Lynda Moore notes there are many things to consider when planning the end of year Christmas party, the staff gift, or the bonus

Every year around this time, a business owner sits across from me and asks some version of the same question. "What should I do for the team this Christmas?" They are saying out loud what I am thinking about for my team too. 

It sounds like a simple budget question. It rarely is. Underneath it there is usually a much bigger one: what kind of employer am I, and what does this year say about me? You can rephrase this by also asking What are the team expecting and can I meet those expectations? 

Why the year-end thank you feels so loaded

For many small business owners, the end-of-year gesture carries a lot of emotional weight. In a good year, it's a chance to share the success and show the people who helped build it that they matter. In a tight year, it can feel like a test you're about to fail.

I often see two patterns. The first is the owner who overspends because generosity is part of their identity, (I know I fell into this camp). They grew up in a family where you looked after people, and cutting back on the Christmas do feels like admitting something has gone wrong. So, they put the party on the credit card and worry about it in January.

The second is the owner who underspends out of fear. The business is doing fine, but a scarcity mindset left over from the lean early years keeps whispering that it could all disappear. The team feels the gap, even if nobody says so.

Neither is really about the money. Both are money stories at work, the beliefs about money we absorbed long before we ever ran a business. My approach, and the first step is simply noticing which story is making the decision.

What does your team value?

Here's the thing I find most freeing for business owners. Your team almost certainly values different things from what you assume.

Some teams love big nights out. Others would much rather finish at lunchtime on the last day and go home to their families. A parent juggling school holidays might value an extra day of leave far more than a three-course dinner. A younger team member saving for a house might quietly prefer a voucher or a cash bonus. 

My very first boss was good at this, every year he would give us our budget, and we could use it how we wanted to. Spend it all on something we wanted, or combine some for an office outing, and spend the rest.  The only rule was we had to spend it; we couldn’t use it to repay debt or save.  Yes, he was an accountant!

So, ask. It doesn't need to be a survey. A casual conversation at morning tea will tell you more than any amount of guessing, and it takes the pressure off you to get it "right".

What's tax deductible at Christmas?

This is where my accounting hat goes on, because the tax treatment can influence which option gives you the most value for your dollar. The rules are more nuanced than most people expect, so here is the broad picture for New Zealand businesses. Don’t take my word as gospel, I am generalising, so make sure you talk to your accountant to personalise to your circumstances and business. 

The Christmas party. Food, drink, venue hire and the extras that go with them, such as hired glasses or a band, generally fall under the entertainment rules. That means they're usually only 50% deductible. On the plus side, fringe benefit tax doesn't normally apply to a party held here in New Zealand.

A morning tea in the office. Light refreshments on your own premises usually aren't caught by the 50% limit, so a shared morning tea or lunch at work can be a more tax-friendly way to celebrate.

Gifts for staff. Gifts that aren't food or drink, such as vouchers, books or a branded jacket, are generally fully deductible. They can attract fringe benefit tax, but small gifts under $300 per employee per quarter are usually exempt, within an overall annual limit for the business. Wine, hampers and other food or drink gifts fall back under the entertainment rules and are only 50% deductible.

Cash bonuses. These are treated as salary, so PAYE applies. They're fully deductible to the business, but your team member takes home less than the headline figure.

The point here is that "what's the most generous option?" and "what's the most tax-efficient option?" sometimes have different answers, and it's worth knowing that before you decide.

How much should a business spend on Christmas?

There's no right number. What I encourage instead is a decision made calmly, in November, rather than in a rush in the third week of December.

Look at the year honestly. What did the business earn, and what is already committed? Remember that January is a lean month for many businesses, with holiday pay going out and GST and provisional tax due on 15 January. Then decide on an amount that feels generous and safe at the same time.

If that amount is smaller than last year, that's alright. A heartfelt handwritten card that names something specific each person did this year often means more than anything you could buy. People remember being seen. Plus, your team are probably aware that this year has been a tough one, they have seen you and your stress levels every day. 

Generosity that doesn't cost you your peace of mind

The best year-end gestures I've seen have one thing in common. The owner felt good about them in January as well as in December, and so do the team. 

That's really the test. Generosity that leaves you anxious isn't generosity you can sustain, and your team would never want you to sacrifice your own financial wellbeing to say thank you. If they do, then maybe they aren’t the right team members!

*Lynda Moore is a Money Mentalist coach and New Zealand’s only certified New Money Story® mentor. Lynda helps you understand why you do the things you do with your money, when we all know we should spend less than we earn. You can contact her here.