As the festive season unfolds, navigating office Christmas parties can be as intricate as untangling holiday lights. From the company holiday party itself to thoughtful gift-giving, it's crucial to understand the nuances of holiday party-related employee pay requirements, social etiquette, and when it comes to gifting, the tax implications of holiday gift cards for employees.
To ensure your workplace celebrations stay both merry and compliant, we've turned to Jo McClure, Director of Payroll Administration at Axcet HR Solutions. Jo provides expert answers to the most commonly asked questions about navigating the season's festivities and financials with your team.
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I am planning my company’s holiday party, which includes both salaried and hourly employees. Do we have to pay hourly employees for attending the company holiday party, which is scheduled from 3 to 7 p.m., if they normally leave work at 5 p.m.? On a related note, do we have to compensate nonexempt employees if they volunteer to help clean up afterward?
A key consideration when planning office Christmas parties involves understanding pay requirements. Generally speaking, wage and hour regulations do not require you to compensate nonexempt employees to attend an after-hours holiday gathering, as long as their presence is voluntary and they don’t face any consequences if they choose not make an appearance. If the choice to attend or not to attend is strictly up to the employee, it’s best to make this fact clear to all employees.
That clarity relieves you of any legal requirement to pay nonexempt employees to be there. Exempt employees do not need to be paid above and beyond their salaries for the time they spend at your event.
Company holiday parties scheduled during the regular workday, however, should always be compensated. In this case, because the timing of your party overlaps with your nonexempt employees’ normal working hours, you should pay them for the first two hours of your event.
If attendance at your office Christmas party is mandatory, or nonexempt employees believe they would suffer some adverse consequence if they don’t attend, then you should pay them for the entirety of the time they attend the event. This should also be considered time worked for the purpose of overtime calculations.
You also should pay nonexempt employees for any work they perform after the party. Even if they volunteer to stay late and help with cleanup, you would compensate them at their regular rate of pay – including any eligible overtime – for the time they spend cleaning up.
If we have an alcohol-free company policy, can we still serve alcohol at our company holiday party?
Yes, even with an alcohol-free workplace, you may still serve alcohol at a company party. But do remind employees that workplace rules about acceptable behavior still apply – even at an after-hours, company-sponsored event – and that alcohol should be consumed responsibly.
One tip for limiting alcohol consumption is to distribute a limited number of drink tickets to everyone who attends the party and to stop serving alcohol at least one hour before the event is scheduled to end.
For years, we have put up a Christmas tree in our company’s front lobby. We recently launched a diversity, equity and inclusion initiative this year. Should we discontinue putting up a Christmas tree?
While 85-90% of Americans report celebrating Christmas, it’s important to consider inclusivity when putting out office Christmas decorations. Legally, a private employer can determine what kinds of holiday displays it will allow in public areas, but recognize that your company may have employees, customers, suppliers and vendors who do not celebrate Christmas. Thoughtfulness and sensitivity toward multiple holiday-related beliefs and practices support DEI in the workplace.
If you decide to put up office Christmas decorations, including an office Christmas tree, and you have individuals connected to your workplace who recognize different December holidays, consider giving them a visible space to display décor associated with the events they celebrate.
Handled correctly, this approach not only promotes inclusivity but also can provide an opening for conversations that help employees learn about others’ beliefs and traditions.
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Do we have to pay taxes on holiday gift cards for employees?
Yes, the value of the holiday gift cards for employees at the time provided is subject to federal income tax withholding and social security, Medicare and FUTA taxes and must be included in the wages reported on Form W-2.
Employers often incorrectly assume that gift cards are a “de minimis” (minimal) fringe benefit under IRS rules and therefore not considered taxable income.
The IRS defines a de minimis benefit as “any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable.”
But, in the “IRS Employer’s Tax Guide to Fringe Benefits,” the agency stipulates that “cash and cash equivalent fringe benefits (for example, gift certificates, gift cards and the use of a charge card or credit card), no matter how little, are never excludable.”
Other kinds of gifts, such as one-time entertainment or sports event tickets or a voucher for a specific holiday ham (but not a gift certificate to a grocery store), may not be taxable. Refer to the Tax Guide for more information.
Holiday parties and gift-giving are great for employee morale—but they can also create unexpected payroll and tax liabilities if not handled correctly. For example, gift cards are considered taxable income and must be reported on employees' W-2 forms, regardless of the amount . Additionally, compensating nonexempt employees for party attendance or cleanup requires careful consideration to remain compliant with wage and hour laws.
Axcet HR Solutions helps small and mid-sized businesses navigate the complexities of payroll compliance during the holiday season and beyond. Our experts ensure your celebrations stay joyful—and fully compliant.
Learn more about our payroll compliance services.
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