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Employee Incentive Programs Related Questions

A company may offer various types of employee incentive programs in order to increase employee motivation and to hopefully foster company growth. Employee incentive programs can be creatively developed and used by employers to propel a company forward while also providing an excellent work atmosphere. The following are some frequently asked questions on employee incentive programs.

What are the benefits of employee incentive programs?

By the definition of the term itself, an “incentive” is something that motivates or encourages someone to do something, so employee incentive programs are designed to motivate an employee and to make the employee excited about being a part of helping the company succeed.

Can an employer use an employee incentive program to save on taxes for himself or herself?

According to IRC (Internal Revenue Code), Sec. 102(c), an employee may not exclude from income an amount received from an employer with two exceptions. The first exception is an employee achievement award given for safety achievements or length of service, and this must be tangible property, like a gold watch. The second exception would be small a gift or award with a value of $25 or less.

It is mandatory for the employer to include the value of the gift (the cost paid by the employer) as taxable compensation on the W-2 of each employee who receives the prize or gift. This means the amount is subject to such taxes as FICA (Federal Insurance Contributions Act). This means the employer can deduct the amount as such on the employer’s business tax return.

Can an employer delay the payment of wages and incentives if an employee is on leave, and can an employer withhold payment in the event of the employee’s termination?

Since payment of wages and incentives are usually made for work already completed, an employer cannot withhold payment as this would possibly attract a suit for wage violation by the employee. As for a terminated employee, the law states that all dues and compensation are to be promptly settled by the employer on the day of termination itself.

A company pays its employees on an hourly basis and offers incentives for work goals achieved. However, the employees also work overtime, the payment of which in addition to the incentives makes it costly for the employer. How can this be remedied?

An overtime rate of time and a half is mandatory for an employer to pay an employee who is non-exempt and works more than 40 hours a week. If the hourly rate has increased due to performance goals, this would affect overtime as well. A possible remedy to this would be to provide lump sum bonuses instead of an increase in hourly rate.

Can a company offer a certain type of incentive to employees of one department and none to the employees in another department?

The policy itself may be unfair, but it does not amount to illegal discrimination since the distinction is made based on the type of job the employees have and not on the basis of the employees’ age, sex, race, religion, or nationality.

Can non-profit executives of charitable organizations receive profit-based incentives?

The IRS stipulates that non-profit executives’ compensation in a charitable organization must be reasonable, which means that no executive may receive excess benefits. In other words, the value of the compensation should not exceed the value of the services provided to the organization. All compensation packages ought also to be approved in advance by the relevant authorized body of the organization which must determine these based on the purpose, budget, and other relevant factors of the organization.

While it is entirely a company’s prerogative whether or not to award incentives to its employees, both well-meaning employers as well as employees who wish to excel may sometimes be faced with doubts and questions pertaining to the fairness, legality, and enforcement of certain programs. In such a situation, both employers and employees need to be aware of the laws which govern employee incentive programs.
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