Giving employees a year-end gift or bonus this year? Here are a few common questions and answers employers ask us about issues related to giving gifts and bonuses to their staff.
How common is gift-giving in the workplace?
Gift-giving is a fairly common practice among organizations. In ERC’s 2010 Holiday Practices in the Workplace Survey, 51% of local employers give gifts to employees. A 2010 survey conducted by BNA shows that 41% of employers across the U.S. plan to provide a year-end gift or bonus to employees, and also reports that this is the highest percent in three years.
What is the most popular holiday gift given by employers?
We find that the most common holiday gift is a generic gift card. In a 2010 survey of local employers, 61% said they provide this type of gift. Some employers also give cash, food (such as a turkey or ham), clothing or logo items, or gift baskets. In addition, a few employers raffle-off gifts versus providing them to all employees. Spending amounts for employee gifts typically range from $25-$75 per employee.
Are there any legal or payroll issues we need to be aware of when giving holiday gifts to our employees?
The IRS has different tax reporting and deduction rules depending on the cost of the gift and whether it is considered tangible (ham, turkey, wine, entertainment tickets etc.) or intangible (cash, gift cards or certificates, etc.). Intangible gifts of more than $25 are taxable income and must be reported on a W-2 form. Tangible gifts do not need to be reported in taxes. Employers can deduct up to a maximum of $25 of the cost of both intangible and tangible gifts, according to IRS guidelines.
Should we allow for gift-giving between coworkers and/or bosses?
Some organizations choose to institute a gift-giving policy on the types of gifts their employees can give and receive in the workplace. While instituting such a policy can decrease the likelihood that employees will encounter uncomfortable situations surrounding giving gifts, gift-giving can be a nice way for coworkers and supervisors to show appreciation to one another that employers may not want to limit. In general, however, gift-giving etiquette is as follows:
- Gift-giving should be considered voluntary. No one should feel pressured, obligated, or required to give gifts.
- Gift-giving should also be kept relatively inexpensive, simple, and modest. Several sources suggest that $10-$20 is an acceptable amount to spend on gifts for coworkers or bosses.
- Gift-giving should be appropriate for the workplace. Alcohol, gifts with political or religious messages, romantic gifts, and hygiene-related items are typically considered inappropriate holiday gifts. Tasteful and professional gifts, cards, treating to lunch, or even donating to a charity on behalf of an individual are all appropriate ways to show appreciation.
- Group gifts are generally an acceptable way of thanking a supervisor/manager versus an individual gift.
- If supervisors or managers choose to give gifts to their employees, it’s best that they are given to everyone versus only certain individuals to prevent perceptions of favoritism or unequal treatment.
Employers should consider their culture before instituting any rules as there is no gift-giving best practice that works for all organizations. Some workplaces are more formal, and others are more family-oriented, and gift-giving should generally align with the culture.
How common are holiday bonuses?
Nearly a third of local employers provide holiday bonuses, according to a 2010 ERC survey. Certainly this isn’t the majority of employers; however, it is a sizeable portion. Recent reports, however, do indicate that the holiday bonus is diminishing in popularity. Discretionary or individual performance bonuses, on the other hand, tend to be more commonly offered by employers.
What criteria should we use to determine who gets a holiday bonus?
That depends. Some employers use a holiday bonus as employees’ gift versus a reward for attaining a certain level of performance. Others only provide holiday bonuses to employees who meet certain criteria such as performance, attendance, or length of service.
How much should we spend on a holiday bonus per employee?
Bonus amounts typically range from $200-$1000 or 2% of earnings with the average being $712. The most popular bonus amounts are $200 and $1000. However, $300 and $500 are also somewhat common. Also remember that bonuses are taxable, per the IRS.
What issues should we keep in mind when providing our employees with holiday bonuses?
First, if bonuses are regularly given at your organization, it may be helpful to develop a policy which includes eligibility requirements for the bonus, criteria for receiving the bonus (i.e. average performance ratings, length of employment, etc.), how the amount of the bonus is determined (i.e. based on company profit, revenue, etc.), when the payments will be awarded, and any legal guidelines or requirements the program is subject to. A disclaimer is also recommended, so that the organization can reserve the right to administer, modify, or terminate the program at any time, should business needs dictate.
Also, make sure your organization is compliant with the Fair Labor Standards Act (FLSA). Bonuses given to employees for performance, productivity or quality need to be included in calculating an employee’s regular rate for overtime purposes. However, holiday/gift bonuses can be excluded when calculating overtime rates for non-exempt employees if they are not linked to hours worked or production.
Finally, if your organization provides holiday bonuses based on certain criteria, but not to all employees, be sure that you have documented why or why not employees have not earned the bonus to avoid any potential legal issues surrounding discriminative treatment. Performance documentation is crucial for your organization’s legal protection.
Gift-giving and bonuses are certainly great ways to show your employees appreciation and recognition during these final weeks of the year. To obtain answers to other questions related to gift-giving and bonuses, please contact ERC’s HR Help Desk (Members Only) at hrhelp@yourERC.com.