What is Appreciation Pay? Guidelines for Employers in 2024
Traditional pay structures often fail to fully recognize employee contributions. Recently, appreciation pay has emerged as an effective way to reward exceptional work and dedication. This can give employees financial recognition, which may reinforce their value to the organization and boost their sense of belonging.
This article discusses everything you need to know about appreciation pay, including when it applies, typical pay rates, how to offer it to employees, and answers to frequently asked questions.
What is appreciation pay at work?
Appreciation pay is a type of compensation given to an individual to reward exceptional performance, dedication, or contributions. It can be a one-time bonus, a recurring payment, or given occasionally.
Anyone who exceeds expectations or makes significant contributions to the company or team can receive this pay. For example, an employee who consistently meets sales targets, creates a revenue-boosting product, or works despite "hazardous" conditions may qualify for appreciation or hazard pay.
During the COVID-19 pandemic, employers in the grocery, retail, e-commerce sectors, or even those working in a manufacturing facility, offered appreciation or hero pay, including a $2 per hour increase or one-time bonuses. Referred to by some union groups as hero pay or hazard pay, these incentives helped attract more workers to meet the surge in demand.
When does appreciation pay apply?
Now that we've unlocked what appreciation pay is, let's explore when it applies. An employee or individual can get one when they are performing the following at the workplace:
Hazardous duties (physically tough work, exposure to illness, etc.)
Exceptional performance or surpassing key performance indicators (KPIs)
Critical, time-sensitive tasks that require quick turnaround
Significant overtime or working beyond standard hours
In-demand specialized skills or expertise
Team leadership or mentoring responsibilities beyond regular duties
When it comes to pay, companies need to ensure it is competitive internally and externally. With Salary.com's Salary Structure tool, users can balance equity and competitiveness to build a strong compensation framework.
Appreciation pay rates
Appreciation or hazard pay doesn't have a standard rate and depends on the company's policies, industry, and situation. It can be based on factors like the type of work, risk involved, employee performance, and the budget for extra pay.
During the pandemic, companies offered appreciation or hero pay to frontliners, including a $2 per hour increase or occasional bonuses. For example, XPO, a transportation company, rolled out a pay program, giving its 40,000 front-line employees an extra $2 per hour on top of their regular pay for all hours worked during the COVID-19 crisis.
Four large retailers—Costco, Amazon, Target, and Best Buy—also offered such pay of $15 per hour to workers. In comparison, grocery cashiers earn around $10 per hour, and workers at Kroger can earn as little as $9 per hour or less.
But keep in mind that this incentive is not limited to the pandemic. For example, the state of Kansas offered one-time bonuses paid ranging from $750 to $2,500, depending on hours worked, to child care workers as recognition for "their incredibly hard work."
How to give appreciation pay to employees
Appreciation or hazard pay can be a great way to reward employees' hard work and boost morale. So, organizations should make use of it to retain top talent. If you're not doing this yet, here are some steps to implement it in your organization:
Identify eligible employees: Select employees who meet the criteria, such as outstanding performance or hazardous work.
Set clear criteria: Establish and share the specific requirements, making sure all salaried employees understand how they can qualify.
Calculate the amount: Decide the amount of the pay based on the organization's policies and the type of work performed. If performance is a factor, use Compensation Software to easily model the costs of merit-based pay increases.
Communicate the decision: Notify eligible employees about their pay, explaining the reason for the reward and acknowledging their contributions.
Distribute the pay and document the process: Include appreciation or hero pay in regular paychecks or as a separate bonus, ensuring accurate payment and maintaining records for transparency.
Organizations need to follow through on their commitment to pay transparency. With Compensation Software, they can easily create a Total Compensation Statement that shows an employee's earnings, including base pay and benefits.
FAQs
Below are common questions about appreciation or hazard pay and their answers:
What is an appreciation bonus?
An appreciation bonus is an incentive for employees who demonstrate exceptional performance, exceed expectations, or make significant contributions to the company or business.
Is appreciation pay mandatory?
There are no laws requiring appreciation or hazard pay. These are usually offered by employers to recognize employees for remarkable performance, extra effort, or added responsibilities.
The Fair Labor Standards Act (FLSA) does not cover this compensation, except to require it be included in a federal employee's regular pay when calculating overtime.
What is the difference between appreciation pay vs hazard pay?
The former refers to a reward for extraordinary performance, outstanding contributions, or achieving specific goals, while the latter is compensation for working in hazardous conditions.
However, during the COVID-19 pandemic, where social distancing was implemented for health and safety reasons, some companies referred to appreciation pay as hazard pay to recognize employees with essential jobs who couldn’t work from home.
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