- Compete for talent by offering an attractive package.
- Motivate workers by creating the opportunity for them to earn more.
- Recognize your most valuable employees.
Action Steps
The best contacts and resources to help you get it done
Know what's taxable
Certain types of gifts, given under the right circumstances (length-of-service awards, safety awards, etc.) are not subject to tax. Also, different rules apply to different types of bonuses, such as discretionary and non-discretionary.I recommend: In its small-business section, the IRS Web site explains tax status of awards on its Employees' Pay page. Another good, concise resource is the American Institute of Professional Bookkeepers, which offers a free report titled "Bonuses, Gifts, Prizes and Awards: What's Taxable and What's Not", available only by calling 1-800-622-0121 or e-mailing info@aipb.org.
Cover their taxes
Some companies absorb the cost of employees' taxes on bonuses. And if you're giving a taxable non-cash award, such as a car, paying the tax definitely enhances the item's value. However, it's not as simple as paying the amount the employee would be taxed; there's a special calculation called a "gross-up," which determines the amount the employer must pay.I recommend: The American Institute of Professional Bookkeepers has several calculators for determining gross-up amounts. Register at Paycheckcity.com to access a free bonus tax calculator, stock option calculator and gross-up calculator to help you determine the full amount you would need to pay should you choose to pay employees' bonus taxes for them.
Use merchandise incentives
Non-cash rewards (excluding gift cards and certificates) valued up to $1,600 per employee per year are non-taxable, if they meet certain criteria for reason given.I recommend: To research merchandise award items and their suppliers, go to PotentialsMag.com.
If your company is public, SOX affects your gifts and bonuses
The Sarbanes-Oxley Act of 2002 requires public companies to document procedures and security controls of incentive programs. In short, this means tying every reward to a business outcome.I recommend: The American Institute of Certified Public Accountants posts a summary of key sections of the 66-page piece of legislation. Download a SOX compliance toolkit from Sarbanes-Oxley-Forum.com.
Tips & Tactics
Helpful advice for making the most of this Guide
- You can give non-cash awards with a value of up to $1,600 per employee per year, as long as they are given in a way that doesn't favor your high earners and as long as they are given for accomplishments in years of service, productivity or safety.
- When giving gifts, take advantage of the fact that you're a small company, and therefore know your employees better than perhaps your big competitors do. Take the time to understand employees' likes and dislikes, so you can choose a gift they really want.
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Incentive Ideas for Business and Employees at BestBuy.com.
Order Form
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Incentive Ideas for Business and Employees at BestBuy.com.
Order Form
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