Year-end bonuses shrunk more than 20% in 2023 — here's how to make the most of a smaller reward

US workers got a bit of coal in their stocking for Christmas, as year-end bonuses in 2023 shrunk more than 20%, according to a report from Gusto, a payroll software company that specializes in small businesses.

Across more than 300,000 Gusto clients, the average bonus awarded in December 2023 was $2,145, a 21% drop from the $2,730 average reported in 2022 and a 33% fall from the $3,213 seen in 2021.

Declines varied by industry: The transportation and tourism sectors both saw 36% decreases, the largest in the survey. Tech and finance workers were the least impacted, however, with average declines of just 3.8% and 9.3%, respectively.

Of the 22 industries surveyed, 16 saw decreases in the percentage of workers who received any bonus.

Gusto's report pointed to higher unemployment as the culprit for the decline in bonuses, with the Federal Reserve reporting business expectations for employment growth hitting a major downturn starting in the summer of 2022.

A separate survey of 200 small, medium and large white-collar businesses conducted by Challenger, Gray & Christmas and reported by The Wall Street Journal in December 2023 found that 34% were not giving any year-end bonuses in 2023, up from 27% in 2022.

If you're among those who received a smaller year-end reward, there are still ways to make the most of the extra money you did get.

Getting rid of debt should be a top priority, especially credit card debt. The average credit card interest rate in November 2023 was 21.47%, according to the Federal Reserve, and 22.75% for those accounts carrying balances.

If you can't dedicate your bonus to paying off your card, a balance transfer card can help. The Citi Simplicity® Card has no annual fee and offers a 0% introductory APR on balance transfers for 21 months from the date of first transfer (with a variable APR of 19.24%-29.99% thereafter).

Even If your bonus is anemic, it could help start or grow your emergency fund, which can provide much-needed support if you're hit with surprise medical bills or car repairs.

Setting aside three to six months' worth of living expenses is a good rule of thumb, but anything you can contribute is a good start. High yield savings accounts (HYSAs) can offer annual percentage yields (APY) of over 5%, while still allowing you to make quick, penalty-free withdrawals if the unexpected happens.

UFB Direct's Secure Savings account has a 5.25% APY, one of the highest on the market. There are no monthly maintenance fees or minimum deposit requirements and account holders get ATM cards for easy access to cash.

In addition, there are no limits on withdrawals and you can transfer up to $30,000 a day into or out of your account.

CDs allow your money to earn interest at a fixed interest for anywhere from three months to ten years or even longer. There are penalties for early withdrawal, so it's important to be certain this money isn't needed for regular expenses.

Barclays offers traditional CDs with APYs of up to 5.00% APY and terms from 6 to 60 months. There are no monthly fees or minimum balance requirements and your interest compounds daily. Barclays doesn't have any branches in the U.S., however.

If you're open to a bolder move, consider putting all or part of your bonus into stocks. If your financial goals are longer term, you should be able to assume more risk and withstand the market's volatility.

Robo-advisors are a great way to get started with investing, and Betterment has no minimum balance requirement and no trade or transfer fees for self-directed trading. You can even customize your portfolios around your financial goals, time horizon and risk tolerance.

While there is an annual account fee of 0.25% of your balance, new account holders can get up to $5,000 managed for free for a year with a qualifying deposit made within 45 days of signing up. 

Betterment also has a premium investing option, with unlimited access to real-life financial advisors for a fee of 0.40% of your fund balance annually. (One-time consultations are also available for a fee ranging from $299 to $399.)

With year-end bonuses shrinking across all industries, ensuring you're making the best financial decisions can help you grow your money for the future.

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