|Policy Number: 9.11||Effective Date: 07/25/2017|
|Responsible Unit: Financial Services - Financial Management||Last Revised Date: 03/22/2021|
|Email: firstname.lastname@example.org||Phone: 520-621-3220|
Purpose and Summary
This policy and procedure provides the limits, taxation, and reporting requirements and guidelines for employee recognition, including:
- Service and recognition awards (cash and non-cash)
- Retirement farewells
Internal Revenue Code
University Policy, including but not limited to Employee Recognition
This policy applies to all University locations and units, including all University extensions, satellite locations, and off-site campus units, both domestic and international.
This policy shall apply to recognition awarded only to University employees. For recognition for non-employees, see Policy 9.10 Requisitions and Reimbursements.
- Employee Recognition: A way for the University to focus on specific achievements and activities and acknowledge the significant accomplishments of its employees. The University sponsors a number of formal recognition programs for University employees, such as years of service awards and retiree farewells and awards. Additionally, the University encourages colleges and departments to recognize their employees as a whole for contributions to the University in a less formal manner.
- Prepaid Cards/Certificates: A card preloaded with funds that is provided to an employee. Examples are gift cards/certificates, vouchers, Groupons, and e-Cards. Prepaid cards/certificates are treated the same as cash and require the same level of security if storage is required prior to distribution.
- Employee Recognition Award Compensation Form: When employee recognition awards are considered taxable income, the Employee Recognition Award Compensation Form must be completed and reviewed for compliance by Payroll and Accounts Payable.
- Tangible Personal Property: Property, other than cash, that can be touched or felt. Tangible personal property includes retirement and length of service awards such as plaques.
- Employee recognition is allowed on local accounts. State, Sponsored, and Agency accounts may not be used for this type of expenditure. See FSM 2.01 Structure of the Accounting System for descriptions of account classifications.
- Expenditures for employee recognition must adhere to University policies for allowable expenditures.
- Employee recognition programs must be in compliance with the Division of Human Resources policy regarding recognition.
- Employee recognition must have a business purpose and therefore does not include holidays or recognition for personal life events such as condolences, congratulations, and birthdays.
- Employee recognition awards are not to be used as a long-term alternative to permanent salary adjustments.
- Colleges and departments may establish more restrictive procedures, policies, and dollar limits than those set forth in this policy.
- Anything outside the scope of this policy must be approved by a Dean or Department Head and are subject to review by Central Administration for adherence to University, ABOR, IRS, and Federal and State regulations.
Employee Recognition Events
- Employee recognition events must be non-discriminatory and held for the benefit of all departmental employees. Separate events for different categories of employees are permissible, for example faculty or staff. If separate events are held, the department shall ensure that no employees are excluded.
- The costs of each recognition event must not exceed a "reasonableness" level, defined as $25 per person per event to cover the cost of refreshments or a modest meal, including tax and tip, minimal decorations, and mementos.
- The event must be held preceding, during, or immediately following normal business hours.
- When events on the main campus include food, and the total cost exceeds $750 departments must contact the Arizona Catering Company to make food service arrangements. Departments at The University of Arizona Health Sciences have the option of using the Banner University Medical Center food service. Events costing less than $750 and events catered off campus are exempt from this policy. For additional information, see the Catering and Food Service Policy.
Years of Service and Recognition Awards
- If an item of tangible personal property is presented to an employee for a years of service or recognition award, it may be subject to taxation. See the table below for nontaxable and taxable limits.
- Expenditures for retiree farewells are allowable if the retiree has been continuously employed at the University for a period of no less than 10 years.
- Retiree farewell events are allowable subject to the following conditions:
- The costs of each retiree farewell event must not exceed a "reasonableness" level defined as a total of $25 per person per event to cover the cost of refreshments or a modest meal, including tax and tip, minimal decorations, and mementos.
- The event is held preceding, during, or immediately following normal business hours.
- Retirement awards provided in the form of tangible personal property may be subject to taxation depending on the amount. See the table below for nontaxable and taxable limits.
- When events on the main campus include food and the total cost exceeds $750, departments must contact the Arizona Catering Company to make food service arrangements. Departments at The University of Arizona Health Sciences have the option of using the Banner University Medical Center food service. Events costing less than $750 and events catered off campus are exempt from this policy. For additional information, see the Catering and Food Service Policy.
- Events for employee leaving the University with less than 10 years of service, in which a dean/department head wishes to celebrate exceptional contributions to the College or University, are allowed. A memo of justification should include the exceptional contributions by the employee along with the University business purpose. The cost of the event should adhere to the “reasonableness” level as defined above.
- Prepaid cards/certificates may be purchased and provided for employee recognition, provided it adheres to the general guidelines for employee recognition and is reported for inclusion in taxable income and payroll tax withholding.
- Prepaid cards/certificates are prohibited from being purchased on the PCard.
- Recognition activities and awards must be in compliance with all applicable tax laws.
- Departments offering taxable awards assume responsibility for ensuring accurate income tax reporting to their employees and will assume the risk of fines and penalties for failure to report taxable income that is identified in an audit.
- The following table includes the tax treatment for the recognition awards allowable under this policy:
Any prepaid cards/certificates
Any tangible personal property with a total cost (including sales tax and engraving) of $75 or less. Examples are pens, mugs, and plaques.
Any tangible personal property greater than $75 (exception for length of service or retirement awards of no more than $400).
Tickets to sporting or theatrical events, including University events. Tickets to events that have not been sold out.
Discounts of 20% or less off sales price normally available to general public on purchase of University services.
Discounts of greater than 20% off sales price normally available to general public on purchase of University services.
Discounts on merchandise that are equal to or less than the University’s gross profit percentage multiplied by the price charged to the public.
