How can I compensate my employees (without paying taxes) for a project that was cancelled?

No work was actually performed and the employees were new hires. I want to compensate them because they agreed to work on the project for a specified period of time (some quit their existing jobs) and the project was cancelled at the last minute through no falut of their own. I was able to convince my client to compensate me for a portion of the cancelled project. I would like to provide my employees compensation without paying them a salary or bonus because all these have tax consequences (for me and them). For example, I have to pay workers comp and payroll taxes on their salary. ALso, my general liability and worker's comp are based on total payroll. I called the California Employment Development Dept (responsible for payroll taxes etc) and they suggested giving a gift. But apparently this is not considered an expense. Any advice would be appreciated!