'Tis the season for office holiday parties and Christmas gifts - just make sure you understand the ins and outs of employee pay requirements and taxes to keep spirits merry. Jo McClure, Director of Payroll Administration here at Axcet HR Solutions, answers your most frequently asked seasonal questions regarding employee pay for holiday parties and tax implications of gift cards given to employees.
Holiday Parties and Nonexempt Employee Pay
Question: Considering the pandemic, we are planning to celebrate the holidays with our staff at a small, socially distanced gathering of people who normally work together. Do we have to pay nonexempt employees for attending the 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?
Answer: 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 salary for the time they spend at your event.
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 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 attended the event. This should also be considered worked time for the purpose of overtime calculations.
You also should pay nonexempt employees for any work they perform after the party. So even if they volunteer to stay late and help with clean-up, you would compensate them at their regular rate of pay – including any eligible overtime – for the time they spend cleaning up.
Taxes on Gift Cards Given to Employees
Question: Do we have to pay taxes on any gift cards we give our employees?
Answer: Yes. The value of the gift card at the time it’s provided is subject to federal income tax withholding and social security, Medicare and FUTA taxes and must be included in the wages 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 a holiday ham 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.
Axcet HR Solutions' payroll experts are here to help with all of your payroll compliance needs.