Employee Rewards and Taxes: What You Need to Know

Employee Rewards and Taxes: What You Need to Know

  • Rebecca Pittman
  • 24 September, 2020

The mark of a successful safety recognition program is one where employees are engaged and achieving safety goals. Their incentive to stay active in a company’s safety program is the rewards they receive for observing safe behaviors in the workplace. Giving awards boosts employee morale and increases their motivation, but the IRS imposes specific limits as to what is and what is not tax deductible. Here’s what’s new for 2018.

IRS Changes

Under a new directive from IRS, incentive programs are changing. The IRS is steering employers away from using monetary and cash-equivalent awards and towards the use of tangible rewards (physical products/awards). They want to make sure that safety programs are beneficial in creating a positive safety culture. According to the IRS changes, non-tangible personal property achievement awards are considered taxable employee income. Non-tangible personal property includes cash, gift cards, gift certificates, vacations, sporting event tickets, meals, etc.

Rewarding Tangible Personal Property

Because the IRS is encouraging employers to recognize employees using tangible personal property, many companies are opting to create safety recognition programs that offer these types of rewards.

Personal property is property owned by an individual. These are items that are moveable, have perceived value, and can be touched. Land and buildings do not qualify as tangible property. Some examples of tangible personal property include lifestyle awards, jewelry, tools, plaques, electronics, and trophies.

Companies wanting to award their employees with tangible rewards will benefit from safety recognition programs that provide a catalog of rewards products. Catalogs can offer different sections divided by achievement levels allowing program administrators to control the types of tangible awards recipients can choose from based on the level of their achievement.

A more simplified way of rewarding employees with tangible property is to implement a points-based system. Safety recognition programs can award employees set values of points for completing safety tasks, training, or for participation in safety events. Employees can then exchange their points for tangible rewards set at specific point values. These programs allow employees to bank their points and save for greater tangible rewards. Rewards programs of this nature can offer branded merchandise featuring the company’s logo, name-brand lifestyle products such as sports equipment or kitchen appliances, and apparel and accessories. The added benefit of recognition of key safety metrics is the ability to track and measure the success of the program and the desired behavior changes.

OSHA Standards for Rewards Programs

Safety recognition programs can be an essential tool to promote workplace safety and health. OSHA allows companies to utilize safety recognition programs if they follow recommended practices. Safety programs should focus on various safety topics and incentives can be given to encourage positive safety behaviors.

According to OSHA, “employers must not use incentive programs in a way that penalizes workers for reporting work-related injuries or illness.”

Employees should not fear rewards being taken away because they missed a day of work, or because they reported the unsafe behavior of another. Instead, OSHA recommends incentive programs that reward for employee participation in safety program activities and evaluations, completion of employee training, and safety walkthroughs and identification of hazards.

For a safety recognition program to be deemed credible, it must have the support of upper-level management. Managers and executives should include all employees and give everyone an equal opportunity to earn and achieve recognition. Employers should give awards to employees who demonstrate safe practices in every aspect of their job. They should be used to build up an employee’s engagement and dedication to safety.

Refocusing Safety Recognition Programs

For companies that traditionally give cash, gift cards, tickets, meals, stocks, lodging, or other non-tangible safety rewards, the IRS changes in 2018 may affect your safety recognition program. Many companies are refocusing their safety recognition programs to include tangible rewards. The IRS allows employers to exclude certain achievement awards from employee wages if the awards are considered tangible personal property.

Making changes to an existing rewards program can seem daunting. Enlisting the help of a safety recognition programs provider can help companies ensure safety programs follow the new IRS rules and OSHA’s recommended guidelines. Providers, like the Safety Pros, can revamp existing programs or build an entirely new, customized programs that meet all standards and requirements.

The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.


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