Incentives for employees: types, ideas, and how to implement them in 2025

Remember your first job? That moment when someone recognized your work with more than just a paycheck? That feeling still matters, perhaps now more than ever.

The method to building a thriving workplace in 2025 isn't hidden in complex algorithms or trendy office perks. It's about understanding what genuinely motivates people to bring their best selves to work each day. Companies that crack this code aren't just surviving; they're creating environments where talented people choose to stay, even when competitors dangle higher salaries.

This article cuts through the noise around employee incentives to reveal what actually works now. You'll find straightforward advice on creating recognition that resonates, rewards that actually reward, and incentives that inspire rather than obligate. We've gathered insights from companies that have mastered the art of meaningful recognition, from startups to industry giants, and distilled their lessons into practical approaches you can implement immediately.

Key takeaways

• Employee incentives boost motivation, retention, and workplace culture by recognizing and rewarding contributions beyond salaries.
• Key incentive types include financial benefits (bonuses, profit sharing), lifestyle perks (LSAs, flexible work), and career growth opportunities.
• Popular incentives for 2025 include performance bonuses, profit-sharing, LSAs, learning stipends, and leadership training programs.
• Effective incentives drive measurable business outcomes, including increased productivity, lower turnover, and stronger employee engagement.
• Customizable, transparent, and well-managed incentive programs deliver the best results while reducing administrative complexity.
• Forma simplifies incentive management with flexible LSAs, professional development funds, and wellness stipends — <span class="text-style-link text-color-blue" fs-mirrorclick-element="trigger" role="button">schedule a demo today</span>

What are incentives for employees?

Incentives for employees are rewards or benefits provided by employers to motivate employees and boost their morale. These incentives can take many forms, from financial bonuses to flexible work arrangements, and are designed to recognize and reward employees for their hard work and contributions to the company.

The goal of employee incentives is to create a positive feedback loop. When employees feel valued and appreciated, they're more likely to go above and beyond in their roles. This, in turn, leads to better business outcomes, which can then be reinvested into even more rewarding incentives.

Types of employee incentives

When it comes to rewarding your team, there are three main categories of employee incentives to consider: financial benefits, lifestyle benefits, and career development. Each type offers unique advantages and can be tailored to fit your company’s culture and goals. 

Financial benefits

Financial incentives are direct monetary rewards that recognize employees for their contributions and performance. These can include:

• Bonuses: One-time payments given to employees who meet or exceed performance targets, reinforcing motivation and effort.
• Profit sharing: A portion of the company’s profits distributed to employees, fostering a sense of shared success.
• Forma Pre-Tax benefits: Employers can provide Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), or commuter benefits to help employees manage essential expenses tax-free.
• Referral bonuses: Financial rewards for employees who refer qualified candidates, helping companies attract top talent efficiently.

Lifestyle benefits

Lifestyle benefits offer flexibility and personalization, catering to employees’ diverse needs. These incentives enhance overall well-being and job satisfaction.

• Forma Lifestyle Spending Accounts (LSAs): Employers allocate funds for employees to spend on wellness programs, home office setups, fitness memberships, and more.
• Recognition programs: Systems that celebrate employee achievements through peer recognition, employee of the month awards, or leadership praise.
• Flexible work arrangements: Options such as remote work, flexible schedules, and compressed workweeks that empower employees to balance work and personal life.
• Team events and perks: Company-sponsored activities, casual dress days, or well-being programs that create a more engaging and enjoyable workplace.

Career development benefits

Investing in employee growth demonstrates a commitment to their long-term success. Career development benefits help employees build skills and advance in their careers.

• Forma learning and development stipends: Employers can allocate funds for employees to enroll in courses, obtain certifications, or attend industry events.
• Mentorship programs: Connecting junior employees with experienced colleagues for career guidance and professional support.
• Leadership training: Providing resources to help employees develop leadership skills and prepare for managerial roles.
• Conference and networking support: Sponsoring employees to attend professional events to stay updated on industry trends and expand their expertise.

10 ideas for employee incentives

Providing the right incentives can boost employee engagement, retention, and overall job satisfaction. Here are ten effective employee incentive ideas, including Forma’s flexible benefits, with details on who can use them and their potential costs.

1. Lifestyle Spending Accounts (LSAs)

Traditional table stakes benefits rarely fit anyone perfectly. Lifestyle Spending Accounts recognize that your team members have different needs, interests, and priorities in their personal lives and give them the freedom to choose benefits that actually matter to them.

