Promoting, protecting, and researching the optimal use of incentives, corporate gifts, rewards, recognition, promotional products and related promotions in business.

 Current Legal/Legislative Updates

A Brief Primer on Tariffs and Trade

Ever since the administration of President Trump began imposing tariffs on foreign goods, the president has often asserted that when the United States places a tariff on a foreign import, that other country directly pays the bill.  Like many of his other assertions, this one is also incorrect, but that does not prevent the president from repeating it.  For example, on November 29, 2018, Trump tweeted, “Billions of Dollars are pouring into the coffers of the U.S.A. because of the Tariffs being charged to China, and there is a long way to go.”

When trying to understand how tariffs work, perhaps the first question that would arise is who is responsible for paying them?  Logically, it might seem that either the foreign government or a company that sells the foreign goods in the United States would be liable for tariffs.  When the U.S. government imposes a tariff on foreign goods, however, neither the foreign government nor the company selling the goods in the U.S. is technically responsible for the paying the tariff.

Tariffs are usually paid by companies that import goods here.  Most American importers do not handle the paperwork on imported products themselves.  They retain the services of entities commonly known as an importer of record.  These companies navigate the process of importing goods into the United States, a complicated process as evidenced by a 211-page publication from the U.S. Customs and Border Protection (CBP) titled Importing into the United States A Guide for Commercial Importers (last revised in 2006.)  The importer of record has experience in dealing with CBP and its system for inspecting imports and levying any duties on them.  (Broadly speaking, “duties” are a tax or fee placed on an import.  Tariffs are a form of duty.)  Thus, when imported goods first enter the U.S. in a port of entry, the importer of record receives the initial bill for the tariff.

This is where the question of who ultimately bears the cost of tariffs becomes a bit more complex.  An importer of record is little more than a middleman that provides a service, and its business model would not survive the cost of paying tariffs.  Service providers nearly always pass on costs to their customers.  Therefore, a company that contracts with an importer to bring goods into the United States will almost always see the costs of that contract rise after a tariff has been imposed on goods it imports.  For example, as a result of the tariffs, the importer of record might wind up paying between 10 and 25 percent more to bring in the exact same product it imported before the tariffs. Those costs are passed on to the company that intends to sell the goods in the United States, which means the selling company faces a choice regarding those additional costs.

For the complete text of the Spring Washington Update prepared exclusively for the IFI by George Delta, Esq., the IFI’s Legal Counsel, visit here.

OSHA Sends Clarifying Memo on Safety Incentive Programs

The Occupational Safety and Health Administration on October 11, 2018, issued a surprising and important memo to their regional directors clarifying its position on safety incentive programs and post-incident drug testing.

The memo, unlike some past commentary by the agency in the form of several memos issued in 2016, seems to finally acknowledge that properly implemented safety incentive programs can be beneficial. The Incentive Federation has reported extensively on this topic since the late 1990s, and the Federation’s letter in 2016 to OSHA from IFI Legal Counsel George Delta can be viewed here.

In part, OSHA’s memo states, “Incentive programs can be an important tool to promote workplace safety and health. One type of incentive program rewards workers for reporting near-misses or hazards and encourages involvement in a safety and health management system. Positive action taken under this type of program is always permissible under § 1904.35(b)(1)(iv).”

The memo continues, “Another type of incentive program is rate-based and focuses on reducing the number of reported injuries and illnesses. This type of program typically rewards employees with a prize or bonus at the end of an injury-free month or evaluates managers based on their work unit’s lack of injuries.  Rate-based incentive programs are also permissible under § 1904.35(b)(1)(iv) as long as they are not implemented in a manner that discourages reporting.  Thus, if an employer takes a negative action against an employee under a rate-based incentive program, such as withholding a prize or bonus because of a reported injury, OSHA would not cite the employer under § 1904.35(b)(1)(iv) as long as the employer has implemented adequate precautions to ensure that employees feel free to report an injury or illness.”

Some industry experts, who have worked with safety incentive programs for years, have weighed in on how they believe the latest OSHA directive should be observed.

Brian Galonek, president of industry company All Star Incentive Marketing and a Director on the IFI Board of Directors stated in his recent blog that, “It would make sense that adding an incentive to something far more important, like working safely on the job, would not only work but would also laudable.  Despite that logic, over the years OSHA has taken a negative stance towards safety incentive programs that inarguably has had the result of preventing many such programs from being deployed.  As a result, there are countless accidents and injuries that could have been prevented if workers had been better engaged and properly motivated to work safer.”

 The bottom line is properly built safety incentive programs are created with the best intentions, do work, and benefit everyone involved.

