Christmas parties: Morale boosters or an unnecessary expense for SMEs?

POSTED: 27th November 2013
IN: Guides

As we approach Christmas, many companies will be planning the annual Christmas party but are they a morale booster or a waste of money?

undefinedFor some, the annual Christmas party is a chance to celebrate a good year and an opportunity for management to reward employees in an atmosphere where barriers of authority are removed.

For others the annual Christmas party is seen as a drain on the resources of small and medium-sized employers that both management and staff dread.

Financial crisis leads to decline

The decline of the Christmas party following the financial crisis led to a number of events organisers such as Fortesqueue's going out of business as firms were forced to cut costs.

Many companies justified cutting back at a time when employees were being made redundant. They reasoned that it would seem insensitive to spend money on a party when former colleagues had been made redundant.

Christmas parties were seen by some as an unnecessary expense and that money spent on them was money squandered.

The fall in popularity of Christmas parties

According to a survey by Pitney Bowes, in the run up to the 2011 Christmas party season, almost half of SMEs decided not to have a Christmas party and of those that were having one, 91 per cent planned to spend the same or less than in 2010.

Despite this, 63 per cent of the 500 SMEs surveyed admitted that cutting back or cancelling Christmas parties could damage staff morale.

What is the financial cost of a Christmas party?

This will depend on what a company decides to do for the Christmas event and how many people are being catered for. Some corporate events can cost a lot of money and if you add on a meal and drinks then the total cost could be more than £100 a head.

Typically, a meal and a few drinks at a restaurant or hotel that is specifically catering for Christmas parties might cost around £30 per person but this can easily cost more depending on where you go and any added extras.

However, the cost of a Christmas party for a small or medium-sized enterprise can be set against tax through Christmas Party tax relief.

This is offered to companies of all sizes and is available up to £150 per employee. This means in theory a firm could hold a summer party and a Christmas party and if the combined cost was below this limit, both events costs could be set against tax.

Costs that can be set against tax under the scheme include the cost of food, travel and accommodation that a firm pays for on behalf of its employees.

Anita Monteith of the Institute of Chartered Accountants for England and Wales said: "Businesses should make the most of the tax-free amount and not just resort to putting up some cheap tinsel in the office and offering plates of pretzels and soft drinks."

Reasons for a Christmas party

Some businesses think that when times are hard and morale is low, spending some money on an event that may bring staff closer together and improve morale is a good investment in itself.

Showing employees that they are valued by holding a Christmas party can encourage loyalty, retention, staff bonding and incentivise staff to perform better.

Phil McCabe, senior policy adviser at the Forum of Private Business said: "Controlling costs is always important, but staff Christmas parties are a valuable way of showing recognition and appreciation of your employees.

"In turn, good employee engagement delivers bottom line results. Choosing not to recognise staff at Christmas could have a negative effect on morale and therefore productivity so companies need to introduce other ways of motivating - it doesn't have to be costly."

New staff

If your firm has taken on a number of new staff, a Christmas party can be an excellent opportunity to help integrate staff members together through a shared informal evening where colleagues from different departments have a chance to mingle together and get to know each other.

Improving relationships with existing staff

As well as helping to integrate new staff, a Christmas party can be a good way to improve relationships between staff in different departments. The organiser of a Christmas party could include some games or fun activities that split staff into groups which mix up staff members so that workers from different departments work together and get to know each other in a fun environment.

Reasons not to have a Christmas party

The financial cost of a staff Christmas party is one reason to decide against having one. Depending on what event you organise, it can cost a lot of money. An average budget would be around £50 a person which would cover the cost of a meal a few free drinks and possibly the hire of a venue and a DJ.

However, there are other reasons for not having a Christmas party. Staff feel obligated to attend when some research suggests they would rather not bother. Many staff members feel reluctant to let their hair down amongst other staff members.

Staff can feel concerned that any perceived inappropriate behaviour could count against them in the future and affect possible promotion or pay rises.

Other common reasons given by staff for wanting to avoid Christmas parties are that they do not like to be involved in office gossip, they cost too much or because they have had bad experiences in the past at an office Christmas party.

What alternatives can firms offer?

Instead of an office Christmas party firms could hold smaller scale departmental events such as lunch out in a local restaurant.

This has the advantage of being low key, closer to work, more convenient, doesn’t interfere with people’s time outside of the working day and alcohol is likely to be less of a factor.

Another alternative is to offer staff a cash bonus and to use the money that would be spent on an office Christmas party in this way.

Employers can liaise with their staff to find out what they would like to see as the end of year event or whether they would rather receive a gift, cash or vouchers. Then the business can use these results to decide what is appropriate, taking into account the budget and resources of the firm.

If budgets are really tight, especially for small firms, a party can be held on premises accompanied by a Christmas quiz or ‘Secret Santa’ gift exchange to get into the Christmas spirit.

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