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Promoting, protecting, and researching the optimal use of incentives, rewards, and related promotions in business.
Current Legal/Legislative Updates
Employee Achievement Awards Exclusion in Danger of Repeal
For the past few weeks George Delta, IFI’s Legal Counsel, has been closely monitoring the two tax simplification and reform acts proposed in the U.S. House of Representatives and the U.S. Senate. If you have followed the news you are aware that the House passed its version of the Tax Cuts and Jobs Act on November 16. That bill includes a provision that repeals 274(j) and therefore the preferential exclusion from taxes for employee service and safety awards. That’s the bad news.
The good news is that the U.S. Senate Finance Committee completed its markup of the Tax Cuts and Jobs Act and voted it out of the Senate on December 2. The Senate bill does not have a corresponding provision to repeal 274(j). We want now to encourage and thank the members of the Senate Finance Committee for being supportive of our interests.
The Senate and the House have appointed their respective leadership to serve on a conference committee to work out the differences between the two versions of the bill. When the conference committee begins its work this week there’s a good prospect that some effort to repeal 274(j) could be brought forward.
So, with all that said, we are asking IFI members to send letters to their Senators or Representatives of your choice to express the need for them to continue supporting the exclusion from taxes for employee service and safety awards. However, we recommend targeting the Senators serving on the conference committee, as they are the ones most likely to favor our position.
The Senators appointed to the conference committee are:
Orrin Hatch (R-UT), Chairman of the Senate Finance Committee
Mike Enzi (R-WY), Chairman of the Senate Budget Committee
Lisa Murkowski (R-AK), Chairman of the Senate Energy and Natural Resources Committee
John Cornyn (R-TX)
John Thune (R-SD)
Rob Portman (R-OH)
Tim Scott (R-SC)
Pat Toomey (R-PA)
Please review a sample letter here you can use and tailor your comments as appropriate. You’ll note there are places to insert your details about your company and state. The letter is generic, so feel free to add any specific details you feel are important. I have provided a link to the Senate which you can use to click on the Senators for an appropriate email address by accessing his/her website. You’ll also find that you can email your letter through their websites.
Now is the time to send one or more letters. We appreciate your support. The tax exclusion our industry has enjoyed and benefited from for many years is in jeopardy. We need your action and support.
Wellness Program Regulations Sent Back to the EEOC for Re-consideration
As reported by the WorldatWork in a recent news release the U.S. District Court for the District of Columbia sent back controversial wellness regulations to the Equal Employment Opportunity Commission (EEOC) during the last week of August for further consideration.
As reported by WorldatWork the regulations were finalized by the EEOC last summer and gave employers guidance on how employer-sponsored wellness programs can administer incentives and remain compliant under Title I of the Americans with Disabilities Act (ADA) and Title II of the Genetic Nondiscrimination Act (GINA).
The court’s decision is a result of a case brought against the regulations by AARP. In the lawsuit, AARP argued the final rules went against the original intent of the ADA and GINA by allowing employers to provide certain monetary incentives of up to 30% of the cost of coverage while still meeting the definition of being voluntary under the two laws.
The District Court sided with AARP and determined that the EEOC relied on an “unreasonable interpretation of the statutes.”
The decision states, “while EEOC has discretion to choose the correct incentive level, the fact that it does not appear to have considered any relevant factors in determining what incentive level best approximates ‘voluntariness’ suggests that the agency’s decision may very well be different on remand.”
To minimize the disruptive consequences to this decision, the court ruled that the current rules will remain in effect until the EEOC has reconsidered the rules under the direction of the court’s decision. The timing for when the EEOC will review and release revised wellness regulations remains uncertain. The EEOC is currently waiting for the Senate to confirm President Trump’s nominee, Janet Dhillion, to chair the agency.
“The controversy over these regulations continues,” said Melissa Sharp Murdock, principle content strategist in WorldatWork’s Washington, D.C., office. “For now, employers and rewards professionals can continue to rely upon the 2016 regulations with regard to their incentive plans connected to employer-sponsored wellness programs. However, this may change once the agency reconsiders the regulations.”
