Should the Company Gross-up the Reward Value?

Tax gross-ups enable employees to enjoy the benefits of a recognition award without having to pay taxes on the value of the award. This article looks at the pros and cons and how we can support you.

One of the sensitive topics that often comes up during budget planning for recognition programs is the topic of taxes. "Do we gross up the reward to relieve the tax burden, or do we pass the taxes onto the employee?"

Providing gifts and awards to employees can be a big motivator to those who have completed a special project or demonstrated exemplary performance where immediate recognition is appropriate.  While a gift or award can be an exciting moment, the event can quickly lose its luster when it’s left to the employee to both understand the tax implications and then cover the incremental tax burden associated with some types of recognition awards.

Your company has two choices when it comes to planning and managing taxes, here’s our perspective for each side:

‍Pros to Grossing up

• Employee’s take-home pay is unaffected by the reward and they can focus on the experience itself.
• Employees are not distracted from trying to estimate the taxes they have to pay, rather the positive feelings of the recognition rewards are attributed to you as an employer, which strengthens the effectiveness of your reward program.

Things to Consider when Grossing up

• You’ll need to budget more per reward when planning your program budget since you’ll internally need to anticipated taxes for each reward.
• The additional internal workflow is required when adjusting your payroll settings to incorporate the reimbursement.  Here at minimum, we can support you with a report and export that can be incorporated in your payroll system and payroll runs.  Or even provide you with an API that can be automatically called from the payroll system (if that is technically feasible with your payroll system / provider). ‍

• You’re able to budget more spend on rewards since you are not internally covering the cost of taxes.

• Potential for lower redemption rates and slower adoption, which can affect your utilization goals.  It may weaken the underlying intent of creating a memorable, meaningful, and rewarding recognition program that differentiates your company in your industry
• Inform the managers and employees during the rollout session that there is a tax implication on the points received and redeemed.  We can assist with crafting and sending this via the internal communication platform. 
• Also here the same payroll report and export will need to be utilized on your payroll system and for the payroll runs to be accurately deducting the taxes from the employee paycheck.

Ultimately this choice is yours as company to make whether to gross up the reward value or not.  We are here to support you in either way to make the most out of the recognition programs with JobPts. 

If this article left your questions unanswered, please submit a Support Form, and we can clarify this topic.