With budgets tightened, many small businesses are finding they can't give the large year–end bonuses or elaborate gifts as they have in past years. Still, recognizing employees around holiday time is critical to maintaining morale and keeping your staff happy and inspired. Use these guidelines to help you come up with creative ways to reward your employees this season:

Approach bonus-time honestly If you've paid holiday bonuses in prior years, but can’t afford to this year, honestly explain to your employees the reasons why. Provide as much information as possible about the state of your company and its market, and share what steps you're taking to reverse a downward trend. While you should expect employees to be extremely disappointed by the news, your truthful approach can go a long way to helping soften the blow. Never renege on performance–based bonuses — if employees have qualified for year–end bonuses by meeting certain job–related milestones, then you are obligated to pay those bonuses. Finally, be a model to your employees — it won't breed loyalty if you cancel employee bonuses but treat yourself to a new luxury car.

Hold cost-efficient holiday parties Even if times are tough, avoid the temptation to change your annual holiday party. Instead, create a low–key event that shows how much you really care about your employees and boosts company team spirit. Rather than holding a black–tie affair at a luxury restaurant, consider more affordable options with a personal touch. Hold the party at the home of an executive, and, better yet, have the host do the cooking. Consider a potluck meal, where everyone contributes a dish, or a progressive party, which moves from one home or location to another for each course of a meal. Remember that it’s the activities — not food — that make a party memorable. Organized fun like games or scavenger hunts let employees see you and other managers in a new light, and help make everyone feel comfortable. By the way, unlike other entertainment expenses, holiday parties may be fully tax deductible because they are an incentive used to boost staff morale. Speak to your accountant to help ensure you meet necessary IRS guidelines.

Say thanks Whether or not you're holding a party, be sure to take the time during the holiday season to personally thank your employees for the hard work they've done for your company this year. A personal note that references specific things an employee has done for you goes a lot farther than a company–wide memo; taking the time to write something down shows you clearly value it.

Build teamwork around a cause Consider building your company's holiday celebration around a charity or public service project. This kind of effort, which requires very little cash outlay, can bring employees closer together as they rally around a cause, and can be a joyous experience for all those participating. It can also enhance your company's standing in the community. If you're doing this for the first time, start small to see what happens. Over time, it may become an annual event that brings meaning to your company and your employees.

Choose appropriate employee gifts Even if you can't give holiday bonuses, you can still give gifts to your employees. Observe standard gift giving etiquette. Choose something appropriate to all members of your team — gift certificates to restaurants or movies, for example. Avoid playing favorites among your employees. In addition, don't give "from the boss" gifts such as work–related items (mouse pad, sticky notes, etc.) or books about working smarter.