Legislation also was introduced in this Congress aimed at eliminating the confusion over wellness plans incentives and bringing uniformity to the regulation of these programs. The bill, H.R. 1313, Preserving Employee Wellness Programs Act, sponsored by Rep. Virginia Foxx (R-N.C.), was approved by the House Education and Workforce Committee on March 8. A floor vote has not been scheduled.
Federal and California Labor Laws That May Affect Awards Programs
George Delta, IFI’s legal counsel, has provided an update and overview of certain Federal and state labor laws that potentially affect how companies reward employees with various types of incentive programs, particularly when points are accrued by employees for satisfactory and exemplary work.
Tax reporting and compliance issues are familiar to incentive companies and their clients who use reward and recognition programs. Although tax issues are important for all reward and recognition programs, compliance with federal and state labor laws is often overlooked, even though sometimes it can be just as important for the overall success of a reward and recognition program. Often, the parties using the program are not aware of labor law issues, and, occasionally, they may turn a blind eye to them.
One such important issue that is often unrecognized arises when awards are paid solely in merchandise, gift cards (physical or virtual), reloadable prepaid bank cash or debit cards, travel, event tickets, and other non-cash awards. The awards are based on points that employees earn and which are redeemable for the various non-cash items. In such cases a question arises whether the reward and recognition program would violate the Fair Labor Standards Act (the “FLSA”) unless the employer also offers a cash option in lieu of the other awards under the program. If the program is used to reward employees in California, the same issue would arise under California labor law
An example of a non-cash reward and recognition program that could violate the FLSA and/or California labor laws is when a client of an incentive company gives the employees in its retail operations, fulfillment centers, call centers, and corporate offices “points” for achieving certain targets or other metrics. The “points” could be discretionary or earned automatically when such targets are reached. The program does not incorporate a system where each employee can opt for the cash value of an award instead of merchandise, gift cards, cash or debit cards, travel or other awards when redeeming the points earned.
Delta’s full analysis of the affect labor laws may have on rewards and recognition programs may be viewed here.
Incentivizing Safety on the Job
Promotional Products Business magazine recently published an article in its July 2017 issue titled “Incentivizing Safety on the Job,” and you can read the article here. The article tracks the positions of the Occupational Safety and Health Administration (OSHA) for nearly 20 years regarding the use of safety incentives in the workplace.
“Fiduciary Rule” Revisited by Administration and Congress – Impact on Incentive Travel Programs Unclear
The Department of Labor’s (DOL) “Fiduciary Rule” issued in 2016, and scheduled to be fully implemented by January 2018, is under further scrutiny and legislative challenges. The first stages of the regulation became effective June 9, 2017, even though the Administration has ordered the DOL to review the rule and recommend revisions. IFI’s analysis of the rule suggests that there are significant implications for companies offering incentive travel and awards programs to the financial marketplace.
Until there is greater clarity with respect to the new fiduciary rule, some financial institutions may be leery of using incentive or award programs to motivate and/or compensate their employees, while others are restructuring their programs to place a greater emphasis on general recognition and education, for example, instead of providing sales-based incentives.
While not readily apparent in the wording of the new fiduciary rule, which is an amendment to the Employee Retirement Income Security Act, part of the rule does suggest that incentive trips and other forms of rewards or incentives may no longer be acceptable if they present conflicts of interest. See Senator Elizabeth Warren’s October 2015 report, “Villas, Castles and Vacations: How Perks and Giveaways Create Conflicts of Interest in the Annuity Industry,” that was an impetus for the new rule. Note that incentive travel was not the only form of sales incentive targeted.
In early June a round of legislation was introduced to replace the DOL’s fiduciary standard for employer-sponsored retirement savings plans with a new one agreed to by Congress. The Affordable Retirement Advice for Savers Act (H.R. 2823) would repeal the DOL rule and establish a statutory definition of “investment advice” that would, among other things, set standards for providing information about investment options for employer-sponsored defined contribution savings plans, IRAs and HSAs.