How it works: Employers allocate a set amount of funds for employees to spend on wellness programs, gym memberships, childcare, home office equipment, and other lifestyle expenses. Employees choose how to use the funds based on their needs.

Why it works: LSAs acknowledge that each employee's life circumstances and priorities are unique. This personalization demonstrates respect for individual choices and needs, increasing the perceived value of the benefit. 

LSAs can simultaneously support physical and mental well-being, work-life balance, and personal development, making them extraordinarily versatile. They also eliminate the waste inherent in traditional one-size-fits-all perks that go unused by many employees.

Cost: Employers decide the budget, typically between $100500 to $1,0002,000 per employee per year.

How to implement: Lifestyle Spending Accounts (LSAs) should be set up on a digital benefits platform where employees can allocate funds and track spending. Employers should partner with third-party administrators that provide a diverse set of pre-approved vendors and expenses while enabling automated reimbursement options to streamline administration.

Interested in offering a Lifestyle Spending Account as employee incentive? <span class="text-style-link text-color-blue" fs-mirrorclick-element="trigger" role="button">Schedule a demo</span> with one of Forma’s benefits experts today.

2. Performance bonuses

Nothing speaks louder than extra cash tied directly to achievement. Performance bonuses remain one of the most direct ways to connect effort with reward, creating a clear link between exceptional work and financial recognition.

How it works: Employees receive a financial bonus when they reach specific performance targets, such as sales goals, project completion, or productivity benchmarks.

Why it works: Performance bonuses tap into our innate desire for achievement and recognition. They create a tangible "finish line" that motivates employees to push beyond standard expectations. 

The direct connection between specific actions and financial rewards makes the incentive structure transparent and fair, giving employees control over their earning potential. This approach also allows companies to reward high performers without permanently increasing fixed salary costs.

Cost: Varies depending on company budget and employee performance. Bonuses can be a fixed amount or a percentage of salary.

How to implement: Bonuses should be tied to specific performance metrics, with clear documentation outlining eligibility, payout schedules, and evaluation criteria. Automating the process through HR software ensures transparency and consistency. Managers should conduct periodic performance reviews and communicate progress toward goals, keeping employees motivated.

3. Profit sharing

When your company wins, shouldn't everyone who helped build that success share in the victory? Profit sharing transforms employees from spectators into stakeholders, creating a powerful alignment between individual contributions and company performance.

How it works: A portion of the company's profits is distributed among employees based on tenure, position, or company performance.

Why it works: Profit sharing creates a genuine sense of ownership and investment in the company's success. When employees directly benefit from company growth, they're more likely to think like owners — finding efficiencies, suggesting innovations, and working collaboratively toward shared goals. 

This incentive naturally encourages longer-term thinking and helps employees understand how their daily work connects to the bigger financial picture. It also fosters transparency about company performance.

Cost: Typically a percentage of annual profits, ranging from 5 to 20 percent, depending on company policy.

How to implement: Profit-sharing programs require setting up a structured formula for distributing profits and integrating it with payroll systems. Companies should establish a communication plan that explains how profits are calculated, when distributions occur, and how employees can track their earnings. Legal and tax compliance should be managed by consulting financial experts.

4. Flexible work arrangements

Time has become the new currency in the workplace. Flexible work arrangements recognize that when and where work happens can be just as important as the work itself, especially for employees juggling multiple life responsibilities.

How it works: Employees have the option to work from home, set flexible hours, or choose compressed workweeks.

Why it works: Flexibility addresses one of the most persistent sources of workplace stress: the conflict between work demands and personal responsibilities. By giving employees more control over their schedules, companies reduce burnout while often seeing increased productivity. 

Employees can work during their most productive hours, eliminate commute time, and better manage personal obligations. This arrangement signals trust in employees' professionalism and judgment, which tends to be rewarded with greater engagement and loyalty.

Cost: Minimal to no additional cost. Companies may need to invest in remote work tools and cybersecurity measures.

How to implement: Flexible work arrangements should be managed through scheduling tools that allow employees to request remote work, adjusted hours, or compressed workweeks. Employers should establish formal policies outlining eligibility, expectations, and approval processes, ensuring alignment with business needs.

5. Recognition and rewards programs

Sometimes the simplest acknowledgment can have the biggest impact. Recognition programs create moments of celebration and appreciation that fulfill our fundamental need to be seen and valued for our contributions.

