During the last holiday season, The Ladders published an article citing research on the motivational benefits of gift giving in the workplace. A survey by the Advertising Specialty Institute showed that 42% of employers gave gifts to their employees.
When you are looking for ways to motivate your staff, you should show appreciation and reward them with gifts. Many organizational behavior experts say that your employees want gifts—personal gifts, meaningful gifts, expensive gifts and more. Yet, what the internet isn’t telling you is that giving gifts in a corporate setting can pose an ethical dilemma.
There are a number of ethical implications of gift giving for government employees. Private sector employers have more discretion, but that doesn’t mean that they have absolute discretion.
This isn’t to say you should stop giving gifts entirely. However, you should be more aware of the concerns of gift giving and give gifts with care and clarity. Gift giving can be a powerful motivational strategy, but only when it is used ethically. Read on to learn more about the ethics of corporate gifts for employees, so you can be sure the messages of your gifts are well-received.
Gifts vs. Bribes
There is a fine line between gifts meant to motivate and bribes meant to control. Essentially, gifts are given when an employee is doing something laudable, when you want to show your appreciation for some type of contribution. Gifts can also be given for milestones like birthdays, holidays or employment anniversaries. Meanwhile, bribes are given when you want an employee to act a certain way, usually a way that is somehow dishonest, illegal or immoral.
Unfortunately, a bribe can look an awful lot like a regular old gift. For example, you might not think much of a manager giving his subordinate a big bonus after completing a certain project—but what if that subordinate just complained to HR about sexual harassment? Alternatively, it’s not uncommon for a B2B to send a big client a thank-you gift, but what if that gift was an expensive designer watch given just to the contact who agreed to the sale? In both of these cases, the gifts seem to be doing more than serving as tokens of appreciation.
It’s key to think long and hard about every gift you give. You need to consider whether there are any hidden meanings behind the items given, whether the recipients and others will properly understand the intent of the gift, whether the timing will interfere with other events, etc. The last thing your organization needs is to be accused of bribery, so you should take pains to avoid that in your gift-giving.
Potential Tax Effects
As you likely already know, purchases made by your business for your business are deductible, meaning you can discount them from your earnings to enjoy lower taxes.
Unfortunately, the IRS limits the amount you can deduct due to corporate giving; the rule states that you can deduct no more than $25 per gift per taxpayer, and you cannot deduct items that have your business’s name permanently imprinted or items that are regularly distributed, like swag. There are some loopholes in this rule—for instance, the costs incurred in making the gift don’t apply, so you can deduct what you pay to custom engrave a crystal award, e.g.—and some gifts that also function as entertainment can be deducted as the latter. Still, you’ll need documentation of anything you deduct, such as receipts for purchase and records of recipients, to protect yourself in case of an audit.
Yet, it isn’t the effect of gifts on your business that is a potential ethical issue—it is the effect of gifts on your staff. An expensive gift of sizeable bonus isn’t free; employees will need to claim those items on their taxes. Some gifts might send workers into a higher tax bracket, meaning they’ll be charged more come April than they expected—or more than they can pay. There are ways businesses can assume the taxes for gifts themselves, but it is a complicated process that requires forethought.
Consider when Oprah gifted a BRAND-NEW CAR to every member of her talk show audience: That was a taxable event that audience members were on the hook for, tax-wise, regardless of whether the audience member didn’t want the car or resold the car. Even if Oprah withheld some tax money for herself, most audience members entered into a tricky tax situation that caused significant headaches if it didn’t take money out of their pockets.
While concern about tax brackets shouldn’t necessarily prevent you from offering corporate gifts, it should give you some pause. You might run some numbers with the help of your accounting team to determine whether that bonus will help or hurt your recipient, and you should prepare to help with additional taxes when necessary.
Nothing is simple in business—not even giving a hardworking employee a reward. Whenever you want to offer a gift, you need to seriously consider the larger implications, so your generosity doesn’t make life harder for anyone.