The Holiday Bonus: Gift Cards, Gifts, or Cold Hard Cash?
Each holiday season employers wonder about the best way to show appreciation to their team members. If your practice is like most, you have a great team who works hard and is the foundation of your success. It generally goes without saying that you should reward your employees, if it’s within your budget, with something they will appreciate. But what do you employees want? Not only that, how do you appropriately account for the gifts on your tax return?
Let’s start with a few items your employees will most definitely not appreciate. For starters, anything with the practice logo on it. Save the tote bags, pens, t-shirts, koozies, and mouse pads for your patients and marketing events. Flowers, while nice, do not last more than a week, and should probably be reserved for birthday celebrations and work anniversaries. Yes, the IRS considers these to be ‘de minimus’ gifts (i.e., trivial, administratively impractical to account for, or “fringe benefits”) that don’t need to go through payroll, but what does it say to your employees? Yes, it’s the thought that counts. But let’s think a little harder.
If you truly know your employees will appreciate an individually selected, tangible gift, by all means go for it. The IRS does not count items of personal property as income, provided the value is reasonably low (there is no specific threshold, but think along the lines of a candle, not a laptop).
How about food? Everyone loves a nice ham, right? Well… maybe. If they’re not allergic to pork. Or unable to eat it for
dietary reasons. And don’t already have plans for what they’re serving, or plans to go out of town. While a certificate
redeemable for a specific item at a grocery store is considered a de minimus benefit, it may not be as valued by your
employees who are unable to partake of the gift. On the other hand, if you’d like to contribute something to your
employees’ holiday tables but don’t have a one-size-fits-all option for an item, a sizeable gift card to a local grocery store is usually a well-received treat. Restaurant gift cards are also appropriate. You will need to run the amounts of the cards through payroll and be responsible for the taxes on that amount, since the IRS treats gift cards or certificates redeemable for general merchandise as personal income for the employee, regardless of the amount. While this gesture is nice, it’s definitely not the most appreciated end-of-year gift.
Annnnd the winner goes to…
It probably comes as no surprise that the gift employees are most excited to receive is cash. But don’t whip out your checkbook just yet. Cash gifts, or bonus checks, are counted as personal income by the IRS and must be run through your regular payroll system. Because of the adjusted withholdings, it’s easier to do this in a separate check rather than adding it to the regular payroll.
What about holiday parties?
Occasional parties for celebrations such as birthdays or holidays, group meals, cocktail parties, etc. are considered de minimus benefits by the IRS. You do not need run the cost of these events through payroll or pay additional taxes on them. Something to keep in mind, however, is that if you require attendance at your annual event you will need to pay employees their hourly rate for the time spent at the party, even if they are not productively working, including over-time pay if they work more than 40 hours with the party time included. If event attendance is optional, and no work is completed during that time, employees can attend off-the-clock.
Remember, if you include a drawing or door prize in your event activities, gift cards or certificates redeemable for general merchandise are not considered de minimus benefits and will require you to pay the additional payroll tax.
What if I can’t afford gifts, parties, or bonuses?
The end of the year can be financially tight for some practices. Even when you have the most fantastic, deserving team, fancy gifts or lavish bonuses are not always within reach. So what can you do to show how much you appreciate their efforts through the past year without
breaking the bank?
One of the most appreciated gifts can be extra paid time off. Allowing employees to truly take a break and disconnect from work without interruptions or feelings of guilt for ‘not being a team player’ is an invaluable gift. If you can’t afford to give PTO in addition to what the employee has accrued under their benefits plan, make a committed effort to allowing your employees to use their accrued PTO when they want to during the holiday season, without harsh restrictions.
To summarize, unless you know your team members well enough to know they will appreciate a particular gift or group event, keep the frills to a minimum and – if you can afford it – just cut everyone an end-of-year bonus check (through your payroll system, of course).