Discount amount in excess of the University’s gross profit percentage multiplied by the price charged to the public.
Occasional group meals or refreshments for employee recognition events that cost less than $25 per person.
Tangible personal property awards for length of service that are no more than $400.
Tangible personal property awards for length of service that are in excess of $400. Only the amount that is greater than $400 is taxable.
Tangible personal property retirement awards that are no more than $400.
Tangible personal property retirement awards that are in excess of $400. Only the amount that is greater than $400 is taxable.
- The expenses for employee recognition events and retiree farewells should be posted to object code 5170 Business Meeting Expense.
- If the department or college has an employee recognition policy, a copy should be included with the Disbursement Voucher (DV) as supporting documentation.
- If a taxable recognition award is being provided to an employee, the Employee Recognition Award Compensation Form must accompany the DV.
- Purchases or reimbursements for prepaid cards/certificates for distribution will be processed by Accounts Payable upon completion of a DV in UAccess Financials and submission of the signed Disbursement Voucher Cover Sheet and all accompanying Employee Recognition Award Compensation Forms. Failure to provide a Recognition Award Compensation Form will cause the request to be rejected. Since prepaid cards/certificates are considered taxable income to the employee, the Recognition Award Compensation Forms submitted must substantiate 100% of the prepaid cards/certificates purchased and distributed. Therefore, it is recommended that prepaid cards/certificates be purchased as close as possible to the scheduled distribution date to avoid potential financial burden on the purchaser.
- Payroll will include the value of the prepaid card/certificate received by the employee on the next available pay cycle. It is the responsibility of the department to notify the employee receiving the prepaid card/certificate that it will be taxable and withholding will appear on their paycheck. Prepaid cards/certificates may not be grossed up to cover the employee’s portion of the payroll taxes.
- Prepaid cards/certificates are treated the same as cash and require the same level of security if storage is required prior to distribution.
Frequently Asked Questions
- For non-taxable employee discounts offered on the sale of merchandise, how do I calculate the gross profit percentage?
The gross profit percentage is equal to the total sales of merchandise minus the total cost of merchandise divided by the total sales. For example, if the Bookstore had total sales of $500,000 and the total cost of its merchandise was $250,000, the gross profit percentage would be 50% (500,000-250,000 = 250,000/500,000). Any employee discount that did not exceed 50% of the sale price to the public would be excluded from the employee’s gross income.
- When does an Employee Recognition Award Compensation Form need to be filled out?
An Employee Recognition Award Compensation Form needs to be completed for awards listed as taxable on the taxability table above.
- In order to prevent interruptions during working hours, can the employee recognition event be held on Saturday night?
In order to be classified as employee recognition, the event needs to be held preceding, during, or immediately following normal business hours.
- Team ABC has been doing a good job lately. Can the department buy dinner for these five employee as recognition for their recent efforts?
No, employee recognition is intended to show appreciation to all employees equally in a department.
- Our Director has been with our department for three years and she is moving to another department. Would a farewell event be allowed for length of service?
No, Years of Service Award recognition events are for milestones for those who have been employed for extended periods of time at the University. See Human Resources employee recognition UA Service and Retirement Awards.
- If the employee recognition event is held right after working hours, can each employee bring a guest or spouse?
No, employee recognition is intended to show appreciation to University employees only.
- Are employee recognition expenses allowed on the PCard?
The PCard with the Plus enhancement can be used to pay for event related meals, decorations, and non-taxable awards. Paying for taxable awards with the PCard is a violation of PCard Policy. See the Purchasing Card Policies Manual.
- The Business Office receives freebies with some purchases. Can these free items be used for employee recognition and are these taxable to the employee?
Free items should first be used in line with the business purpose of the original purchase. Extra items can be used for employee recognition as long as every employee has the same opportunity for participation. Items falling under taxable on the table above will be taxable to the employee.
For example, the purchase of a computer comes with a “free” $20 gift card. The gift card should be used to buy computer supplies needed by the department (e.g. mouse, cords).
- Who can approve the employee recognition program for our department?
The employee recognition program is approved internally in a department by a director or department head as long it follows the guidelines for Policy 9.11 Employee Recognition and Human Resources Employee recognition.
- What vendors are allowed to cater for an employee recognition event?
For events on the main campus that include food and the total cost exceeds $750.00, departments must contact the Arizona Catering Company to make food service arrangements. Departments at The University of Arizona Health Sciences have the option of using the Banner University Medical Center food service. Events costing less than $750.00 and events catered off campus are exempt from this policy. For additional information, see the Catering and Food Service Policy.
- Can a department purchase 12 prepaid cards to be distributed once per month as part of a monthly recognition program?
No, prepaid cards cannot be purchased for disbursement when the recipients are unknown as the Employee Recognition Award Compensation Form requires employee specific information. Employee Recognition Award Compensation Forms must be submitted with the DV and substantiate 100% of the prepaid cards/certificates purchased and distributed due to the taxation and reporting requirements. Therefore prepaid cards should only be purchased when the recipients are known.
- Are there limitations for non-employee recognition awards?
This policy applies to employee recognition only. For guidelines for non-employees, see Policy 9.10 Requisitions and Reimbursements.
Employee Recognition Award Compensation Form
Purchasing Card Policies Manual
Internal Revenue Code: §1.132-3 Qualified Employee Discounts and §1.132-6 De Minimis Fringes
IRS Technical Advice Memorandum 200437030
Division of Human Resources Guidance for Employee Recognition
Division of Human Resources Employee Recognition Policy
Catering and Food Service Policy
* Please note that sections titled Frequently Asked Questions and Related Information are provided solely for the convenience of users and are not part of the official University policy.