Incentive - August 2008 - (Page 45)

LEGAL EASE Business Decisions Matter Plan an incentive program badly and you could owe employees for phantom overtime BY GEORGE B. DELTA, ESQ. E mployers have learned enough these days to make sure they take taxes into account in structuring incentive programs. For example, most companies are aware of the tax benefits of a safety achievement or a length-of-service award program, and structure their programs in order to take advantage of them. Similarly, smart employers engage in tax planning in order to mitigate the tax cost of their taxable incentive award programs, and most such programs are taxable. While employers have become more sophisticated in their tax planning, sometimes they have forgotten to take into account some important non-tax considerations in running incentive programs. One such non-tax consideration for a taxable incentive program is the Fair Labor Standards Act (FLSA). The FLSA and its regulations generally require an employer to include in an employee’s regular rate of pay all remuneration except certain specified types of payments. Thus, discretionary bonuses, gifts, payments in the nature of gifts on special occasions, contributions to certain types 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. Send comments to of welfare plans, and payments to certain types of profit-sharing, thrifts and savings plans are not included in an employee’s regular rate of pay. Nondiscretionary bonuses are included in an employee’s regular rate of pay. Accordingly, prizes awarded for perfect attendance, good safety records, excellent service and the like are generally considered to be additional remuneration for employment and require that their value be rolled back into the employees’ regular rate of pay for overtime purposes. For example, if all employees can earn some prize automatically by attending safety meetings, by having a perfect safety record or getting a certain customer service rating, over a period of time such as one month, the prizes would probably be treated as additional remuneration earned by the employee for his employment. The value of an award is considered remuneration that is added to an employee’s regular rate of pay for overtime purposes. Therefore, if an employee works a substantial amount of overtime, this additional remuneration that an employee will be deemed to have earned may require the company to pay him or her extra overtime. As a practical matter, this means that the employer would have to gross up the value of the award to time and one-half to reflect the overtime worked. So, a taxable incentive program may end up requiring the employer to pay employees for phantom overtime as well. Just as incentive programs can create an additional cost if you make an uninformed decision, knowing your business partner can make a big difference in the incentive field. For example, some companies are finding out that your business partner matters, as a result of the Sharper Image bankruptcy. When the company filed for bankruptcy, it stopped accepting its gift cards for redemption. As a result, the gift card holders became unsecured creditors of Sharper Image, and they are extremely unlikely to recover anything for any one of a variety of reasons. This development involving Sharper Image has nothing to do with the incentive business or the use of gift cards. The moral of the Sharper Image bankruptcy is different. As with all types of business relationships, knowing your partner and its financial viability is the most important aspect of the incentive business. | August 2008 | Incentive | 45 Illustration: Katharine Sandalls

Table of Contents for the Digital Edition of Incentive - August 2008

Incentive - August 2008
Editor's Note
In the News
Cover Story: Amgen and Avnet, a Pair of Fortune 200 companies, are taking two very Different Approaches to Rolling out a Global Recognition Program
Incentive Interview: Author, Speaker, Professor, Refugee; Steve L. Robbins’ many hats have led him to ask, “What if ... The World isn’t as We Think It Is?”
Case Study: Rudi’s Organic Bakery Found that an incentive trip with a Strong Social Responsibility Component Works Wonders
Gift Card IQ
Banking on Relationships
Corporate Comics Make Serious Points
Incentive Primer: Tom Miller
Gas Incentives Rev Up
Legal Ease: Pitfalls Beyond Taxes
My Turn: Airline Frequent Flier Programs
Travel News: Where To Go and What To Do
Amalfi Coast: A Classic Italian Destination
Hong Kong: The Original Chinese Incentive
Ireland: South, East, West, and Now North
potentials Here and Now
Electronics: Top Tech Trends
Luxury Goods: Exceptional Awards
Corporate Gifting: Rules and Ideas
Excite and Incent: Spot Rewards
Advertiser Index
Off the Cuff: Hollis H. Malone

Incentive - August 2008