How it works: Employees are recognized for achievements through formal programs like Employee of the Month, peer recognition platforms, or leadership acknowledgments. Rewards can include gift cards, public recognition, or small perks.

Why it works: Regular recognition satisfies a basic human need for acknowledgment and appreciation. When recognition comes from peers or leadership, it reinforces positive behaviors and creates role models within the organization. 

Well-designed recognition programs can highlight company values in action, reinforce cultural priorities, and create positive social pressure. The public nature of many recognition programs amplifies their impact, creating ripple effects throughout the organization.

Cost: Typically ranges from $50 to $500 per employee annually, depending on the program's structure.

How to implement: Recognition programs should be supported by a formalized system such as a recognition portal or integrated HR platform. Employers can implement peer-to-peer recognition tools, monthly award programs, or automated milestone acknowledgments. Clear guidelines should be set for what qualifies for recognition and how employees can participate.

6. Learning and development stipends

Career growth doesn't happen by accident. Learning stipends invest in your employees' future, helping them acquire skills that benefit both their career trajectory and your company's capabilities.

How it works: Employers provide funds for employees to enroll in courses, attend workshops, or earn certifications that help them grow in their careers.

Why it works: Learning stipends demonstrate a commitment to employees' long-term career development, not just their current role. This investment builds loyalty and reduces turnover by showing clear pathways for growth within the organization. 

As employees gain new skills and knowledge, the entire organization becomes more capable and adaptable. The self-directed nature of stipends respects employees' understanding of their own development needs and learning preferences.

Cost: Stipends usually range from $500 to $5,000 per employee per year.

How to implement: Learning and development stipends should be automated through a reimbursement or prepaid credit system. Companies should establish guidelines for eligible courses, certifications, and conferences, along with an approval workflow that minimizes delays while ensuring alignment with company objectives.

7. Referral bonuses

Your best employees know other great people. Referral bonuses tap into these valuable networks, rewarding team members for bringing in talented colleagues who share your company's values and work ethic.

How it works: Employees receive a bonus when they refer a qualified candidate who gets hired and stays for a specified period.

Why it works: Employee referrals typically yield higher-quality hires who stay longer and perform better than candidates from other sources. Current employees understand your company culture and job requirements, allowing them to pre-screen candidates informally. 

Referral bonuses reduce recruitment costs while demonstrating trust in employees' judgment. They also reinforce that working with talented colleagues is itself a reward, creating a positive cycle of quality hiring.

Cost: Referral bonuses typically range from $500 to $5,000, depending on the position's level and company policy.

How to implement: Referral bonuses should be implemented through an internal tracking system that monitors referrals from submission to hire. HR teams should develop an easy-to-use referral submission process, promote the program through company-wide communications, and establish clear payout timelines to ensure transparency.

8. Team events and social perks

Relationships matter. Team events create spaces for authentic connections beyond daily work tasks, strengthening the social bonds that make work more meaningful and collaboration more effective.

How it works: Employers organize team-building activities such as company outings, happy hours, sports events, volunteer days, or wellness retreats.

Why it works: Team events foster interpersonal connections that improve workplace communication, trust, and collaboration. These shared experiences create common reference points and stories that strengthen company culture and identity. 

Well-designed events can break down silos between departments and hierarchical levels, opening new channels for idea-sharing and problem-solving. For remote or hybrid teams, intentional social events become even more crucial in creating team cohesion and combating isolation.

Cost: Costs vary widely, from $20 per employee for casual outings to $500 per employee for more elaborate retreats.

How to implement: Team events and perks should be coordinated using an event management system or employee feedback surveys to identify preferred activities. Budgets should be allocated by department, and participation tracking can help assess engagement levels to refine future events.

9. Pre-tax benefits

Smart financial incentives multiply their impact. Pre-tax benefits help employees stretch their earnings further by reducing taxable income while covering essential expenses they would pay for anyway.

How it works: Employees can use pre-tax dollars for expenses like healthcare (FSAs, HSAs), commuting, and dependent care. This reduces taxable income and increases take-home pay.

Why it works: Pre-tax benefits effectively increase employees' purchasing power without requiring additional salary. They demonstrate financial savvy and care for employees' financial wellbeing beyond base compensation. 

These benefits address essential needs that impact work performance and attendance, such as healthcare, childcare, and transportation. For employees in higher tax brackets, the savings can be substantial, making these benefits particularly valuable for retention.

