Incentive - February 2008 - (Page 41)

LEGAL EASE Make Taxes Pay Making smart choices for safety award programs at union shops BY GEORGE B. DELTA, ESQ. y paying attention to a few legal considerations, employers should be able to make a safety achievement program even more successful. If certain other statutory conditions are met, an employer may deduct the cost of a safety achievement award up to $400 per employee in any year. If the employer has a written plan or program approved by the IRS, and which does not discriminate in favor of highly compensated employees, the $400 deduction limitation is increased to $1,600 per employee, as long as the average cost per employee of all employee achievement awards given during any year is no more than $400. The safety achievement award must be “tangible personal property” (it cannot be tickets to events, a dinner at a restaurant, or a trip, for example; it can be merchandise only, and not gift cards—which are not tangible personal property, even if the recipient uses them to buy merchandise) and it must be given as part of a meaningful presentation and under such conditions that it does not amount to disguised compensation. B An award for safety achievement can be excluded from an employee’s income only if the employee works full-time and he or she is not a manager, administrator, clerical worker or other professional employee. Safety achievement awards can be given only to 10 percent or less of the eligible full-time employees of the employer. Once the 10 percent limitation is exceeded in any given year, then all subsequent safety achievement awards to employees are taxable to them. If a program is to be tax-free to all employees, it can only cover 10 percent of them. The rule that an award for safety achievement can be made to up to 10 percent of eligible employees only creates a lurking problem for employers and employees under the Fair Labor Standards Act (FLSA), if the employer does not structure its safety incentive program properly. The FLSA and its regulations generally consider prizes awarded for perfect attendance or safety records as additional remuneration for employment, and require that their value be rolled back into the employees’ regular rate of pay for overtime purposes. The value of an award is considered remuneration that PROFILE INFORMATION GEORGE B. DELTA, ESQ. George B. Delta, Esq. is general counsel to the Incentive Federation Inc. and a frequent contributor to this magazine is added to an employee’s pay. That employee is assumed to have worked extra time (overtime) to have received that additional pay (the value of the award) and therefore, the employer would have to gross it up to time and one-half to reflect the fact that the employee has worked overtime. So, a poorly structured safety achievement program may end up costing an employer a lot more than a lost deduction or lower employee morale. The employer may have to pay employees for phantom overtime. On the other hand, a welldesigned safety achievement program should be a boon to both sides. The employer gets a deduction and can reduce the cost of worker compensation premiums, and the employee gets tax-free awards and a safer work environment. So, what is the catch? Unions. For one, unions do not like award programs, because they differentiate among workers. Second, unions believe that employees will fail to report workplace injuries in order to qualify for safety awards. Third, unions believe that such programs undermine the collective bargaining process and may encourage employers to reduce hourly pay and other benefits. An employer needs to bring the union into the process before putting a plan in place. It needs to make the union aware of its intentions to improve workplace safety and communicate its strong desire that it will not tolerate unreported injuries. By engaging in a collaborative effort with its employees, the employer can ensure that its safety award program will be successful. | February 2008 | Incentive | 41 Illustration: Katharine Sandalls incentivemag.com http://www.incentivemag.com

Table of Contents Feed for the Digital Edition of Incentive - February 2008

Incentive Magazine - February 2008 Editor’s Note: Archie and the Boys In The News Cover Story: On The Ball Incentives Incentive Primer: How to Use Sporting Events Incentive Interview: Jim Avery on Doing the Right Thing Employee Empowerment Motivates and Pays Dividends Hospitals, Nurses Win With Flexible Scheduling Legal Ease: Safety Programs and Unions Case Study: The Weitz Company Retains Its Boomers Potentials: Here and Now Star Power in the Kitchen Awards: Gift Card Trends for the New Year Travel News The Manhattanization of Las Vegas Classics Renewed: Monaco and France Advertiser Index Off The Cuff: Tumi’s Mike Landry

Incentive - February 2008

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