In this memo OSHA makes clear that properly built safety incentive programs are legitimate attempts to promote a safer workplace.  I believe the following quote from this clarification is the clearest statement by OSHA yet showing that they understand that these programs are deployed with the best intentions and great results.

“The Department believes that many employers who implement safety incentive programs do so to promote workplace safety and health. In addition, evidence that the employer consistently enforces legitimate work rules (whether or not an injury or illness is reported) would demonstrate that the employer is serious about creating a culture of safety.”

Brian’s blog from late last week can be viewed here.

“It appears to me that this statement is a retrenching by OSHA, recognizing the weakness and indefensibility of their current rule,” said Sean Roark, Executive Vice President of IncentPros, Inc. and a Director on the IFI Board of Directors. “The memo strengthens George Delta’s original analysis that the position as presented a few years ago will probably not stand up to a rigorous court challenge.”

Both Galonek and Roark have followed the evolving developments with OSHA’s view of safety incentive programs for many years.

Supreme Court Rules on Out-of-State Collection of Use and Sales Taxes

The U.S. Supreme Court  held in South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018) on June 21, 2018 in a 5-4 decision that states have authority to collect sales tax on goods and services delivered from remote sellers that don’t have a physical presence in their states.

In overturning previous and long-standing Court decisions requiring the physical presence of a seller in the state where goods are delivered, the Court determined that physical presence is no longer required before a state can require an out-of-state seller to collect its sales or use tax. George Delta, IFI’s general counsel, stated, “For what it may be worth, even the four dissenters agreed that the two earlier cases were wrongly decided.  Their preferred solution would have been to let Congress fix the problem.”

An important question that is lurking in the background is the impact on the incentive and overall marketplace now that the Supreme Court has modernized its state sales and use tax jurisprudence and eliminated the outmoded and illogical physical presence requirement.  Henceforth, remote sellers would find themselves treated the same way as brick and mortar retailers when it comes to collecting sales and use taxes.  The effects of the holding in Wayfair on various remote sellers are not as clear or obvious.

Will companies that drop ship merchandise to end users on behalf of an incentive house be responsible for reporting and collecting taxes? What if the merchandise is shipped to award recipients in several different states, each with different sales or use tax laws? Will a performance improvement company or their clients be held liable since the clients are eventually paying for the merchandise? Will promotional products distributors, suppliers, end buyers or end users have to collect and remit sales and use tax to the states, and if so, which states?

For his most recent interpretation and background on this issue read George Delta’s July  2018 Washington Update prepared exclusively for the Incentive Federation.

 Current Research

U. S. Federal Regulations and Non-Cash Awards

In 2017, to develop a baseline understanding of the awareness, understanding, and
accommodations of U.S. businesses regarding regulations impacting reward and recognition
programs, the Incentive Research Foundation launched its inaugural Regulations Signature
Study, with results released in January 2018. The research examined program owners’ understanding of the regulatory environment, generally as well as in relation to six key regulations1 (DOL Fiduciary Rule, 274j, OSHA, FLSA, Fair Market Value, and Sweepstakes/Lottery).

The survey was designed and executed by Intellective Group during the summer of 2017 to a cross-section of 419 businesses, 106 operating in the financial services sector. Program owners were targeted based on sector and revenue size: $5 – $9.9 million, $10 to $99 million, $100 to $999 million, and $1 billion or more. The findings are weighted by revenue size, and are statistically representative of the population of U.S. businesses with a 95% confidence level and a 5% margin of error.

General Understanding of Regulations

 Most program owners understand their reward and recognition activities are impacted by the
regulatory environment, but aren’t really sure how. While 67% of program owners are aware there are regulatory considerations for their programs, only 38% consider themselves very knowledgeable about those regulations and tax requirements. For the smallest businesses surveyed ($5 – $9.9 million in annual revenue), awareness drops by ten percentage points to 57%.

Despite this, program owners are confident that their companies have identified and addressed any relevant regulations. Only financial services firms and small businesses indicate lower confidence – specifically regarding a detailed understanding of the requirements and the consequences of non-compliance. Regardless of their confidence, fewer than two-thirds of U.S. businesses have formal mechanisms and structures in place to ensure their programs remain compliant with regulatory and tax requirements. While the program owner has some responsibility for compliance, many also look to their legal or compliance teams for guidance, particularly in large firms (over $1 billion). The most common structural oversight tool is regular reviews of non-cash programs, with 62% of businesses using this as a compliance device.

To learn more about this study and to also see a Legal Issues Primer related to the study, 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.