Cost: Employers decide how much to contribute, but pre-tax contributions also reduce employer payroll taxes. Typical employer contributions range from $500 to $3,000 per employee annually.

How to implement: Pre-tax benefits like HSAs, FSAs, and commuter benefits should be administered through a third-party provider to handle compliance and claims processing. Employers should create educational resources such as FAQs, webinars, and onboarding materials to ensure employees understand how to enroll, contribute, and use these benefits effectively.

10. Leadership training and career growth programs

Great leaders aren't born — they're developed. Leadership training programs create clear pathways for advancement while building the management capabilities your company needs for future success.

How it works: Employees participate in leadership development courses, mentorship programs, or executive coaching to prepare for management roles.

Why it works: Leadership programs address one of the top reasons employees leave: lack of career advancement opportunities. By creating visible pathways to growth, companies retain ambitious employees who might otherwise look elsewhere. 

These programs help identify and develop internal talent, reducing the risks and costs associated with external leadership hires. Structured development also ensures new leaders have the skills they need to succeed, preventing the common problem of promoting great individual contributors into leadership roles without proper preparation.

Cost: Training programs can range from $1,000 to $10,000 per employee, depending on the program's depth and format.

How to implement: Leadership training should be embedded into professional development programs, with structured modules, executive coaching, and hands-on leadership projects. Companies should set up a nomination or application process for employees interested in management training and provide ongoing assessments to track progress.

4 Benefits of employee incentives

Offering incentives to your employees can have a profound impact on your organization's success. When implemented effectively, these programs can lead to a range of positive outcomes that benefit both your team and your bottom line.

1. Increased productivity

Incentives give employees a clear goal to work towards, motivating them to put in extra effort and go above and beyond in their roles. When employees know that their hard work will be recognized and rewarded, they're more likely to stay focused and driven. 

This boost in productivity can lead to better business results, such as increased sales, improved customer satisfaction, and faster project completion times.

2. Improved employee retention

Rewards help employees feel valued and appreciated, which can significantly reduce turnover rates. When employees feel that their contributions are recognized and that their employer is invested in their success, they're more likely to stay with the company for the long haul. 

This not only saves you the time and money associated with recruiting and training new hires but also helps maintain institutional knowledge and preserves team dynamics.

3. Enhanced company culture

Incentives contribute to a positive work environment by fostering a sense of camaraderie and healthy competition among colleagues. When employees are working towards common goals and celebrating each other's successes, it can create a more collaborative and supportive workplace culture. 

This positive atmosphere can lead to better communication, increased innovation, and a stronger sense of team spirit.

4. Greater employee loyalty

Investing in your employees' success through incentive programs fosters dedication to the company. When employees feel that their employer cares about their well-being and professional growth, they're more likely to develop a strong sense of loyalty. This can translate into increased engagement, better job performance, and a willingness to go the extra mile for the company. 

Loyal employees are also more likely to advocate for the organization and help attract top talent through referrals.

Do incentive programs make a difference?

Yes, incentive programs make a significant difference in employee motivation, engagement, and retention. Well-structured incentives not only boost productivity but also create a culture of appreciation and support. Employees who feel recognized and rewarded for their contributions are more likely to remain committed to their company, reducing turnover and increasing overall job satisfaction. 

Furthermore, financial incentives, flexible benefits, and career development opportunities help businesses attract top talent in competitive markets.

Beyond engagement, incentives also lead to measurable business benefits. Companies with effective programs see higher performance levels, stronger workplace morale, and improved employee loyalty. 

However, for an incentive program to be truly effective, it must be customizable, transparent, and easy to manage. Employers need solutions that reduce administrative complexity while ensuring employees fully utilize their benefits.

Forma makes it simple to build and manage an incentive program that works. As a trusted third-party administrator (TPA), Forma handles everything from compliance and claims processing to benefit distribution and employee communication, eliminating the burden on HR teams. 

<span class="text-style-link text-color-blue" fs-mirrorclick-element="trigger" role="button">Schedule a demo today</span> to see how Forma can help you create an incentive program that drives real results while saving time and reducing costs.

*This document is for informational purposes. Forma is not engaged in the practice of law. Nothing contained herein is intended as tax or legal advice nor to replace tax or legal advice from counsel. If you need tax or legal advice, please consult with counsel or a certified tax professional.