Should you be Santa Claus this holiday season at your small business? Here’s why it makes sense.

If you’re like many small businesses, you probably had a decent financial year. So here’s an idea: Instead of paying a share of your profits to the government in the form of taxes, why not instead pay your employees?

That's what many of my clients have been doing this holiday season, and it makes sense for a few reasons. For starters, holiday gifts and bonuses paid to employees can usually qualify as tax deductions.

More important, a year-end gift or bonus shows your appreciation for your employees’ value -- and could even help keep them around during these times of low unemployment.

That’s a big reason why close to half (48%) of all employers surveyed by Trevose-based Advertising Specialty Institute (ASI), were planning to give gifts to employees this holiday season, up from 42% last year, an all-time high.

“Overall, companies’ gift-giving plans this year are promising … but we’ve seen the strongest year-over-year growth for employee gift-giving,” Nate Kucsma, executive director of research and corporate marketing at ASI, which serves the $24.7-billion promotional products industry said in a Newsday report. “Companies recognize increasingly the importance of rewarding employees as just one of the means of reducing attrition.”

Many small business owners I know are giving gifts and bonuses to employees for the same reasons.

"I received two very nice bottles of wine at the holiday party after a week with the firm," said Andrew Karnavas, a wealth manager at Youngs Advisory Group in Bethlehem. "Generous gift cards were also presented. Additionally, year-end bonuses are paid to employees based on the company's profitability."

Ron Votto, a Philadelphia-based vice-president of sales at DataXstream LLC, a systems integration firm, says that when it comes to year-end employees gifts and bonuses, his company keeps it simple. “We give Amazon gift cards to our employee’s for the holidays,” he says. “With every employee having different needs and taste, it’s the one gift that covers so much.”

It’s not uncommon for business owners like Ian Smith to throw their employees a holiday party instead of giving gifts. “For the past several years, I’ve treated all of our employees and their spouses or significant others to a holiday dinner out at a nice restaurant -- usually an Italian restaurant in Philly or Bucks County with a great menu and festive atmosphere,” says Smith, who owns technology firm SyncraTec Solutions in Yardley. “It’s always been a fun night out. This year, one of my employees offered to host at her house, which we’re all really looking forward to.”

As well-intentioned as gifts and bonuses may seem, employers still need to be careful. A year-end bonus can be a powerful incentive, particularly if it’s tied to performance, but it can also backfire if it’s not part of a fair or equitable plan. Employee gifts are, in most cases, taxable and need to be included in year-end compensation reporting.

In these days of #MeToo, employers need to be careful about gifts intended to be put on a person’s body, like perfume or clothing. And even though throwing a nice party or giving out wine is a great thing to do, employers need to make sure they’re not making too much alcohol available to employees, for obvious liability reasons.

In my small business, I pay discretionary cash bonuses to my employees based on their performance for the year. I try to keep things informal and of course private, but I know the bonus is appreciated. The bottom line is that whatever you give, it’s not just about the money or even the tax deduction. In the end, it’s about employees knowing that their employers care about them and that they’re valued.

“With unemployment rates low and candidates in Philadelphia being a hot commodity, employers need to explore options when it comes to perks and benefits that will set their organization apart from the pack,” says Christine Endres, staffing expert for Robert Half in Philadelphia. “Consider other things such as more remote work, extra vacation days or perhaps something small like a fun office event or celebration. Even little tokens of appreciation can go a long way.”

One final note: Even if you didn’t manage to pay out your bonuses before the end of the year, you may be able to still get on the good side of your employees and get a tax deduction, too. Just declare the bonus before Dec. 31 and make sure to pay it before March 15 next year. But please, check with your accountant first just to make sure. Oh, and happy holidays!