Employers Must Consider Discrimination & Tax Implications
With the end of the year fast approaching, many employers are getting ready to hand out holiday bonuses, unaware that these tidings of the season can come wrapped in legal implications. To help avoid compliance issues, consider the following questions when planning your bonus program:
- Are the bonuses discretionary?: Non-exempt employees covered by the federal Fair Labor Standards Act must receive overtime pay for hours worked in excess of 40 in a workweek, at a rate not less than time and one-half their regular rates of pay. However, discretionary bonuses are not part of an employee’s regular rate of pay under the Act, according to the U.S. Department of Labor.
- Are the bonuses nondiscriminatory?: As with all employee compensation, holiday bonuses must be provided on a nondiscriminatory basis. The eligibility criteria for bonuses must be applied in a nondiscriminatory way, and eligible employees must receive bonuses in nondiscriminatory amounts.
- Are the bonuses taxable?: Cash gifts are subject to federal, state, and local withholding taxes. However, the IRS considers de minimis fringe benefits—typically non-cash items with a market value generally less than $100—to be non-taxable.
Click here for more information from the IRS on the tax implications of holiday gifts.