How to Budget for Employee Recognition and Rewards

Written by
Connie Du
Connie Du

Let me tell you a story. 📖

(But if you’re not interested, jump straight to our explanation of rewards budgeting!)

When we first launched Bonusly, we gave our customers a choice: they could use the platform to give recognition with or without rewards with monetary value.

In the non-monetary version, users awarded each other points for doing something awesome and monitored performance with leaderboards. In the version with real-world value, users recognized each other with points that were assigned monetary value and could then be exchanged for meaningful rewards.

From the jump, we noticed a significant drop-off in user participation with the non-monetary configuration. Companies that chose not to connect points to real-world rewards were experiencing noticeably lower engagement rates than those who’d chosen to give Bonusly points with monetary value.

Blog - Rewards Budgeting

Non-monetary gamification, as opposed to monetary gamification, does not sustain long-term participation. By their 18th month of using Bonusly, companies that used real-world rewards saw double the participation rate in comparison to companies using non-monetary points

Clearly, having meaningful rewards can be what makes or breaks the participation rate of your recognition and rewards program.

So the question is: How much should you spend on your rewards budget?

What to consider when you’re considering a recognition and rewards budget

Every organization’s total recognition and rewards spend will vary based on the number of employees you have.

There are many frameworks out there—World at Work found that most recognition programs have a budget of 0.3% or less of the payroll budget, while SHRM suggests that a rewards budget of 1% or more of total payroll is key for a successful program.

Of course, your rewards budgeting shouldn’t just consider the dollar signs. Here are a few other factors to consider that may influence your final budget.

Administrative time

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In many an HR team’s quest to cut costs, we forget the work and time that goes into running a manual recognition program. For example, if you run a nomination-based employee recognition program, here are just a few steps you’d have to manage:

  1. You need to communicate why, how (what kind of recognition is valuable and meaningful?), and where (Intranet? Chat tools? Forms and surveys?) to nominate people for the award.
  2. Your employees need to be ready to step up and nominate people—and you can’t have the same people nominating and winning every time!
  3. You need a committee that is ready to read nominations and crown a winner, or you need to solicit and manage votes from your general employee pool.
  4. You need to decide on and acquire a prize, and determine whether to spend money on the extra fanfare of making the award special for the winner.

That’s a lot of time and effort!

Even if ad hoc recognition seems simpler, it can still take a lot of administrative time. Do you track expenses for all gift cards and presents? If you have employees in multiple offices or working remotely, how much time do you spend running to the post office, and how much does postage cost?

Don’t even get us started on recognizing birthdays and work anniversaries.

And how do you calculate taxes? 🤯

Honestly, it takes a lot of work to ensure your employees are properly recognized and rewarded for the hard work they do. If you want that time back for other productive tasks, you might want to consider recognition software to automate many of these processes.

Taxes

Like we mentioned, taxes on employee rewards can be confusing, and the process is made even more stressful by the possibility of being penalized for doing them wrong! 😅

Cash and prizes awarded to employees can be considered taxable income, which is just a liability when you’re running a manual recognition program.

It gets even harder when you’re relying on managers across the organization to keep track of and expense receipts. Plus, don’t you want the benefits of peer recognition, instead of just top-down recognition?

Your tax situation can quickly get unwieldy, and the peace of mind you get from having all of that information present in a central place—like a recognition software—can be priceless.

Impact

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You’re considering implementing a recognition program for a reason, and it’s likely because you know it’ll make a difference! High employee engagement is closely correlated to employee recognition.

While 71% of highly engaged organizations recognize employees for a job well done, the same is true for only 41% of less engaged organizations.
–Bonusly’s Employee Engagement and Modern Workplace Report

If you’re balking at the idea of spending part of your budget on employee rewards, consider the potential ROI of increased employee engagement at your organization:

Increased employee engagement gives your organization a competitive advantage—a key thing to keep in mind when you’re considering your rewards budget.

Calculating the numbers

That’s a lot of factors to keep in mind, isn’t it! 😅

Luckily, we just built a tool to make this process a little easier. 💸

Check out our Rewards Calculator to play around and plug in some numbers!

For a more tailored experience, reach out to one of our recognition experts! Discuss your recognition needs and company culture, and even receive a customized budget that works for your organization! 🙌

See Bonusly in action, request a demo

Originally published on September 02, 2020 → Last updated September 2, 2020

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Connie Du

Connie is on the marketing team at Bonusly and is dedicated to making workdays a little brighter for everyone. ☀️She loves writing, her cats, and a well-placed emoji.

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Bonusly is a fun, personal employee recognition and rewards program that helps people feel engaged and successful at work. ✨