« Extreme Wellness Management | Main | Documentation Key in Sale Compensation Plans »

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

I believe the reason why employers increase the amount of cash awards is that such awards are subject to supplemental tax withholding, that reduces the amount far more than for regular paychecks, which are withheld at much lower rates. If they were not increased to compensate, employees would be surprised and disappointed with their cash award.

The University of Illinois allows cash awards to be increased to fulfill promises to employees of a specific dollar amount, regardless of taxes.

The taxes are described below:

Award Payments

The University of Illinois allows awards to be paid to employees for outstanding service. Awards are subject to supplemental tax rates (25% federal, 3% state and 1.45% Medicare if applicable).

************
AB - Great add-on clarification and information, Frank, thanks for sharing it here!

As someone who addresses this issue regularly I see about 50/50 split with companies on whether they gross-up the awards they issue. Typically, it is dependent on the income level - the higher, the less likely.

There are some companies that do not gross-up the award, use "debit cards" as the award vehicle, yet need to withhold the tax requirements from their weekly pay to be in compliance with the IRS. We've had participants in programs like this that earned so much in the incentive program that they received no pay in their weekly check due to the withholding to cover their incentive payout on their debit cards. Not a good situation.

I posted to my blog http://incentive-intelligence.typepad.com some resources for review relating to tax issues.

*******************

Paul - Thanks for the additional insights and information on this issue.

Readers - Please follow the link above to some helpful resources regarding taxation on his blog, Incentive Intelligence.

The comments to this entry are closed.

About The Author

  • More Info Here
    Compensation consultant Ann Bares is the Managing Partner of Altura Consulting Group. Ann has more than 20 years of experience consulting with organizations in the areas of compensation and performance management.

Compensation Force Spot Survey

Enter your email address:

Delivered by FeedBurner

Search This Site

Widgetbox

  • Get this widget from Widgetbox