How to use the ‘bonus moment’ to build financial wellbeing for your employees

spending bonus money wisely

Annual bonuses are an opportunity for employers to show their appreciation for employee performance and contribution to company successes. They’re also a fantastic opportunity for employers to promote financial education and wellbeing, at a time when money is on their employees’ minds. 

A great time to talk about personal finance

Many companies choose to reward employees with an annual bonus linked to individual or business performance. The windfall nature of bonuses can mean there is an inclination to immediately spend the extra cash on something special – a holiday, a new pair of shoes or an expensive meal. 

There’s no ‘right’ answer for how an employee should use their bonus. But employers can use the “bonus moment” to provide education or support that helps employees find what’s right for them and their future financial, or life goals. 

So why is bonus time such a good moment for financial coaching?

There are so many options employees have at bonus time to make a big impact on their financial future. We asked our money coaches about the conversations they have with employees at this time of year.  

1. Increase long-terms savings by adding to a pension 

This is likely to be the most tax-efficient way for employees to use their bonus. However, not all company schemes are set up to allow staff to pay bonuses into their pension schemes. If it’s not, this is something employers could seek to change to make it easier for employees to invest in long-term financial security. 

Head of Coach Excellence, Caspian Paget says “Adding a lump sum to your pension is great, but some employers will even offer bonus sacrifice which means you can salary sacrifice your bonus into your pension, saving you some National Insurance that you’d otherwise pay.” 

2. Save the money in a workplace ISA

The workplace Individual Savings Account (ISA) is growing in popularity, and for those who want to hold alternative investments to pensions they can access before their mid-to-late 50s, they are an attractive alternative to pensions. Again, for employers that don’t currently offer this option, it might be worth considering as a way to support financial wellbeing. 

3. Pay down some of your mortgage

For homeowners, paying down some of their mortgage with a bonus might be a good idea, particularly at a time of rising interest and inflation rates. 

Lower mortgage repayments could mean more money to spend on other things as prices on essentials rise while lowering the amount you need to repay, and the accruing interest you owe. Just be careful of any overpayment fees you may incur. 

4. Pay down other, smaller debts

Credit card debt in particular can be a good option where fees can rack up significantly over time, and a bulk one-off payment can significantly reduce it.

Caspian says, ‘‘Generally speaking, it’s a good idea to pay down any high interest debt, as untreated, it can linger, reducing your capacity to save while you meet minimum repayments. At its worst, it can quickly spiral out of control.’’

5. Invest in company share schemes

More than two million UK workers participate in company share schemes, which receive generous tax breaks, enabling employees to benefit from stock market growth in your company. 

From an employer’s standpoint, this option can have a positive effect on employee retention, as it acts as an incentive for staff to remain longer with the company if it’s doing well and be a further engagement tool for senior managers to connect with staff.

6. Top up your emergency savings 

With the cost of living due to rise in 2022 due to inflation, higher tax rates and increasing energy costs, keeping your bonus in reserve could be a great way to avoid unexpected surprises and bills later in the year. 

We recommend employees have an emergency savings pot equal to three months spending money. 

7. Invest on behalf of your children 

Even if you’re not a parent currently, if you have plans for the future using your bonus to start building up funds for parenthood could be a great decision. 

Head coach Shah Abbasi says “Childcare costs are often the biggest shocker for clients. It is outrageously expensive. But you can start saving for it years in advance.” Junior ISAs could be a smart and tax efficient option to start saving for a child’s future. 

8. Talk to someone about your ideas 

Talking about money is still taboo, but it’s one of the best ways to reflect, consider and ensure your decisions are going to support your money goals. 

Speaking to a financial coach is one way to do this, but even talking to a partner, friends or colleagues can help build confidence around financial plans for your bonus. 

As an employer, having financial wellbeing ambassadors who are on hand to share stories, or field questions around the time of bonus pay-outs could be a great way to ensure your employees feel supported. 

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