The holiday season often brings excitement and joy, but it can also create some tricky situations in the workplace around gift-giving: Should you offer a gift? To whom? And what’s an appropriate gift anyway? While offering gifts to people at work may seem like a simple and kind gesture, it has the potential to raise issues of favoritism, conflicts of interest, and even harassment or violations of employment, tax, or ethics laws.
To get the best out of the holiday season, workplaces should be aware of potential pitfalls regarding gift-giving in the office and institute thoughtful policies to avoid them. Below are some suggestions to ensure a seemingly innocent gift doesn’t turn into an unwanted headache.
Legal Considerations for Employers Providing Gifts
Gifts from an employer or anyone in a supervisory role can potentially create legal trouble, from claims of discrimination to tax violations. Being aware of these issues from the start can help an organization avoid liability.
- Gifts from supervisors to employees can be construed as unwelcome conduct.
If gifts have a sexual connotation (intended or not), make reference to a protected class (like race or religion), or if they are given out selectively (such as only to employees who are members of a particular gender, religion, or race), they could spell potential legal trouble. The supervisor and employer could be opening themselves up to claims of discrimination or harassment under Title VII of the Civil Rights Act of 1964, the Illinois Human Rights Act, or other laws prohibiting discrimination based on protected classes.
Additionally, gifts offered by supervisors to only particular individuals could be construed by the recipient as unwelcome conduct. While the supervisor could intend the gift to be a reward for a job well done, a singled-out employee could feel embarrassed or uncomfortable, or even targeted or harassed, depending on the gift and the manner in which it was presented.
- Be wary of gift exchanges being tied exclusively to one holiday.
As there are numerous holidays celebrated during this time of the year, non-religious employers should refrain from celebratory events referencing one specific holiday. Events in the office can be framed simply as “holiday” or “end-of-the-year” events without referencing particular religions in the workplace. Doing so avoids giving the impression that one religion or holiday is preferred over others.
- Avoid gift-giving that could potentially violate wage and hour laws.
Under the federal Fair Labor Standards Act (FLSA), it is important for employers to understand what constitutes wages and compensation. The FLSA determines the rate at which overtime should be paid to non-exempt employees and miscalculations could result in significant problems.
The FLSA uses an employee’s “regular rate of pay” upon which to determine overtime pay. The “regular rate” is a worker’s base rate of pay plus any relevant bonuses or other add-ons factored in. Discretionary bonuses and most gifts do not factor into the regular rate and therefore do not affect overtime pay. However, non-discretionary bonuses, such as those that are generally expected or contractually owed, do factor into the regular rate. These non-discretionary bonuses may have to be retroactively applied to past overtime hours worked, meaning the difference between what was already paid and the modified overtime rate will have to be paid. More information on this can be found on this FLSA bonus fact sheet.
- Some gifts could have tax implications.
The federal tax code (U.S.C. § 102) excludes the value of most gifts from a taxpayer’s gross income, but it also explicitly states that payments transferred by an employer to or for the benefit of an employee are not excluded, unless allowed by another provision of the code.
One such exception are de minimis fringe benefits under U.S.C. § 132(e), which refer to low-value property or services infrequently given to an employee. Most nominal, occasional gifts like coffee mugs or holiday treats would therefore be excludable as gross income under the provision. But some gifts, particularly expensive ones, could have tax implications (while there is no bright line rule, gifts valued at $100 or more have been found to be taxable).
Furthermore, cash or gift cards are generally considered taxable wages that employers must withhold income and payroll taxes from. Failing to treat these types of gifts appropriately could result in the need for retroactive withholding, amendment of W-2s, and penalties for late reporting.
- Even simple gifts could violate conflict-of-interest policies.
Employers should be aware of any conflict-of-interest or anti-bribery policies that apply to them, particularly if they do business in the public sector. Even simple gifts to or from public sector vendors or employees could violate a variety of ethics laws. Moreover, many private companies have internal policies that bar conflicts of interest in a variety of settings. Even if gift-giving is not explicitly mentioned, it could certainly constitute a violation of these policies, depending on the circumstances.
Workplace Culture Considerations of Gift-Giving
In addition to the potential legal considerations, both employers and employees should also be aware of the effect that gift-giving could have on workplace culture. If only certain employees receive gifts from their supervisor, it could create the appearance of favoritism. Similarly, gifts exchanged among only a few coworkers could cause other employees in the office to feel excluded. And given the diversity of most workplaces, there is also a high potential for gifts, such as “gag gifts,” to be inappropriate or even unintentionally offensive.
Furthermore, pressure to participate in gift exchanges or other holiday events could have an unintended negative impact on the workplace. Some employees may be struggling financially or prefer to spend money and time on gifts for their families instead of coworkers. Others may not feel particularly celebratory during the holidays or may want to celebrate in a different way. By creating an environment where individuals feel pressured to participate, employers could inadvertently produce a negative workplace environment.
Suggestions for Success with Gift-Giving in the Workplace
So, does this mean that all workplaces should be a complete “no-gift zone” during the holidays? Of course not, but employers and employees should consider the potential impact gift-giving can have and do their best to ensure that everyone feels comfortable and no legal lines are being crossed. Some suggestions for employers include:
- Keep the gifts modest and equitable across employees and departments.
- Remember that cash and gift cards are generally taxable.
- Consider providing bonuses appropriately and understand any wage and tax implications if rewarding employees monetarily for performance.
- Instead of individual gifts, consider company-wide gifts that can boost office morale, such as extra paid holiday time or celebratory gatherings.
Employers should also develop clear written policies that not only address the issues above, but also gift-giving among coworkers in the workplace. Some parameters for written policies should include:
- Prohibiting gifts that could create conflicts of interest or could be offensive or harassing.
- If employees are going to give gifts to only a select few other coworkers, require those exchanges to occur outside of the office.
- Set modest dollar amount limits for a gift exchange program in the office and ensure that any such participation is voluntary and inclusive.
Despite the best intentions and plans, holiday events and gift-giving have the potential to make some individuals feel uncomfortable or to run afoul of certain legal requirements. Employers should therefore be thoughtful when planning these events and effectively communicate any policies to employees and explain the need for them.
Although it has the potential to cause legal and culture hazards in the workplace, gift-giving can be a fun show of goodwill that boosts office morale. Following the suggestions above can help ensure that workplace gifts create joy, not regret.