In the Senate the Affordable Retirement Advice Protection Act (S.1321) is similar to the House bill in that it would establish a new paradigm for investment advice for DC plans, but it does not expressly repeal the DOL rule nor create a fiduciary duty for IRAs and HSAs. Additionally, the House has passed legislation – the Financial CHOICE Act (H.R. 10, Sec. 841) – that includes a provision to assign the responsibility for defining the guardrails for investment and other advice applicable to employer-sponsored retirement savings plans, including 401(k) plans and other defined contribution plans, to the Securities and Exchange Commission rather than the DOL. Nothing that IFI has seen in the proposed legislation suggests that Congress aims to address the contention that sales incentives present a conflict of interest for financial services providers.
For the time being, how any of the proposed changes might affect or give relief to the incentive travel industry remains unclear. For IFI’s Legal Counsel George Delta’s full explanation of the new rule’s impact, click here. The IFI will continue to monitor the proposed legislation and determine if there is any opportunity to positively influence the impact on incentive travel programs sponsored by financial companies.
How the Fiduciary Rule Affects Incentive Travel and Awards Programs for the Financial Marketplace
In his bi-monthly legal update, George Delta, IFI’s Legal Counsel, explains The Department of Labor’s new rule, issued in 2016 and scheduled to be implemented by January 2018, that has significant implications for companies offering incentive travel and awards programs to the financial marketplace. Unless the current administration changes the course of the rule, the new “fiduciary” rule may make incentive programs a thing of the past for those selling financial products to the public.
Until there is greater clarity with respect to the new fiduciary rule, some financial institutions may be leery of using incentive or award programs to motivate and/or compensate their employees, while others are restructuring their programs to place a greater emphasis on general recognition and education, for example, instead of providing sales-based incentives. Although financial institutions may be overreacting, that is understandable in the context of prior practices when conflicts were rife, as fund companies competed to encourage brokers and advisors to put people in their funds, regardless of the clients’ best interest. Mutual fund companies also compensated intermediaries with trips to exclusive destinations and other lavish prizes. For a full explanation of the new rule’s impact, click here.
The IRS Issues Legal Advice Regarding Customer Loyalty and Rewards Programs
George Delta, IFI’s Legal Counsel, has provided his bi-monthly Legal Update for IFI members. The topic covered relates to customer loyalty and rewards programs, so if you sell, offer or manage those types of programs, George’s update offers some valuable information for you, your customers and especially the accounting professionals you rely on.
The Associate Chief Counsel of the IRS has recently issued Legal Advice setting forth its position that an accrual method taxpayer cannot account for the costs of redeeming points in its “hybrid coupon” customer rewards program under the Treasury rules that apply to “premium” coupons. This legal advice memorandum is important to companies that operate loyalty programs, because if their programs can meet the definition of a “premium” coupon, they would be allowed to deduct their reasonable estimated redemption costs from gross receipts with respect to sales with which they issue points. (The regulations in question are old, and they refer to trading stamps or premium coupons instead of their current equivalent, points).
In effect, if you can get the points issued under your loyalty program to meet the definitional requirements of “premium coupons,” you can estimate and currently deduct your redemption costs. Otherwise, you can only deduct the cost of points as customers redeem them. Deduction upon redemption is the normal rule, so the IRS wants to limit the scope of what constitutes a “premium coupon.”
For a more complete explanation of the IRS advice on rewards programs, click here.
Federation Responds to OSHA Safety and Health Program Management Guidelines
The Occupational Safety and Health Administration (“OSHA”) has issued a revised draft of OSHA Safety and Health Program Management Guidelines. Click here to see the Guidelines. OSHA invited public comment to their proposed revisions and the Incentive Federation and some Federation members have written to OSHA to express opposition to OSHA’s criticism of safety incentive programs. The Draft Guidelines state in a note that, “Incentive programs for workers or managers that tie performance evaluations, compensation, or rewards to low injury and illness rates can discourage injury and illness reporting. Point systems that penalize workers for reporting injuries, illnesses, or other safety or health concerns have the same effect, as can mandatory drug testing after reporting injuries. Effective safety and health programs recognize positive safety and health activities, such as reporting hazardous conditions or suggesting safer work procedures.”
