Many company leaders want to provide a smorgasbord of perks to keep their teams motivated
and in love with the company. What those perks
are depends on the company’s vision, goals,
industry sector, employee population, client base and even location.
It’s a birthday/anniversary/holiday party for the employees! And of course we are having cake and giving out gifts….
Our wellness program includes a company paid membership to the local gym.
Come and work with us! We are so cool we even offer free lunch every day for our employees….
It’s a great recruiting tool. Paid membership to the fancy full service gym down the street and three free nights annually at the company’s condo in Bora Bora? Sign me up! And, it’s all tax free for the employee!
They always fail to mention this pesky IRS regulation that defines–to some degree–what are taxable and non-taxable fringe benefits to employees. De minimis fringe benefits. What? Yup, it’s a real thing.
According to the IRS IRC section 132, De minimis fringe benefits that are not considered “income” are:
- Occasional typing of personal letters by a company secretary
- Occasional personal use of an employer’s copying machine, provided that the employer exercises sufficient control and imposes significant restrictions on the personal use of the machine so that at least 85 percent of the use of the machine is for business purposes.
- Occasional cocktail parties, group meals, or picnics for employees and their guests; traditional birthday or holiday gifts of property (not cash) with a low fair market value
- Occasional theater or sporting event tickets; coffee, doughnuts, and soft drinks; local telephone calls; and flowers, fruit, books, or similar property provided to employees under special circumstances (e.g., on account of illness, outstanding performance, or family crisis).
And what they are not and therefore fair game for the taxman:
- Season tickets to sporting or theatrical events.
- The commuting use of an employer-provided automobile or other vehicle more than one day a month
- Membership in a private country club or athletic facility, regardless of the frequency with which the employee uses the facility.
- Employer-provided group-term life insurance on the life of the spouse or child of an employee and…
- Use of employer-owned or leased facilities (such as an apartment, hunting lodge, boat, etc.) for a weekend.
Okay so obviously this is a pretty ancient regulation if typing and copying are the first bullets. But know this: IRS does use this as a guideline for evaluation.
Basically, they look at value, frequency and reasonableness of accounting for the cost of it. If it is (1) expensive – $100 or more, if it is on a (2) regular basis – like weekly, and if it is (3) easy to track the cost – like on a company credit card or line item in your accounting software, then the IRS is going to want to look at that, maybe.
But wait, I didn’t see anything about meals in there and besides that what about Google and Facebook and their amazing gourmet cafeterias for the employees that are free? How is that possible?
There is an exception that allows for tax-free meals if it is for the “convenience of the employer” (and the employee). For example, an off shore oil rig team; not sure fishing off the pier will cut it. Emergency workers on call and employees required to work overtime also may fall in this category. Pulling those all-nighters does deserve a late night delivery of pizza and Red Bull, right? Yes, that is considered okay.
But really, are the folks at Google and Facebook working those hours? Don’t they have restaurants nearby versus 100 miles away, accessible only by boat?
The IRS has already been making noises about the free lunch thing and there is much online discussion about this particular topic.
So yes, you need competitive tools to recruit and reward employees. Things other companies may not offer. Things that make your business irresistible. Consider the following:
Flextime, telecommuting, additional paid time off, training, supportive managers, work-life balance. These are all great perks you don’t have to pay taxes on that employees are begging for and surveys assure us they want. More on that next week.
We work with companies on a project basis or on retainer, providing a custom level of HR help designed for your business. Contact me at Caroline@valentinehr.com or call (512) 420-8267.