9.11 Employee Recognition

Policy Information

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
• Discounts

Source

Internal Revenue Code
University Policy, including but not limited to Employee Recognition and Retirement Policy

Scope

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. 

Definitions

1. 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.
2. Prepaid Cards/Certificates: A card preloaded with funds that is purchased with University funds and 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.
3. 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.
4. 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.

Policy

General Policies

1. 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.
2. Expenditures for employee recognition must adhere to University policies for allowable expenditures.
3. Employee recognition programs must comply with the Division of Human Resources policy regarding recognition.
4. 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.
5. Employee recognition awards are not to be used as a long-term alternative to permanent salary adjustments.
6. Colleges and departments may establish more restrictive procedures, policies, and dollar limits than those set forth in this policy.
7. 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

8. 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, senior leadership, faculty, or staff. If separate events are held, the department shall ensure that no employees are excluded.
9. Food and refreshments, including tax and tip, may be provided but must be reasonable in cost and appropriate to the occasion and supported by a detailed business purpose. Refer to FAQ 13 for guidelines and additional information.
10. Reasonable incidental costs, such as decorations and audio-visual equipment, are allowable with proper business purpose in relation to the event. 
11. The event must be held preceding, during or immediately following normal business hours.
12. 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. See the Catering and Food Service Policy and FAQ 10 for additional information.

Years of Service and Recognition Awards

12. If an item of tangible personal property is presented to an employee for years of service or recognition award, it may be subject to taxation. See the table below for nontaxable and taxable limits.

Retiree and Non-Retiree Farewell Events

13. Expenditures for a retiree farewell event are allowable if the individual is leaving the University on Official Retirement Status. Refer to Retirement Policy.
14. An event for a non-retiree employee leaving the University in which a dean/department head wishes to celebrate exceptional contributions to the College or University, is allowed with a memo of justification that includes the exceptional contributions by the employee along with the University business purpose.
15. Food and refreshments, including tax and tip, may be provided but must be reasonable in cost and appropriate to the occasion and supported by a detailed business purpose. Refer to FAQ 13 for guidelines and additional information.
16. Reasonable incidental costs, such as decorations and audio-visual equipment, are allowable with proper business purpose in relation to the event.
17. The event must be held preceding, during, or immediately following normal business hours.
18. 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.
19. 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. See the Catering and Food Service Policy and FAQ 10 for additional information.

Prepaid Cards/Certificates

18. 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.
19. Prepaid cards/certificates are prohibited from being purchased on the PCard.

Taxation

20. Recognition activities and awards must comply with all applicable tax laws. 
21. 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.
22. The following table includes the tax treatment for the recognition awards allowable under this policy:

Procedures

General

1. The expenses for employee recognition events and retiree farewells should be posted to object code 5170 Business Meeting Expense.
2. If the department or college has an employee recognition policy, a copy should be included with the Disbursement Voucher (DV) as supporting documentation.
3. If a taxable recognition award is being provided to an employee, the Employee Recognition Award Compensation Form must accompany the DV.

Prepaid Cards/Certificates

4. Purchases or reimbursements for prepaid cards/certificates for distribution should be processed on a DV with the accompanying Employee Recognition Award Compensation Form. 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.
5. 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 the amount will appear on the employee's paycheck/Form W-2. 
6. 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

1. 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.
    
2. 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.
    
3. 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.
    
4. Team ABC has been doing a good job lately. Can the department buy dinner for these five employees as recognition for their recent efforts?
   No, employee recognition is intended to show appreciation to all employees equally in a department.
    
5. Our director has been with our department for three years and is moving to another department. Would a farewell event be allowed for length of service?
   No, Years of Service Award recognition events are milestones for those who have been employed for extended periods of time at the University. See Human Resources employee recognition Service and Retirement Awards.
    
6. 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.
    
7. Are employee recognition expenses allowed on the PCard?
   The PCard with the PCard Plus enhancement can be used to pay for event related meals, decorations, and non-taxable awards. Paying for taxable awards (see tax treatment chart above) with the PCard is a violation of PCard Policy. See the Purchasing Card Policies Manual.
    
8. 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 if 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).
    
9. 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.
    
10. 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, 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.
     
11. 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.
     
12. Are there limitations for non-employee recognition awards?
    This policy applies to employee recognition only. For guidelines for non-employees, see FSM Policy 9.10 Requisitions and Reimbursements. 
     
13. What is considered a reasonable cost for food and refreshments?
    As a benchmark, the cost of $40 per person for refreshments and/or a modest meal, including tax and tip would be considered reasonable. It is recognized that reasonable cost is dictated by availability, size and scope of each event and the unique needs and capacities of the departments. The detailed business purpose should support and justify reasonable costs in all instances including when the cost exceeds the recommended per person amount. The following should be considered when determining reasonableness:
    • Does the event reflect and support the mission of the University?
    • Can the expenses be adequately explained and justified if subject to public scrutiny or audit?

Related Information

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
Retirement 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.