For a little deeper dive into OSHA’s thinking, the agency also references a 2012 memorandum on page 14 of the Guidelines that addresses what OSHA perceives as “incentive and disincentive practices” of safety programs.
In part the memo states, “Finally, some employers establish programs that unintentionally or intentionally provide employees an incentive to not report injuries. For example, an employer might enter all employees who have not been injured in the previous year in a drawing to win a prize, or a team of employees might be awarded a bonus if no one from the team is injured over some period of time. Such programs might be well-intentioned efforts by employers to encourage their workers to use safe practices.
However, there are better ways to encourage safe work practices, such as incentives that promote worker participation in safety-related activities, such as identifying hazards or participating in investigations of injuries, incidents or “near misses”. OSHA’s VPP Guidance materials refer to a number of positive incentives, including providing tee shirts to workers serving on safety and health committees; offering modest rewards for suggesting ways to strengthen safety and health; or throwing a recognition party at the successful completion of company-wide safety and health training. See Revised Policy Memo #5 – Further Improvements to VPP (August 14, 2014).”
To see the Incentive Federation’s response click here
2016 Incentive Marketplace Estimate Research Reports 17% Growth Since 2013
Conducted in partnership with market research firm Intellective Group of St. Louis, the study measures the expenditures of businesses for non-cash rewards for employees, customers and partners. The results update studies from previous years and provide details about expenditures spent on gift cards, rewards points, travel, and merchandise by corporate America. New this year, the study also focuses on the number of program owners using award points.
The study of a cross-section of US businesses confirms that award points, gift cards, incentive travel, and merchandise are commonly-used tools for firms seeking to reward and recognize their employees, sales teams, channel partners, and customers. Key findings from the study include:
• 84% of U.S. businesses use non-cash rewards to recognize and reward key audiences in the form of award points, gift cards, incentive travel, and merchandise – up from 74% in 2013
• In 2015, U.S. businesses spent $90 billion on these types of non-cash rewards, a 17% increase from $77 billion in 2013. To see the full research report click here.
Additional inquiries may be sent to IFI’s Managing Director, Steve Slagle.
2015 Incentive Federation Program Design and Support Study Released
IFI engaged Intellective Group of St. Louis to conduct its 2015 Program and Design Study. Using a national sample of business stakeholders with at least $1M in revenue, the study aimed to determine the drivers of programs, award types, supplier use and program metrics. The full study may be reviewed here. Additional inquiries may be sent to IFI’s Managing Director, Steve Slagle.
2015 Incentive Federation Program Design and Support Study Waterfall Release #1 – Program Goals and Objectives
IFI has released the first of a series of white papers on its 2015 Incentive Federation Program Design and Support Study. In this white paper, the Federation focuses on an in-depth analysis of program goals and objectives companies strive to achieve when designing an incentive program. Review the Program Goals and Objectives white paper here.
2015 Incentive Federation Program Design and Support Study Waterfall Release #2 – Communication, Technology and Tools
IFI has released the second of a series of white papers on its 2015 Incentive Federation Program Design and Support Study. In this white paper, the Federation focuses on an in-depth analysis of how companies utilize communication, technology, tools and reporting within their incentive programs. Review the Communications, Technology, Tools & Reporting white paper here.
2015 Incentive Federation Program Design and Support Study Waterfall Release #3 – Award Program Spending
IFI has released the third in a series of white papers on its 2015 Incentive Federation Program Design and Support Study. In the latest release, IFI puts the spotlight on program spending. Click here to learn more.
2015 Incentive Federation Program Design and Support Study Waterfall Release #4 – Engaging Outside Program Support
IFI has released the fourth in a series of of white papers on its 2015 Incentive Federation Program Design and Support Study. In the latest release, IFI puts the spotlight on engaging outside program support. Click here to learn more.