dictate the amount of bonuses."

The word "discretionary" says it all. Upon hiring an employee, you must make it clear that quarterly bonuses are discretionary and not guaranteed. This way, you can eliminate or reduce bonuses based on the overall health of the company.

This wording doesn't mean that employees will be any less mad if you cut back or eliminate bonuses. What it does mean, however, is that you can do so without worrying about legal consequences.

If for any reason you are unable to pay quarterly bonuses, it is essential to be open and honest with employees as soon as possible. Furthermore, let them know the company is doing whatever it can to improve its financial situation as to reinstate bonuses again in the near future.