Safety Scratch Offs

starperk safety scratchoff

Easy-to-implement program where you distribute scratch off cards worth points toward trips and prizes. Learn More

 

Online Points Program

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Customize your own points program and give employees the ability to redeem points online. Add it as an overlay to any BBS or safety program.

Is Your Incentive Program a Ticking Time Bomb?

By Bill Sims, Jr.
800-690-1860

You call this a bonus???
Hourly workers at Tower Automotive received $15 gift cards redeemable at Meijer grocery-retail stores before Thanksgiving. Then the automotive supplier decided the cards were "same as cash" gifts subject to federal and state income taxes totaling 36.75 percent.

That means the "gift" will take $5.51 out of the workers' next paychecks. "It's got a lot of people ticked off," said Donald McKee of Kingsley, a welding technician. "This is the lowest they've gone yet to give us something and then take it back."

United Auto Workers Local 5110, which represents about 300 hourly workers, has filed a contract grievance over the matter. Some workers also have returned the gift cards rather than pay the tax.

Courtesy Associated Press.

As the experience above clearly shows, employee recognition can have some very unexpected repercussions.

In this article, we’ll explore the most common mistakes managers make when it comes time to reward people for a job well done. Then you can examine your own firm and how it handles employee recognition to see if your policies are in compliance with IRS law.

Is your incentive program a ticking time bomb? Thousands of companies are at risk from an IRS audit in these areas. Here are the basic things you need to know to stay out of hot water...

Common Mistakes about Taxes and Employee Awards

Here is a list of the most common inaccurate beliefs that we encounter as we talk with managers at Fortune 500 companies....

Mistake Number One...
"Gift Certificates don't have to be taxed since they are not cash, right?"

WRONG. The IRS tax code section says...

"For purposes of paragraphs (b)(2)(iii) and (iv) of this section, the term "tangible personal property" does not include cash or any gift certificate...

Similarly except as otherwise provided in paragraph (d) of this section, a cash equivalent fringe benefit (such as a fringe benefit provided to an employee through the use of a gift certificate or charge or credit card) is generally not excludable under 132(a) even if the same property or service acquired (if provided in kind) would be excludable."

 

This is why Toyota spends $1,000,000 on Sears gift certificates per year, and pays $920,000 in income taxes so the $1,000,000 will not have to be taxed to the employees...can you believe $920,000 lost to taxes?

Some companies hope to hide the gift card by printing on it, "Not redeemable for cash." Actually this is just wishful thinking. The IRS rules state that if you can add more money to the card to get a better gift or if you can get change back it is a cash substitute. And should be taxed as such.

Hoping to sneak it by the IRS?
A life insurance company in South Carolina awarded its employees with gift $5 and $10 gift certificates to local department and discount stores without taxing them. The assumption was that they shouldn't be taxed, since they weren't being awarded cash. The Internal Revenue Service took a different view. Citing numerous laws and sections of the tax code, they argued that gift certificates are merely disguised compensation. The insurance company was forced to research and document every gift certificate awarded to every employee over a 4-year period since their incentive program began. When the smoke cleared, the original $65,000 worth of gift certificates cost this company well over $180,000 in taxes, penalties, interest, and legal fees to resolve the dispute.

Mistake Number Two...
"As long as you keep it under $400 per person per year, the government lets you award whatever you want tax free, correct?"

WRONG. The tax code limits these "qualified award plans" as follows....

* Awards must be tangible gift items, no cash or gift certificates or gift cards are allowed.

* Awards for safety can ONLY be awarded to 10% of your employees a year, e.g. if you have 500 people, only 50 can win something. That doesn't do you much good if you're trying to reward everyone (a fundamental ingredient in good incentive programs).. Service Award plans aren’t much better—you are limited to one award item given away every 5 years.

Mistake Number Three...
"Aren't logo'd gifts tax free?"

Actually, the tax code is quite clear here too. Logo'd gifts UNDER $4 US in value are tax-free. Anything OVER that is taxable---whether it has a logo or not is immaterial.

Mistake Number Four...
Big Ticket Items

All too often we hear from managers who have told employees they’ll be doing a drawing for a car or a cruise vacation. And the IRS is very clear that employers must withhold tax on this type of award. Since employees quickly become livid at their 5 figure income tax bill, usually the employer has to eat the tax and gross up the employee’s award.

One construction firm bought a $20,000 Harley Davidson Motorcycle and awarded it to an employee who won a safety contest. When he received his income tax bill, he filed a Union Grievance. The employer wound up paying another $17,000 in income taxes in addition to the cost of the motorcycle. Let’s hope they at least got a happy biker from their ordeal.

Mistake Number Five...
Confusing Recognition with Compensation

Surveys show that companies consistently use cash or cash substitutes (gift cards, Visa Debit Cards, etc.) as motivators.

Yet studies show that you have to award ten times as much cash to equal the recognition value of a tangible gift item. (Think about it...what wedding gifts do you remember most? That Anniversary clock that still faithfully ticks away on your mantle? Or the $50 bill your Aunt and Uncle gave you?) In an impressive study by Goodyear, two groups of 500 tire dealers were given identical sales award programs with only one difference - one group received cash, and the other one received merchandise awards. The merchandise group outperformed the cash group by a factor of three to one. (See www.billsims.com for the Goodyear Study),p> For over 20 years, employee surveys consistently rank a need for recognition as more important than more money.

So, a key question to ask about your award is: "Will this be perceived as a trophy?" or just viewed as a pay bonus?

Using a tax free award merchandise program will not only help reduce or eliminate taxes, it will help meet a basic employee need: recognition.

Mistake Number Six...
Our employees don’t make that much, so taxes will be lower for us than 40%...

Here are the hidden taxes managers conveniently forget...

 

  • 35% Federal Income Tax
  • 7% State Income Tax
  • 13% Unemployment Tax
  • Medicare, Social Security, and Workmen’s Comp costs (yes these are tied to payroll and can run as high as 25% for some industries.
  • Administrative expense to report, calculate and pay taxes on small awards

Mistake Number Seven...
Going Cold Turkey from Cash to a Non Cash Program

Once you start a large budget cash or gift card program, it’s very hard to take it away.

Many companies find out the hard way, when employees perceive the change as a negative, take away move.

Instead, work to slowly wean off of cash over a period of 3 years. Structuring the change carefully makes it easier to swallow for your employees.

Developing a Tax-Free Recognition Plan
Carefully structuring an award program to navigate around the legal landmines allows you to develop a program that is tax-free AND legal. Use a recognition consultant who knows the ropes to make sure that you avoid tax trouble.

Employee recognition programs are alive and well in the year 2004. We applaud managers who vigorously question the status quo and are not afraid to shake things up as they look for other ways to improve their recognition process.

As someone once said, "Sacred Cows make the best hamburgers."

Contact Information: Bill Sims, Jr. is President of Bill Sims Award of Excellence, an incentive consulting firm based in Columbia, S.C. Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it and website: http://www.billsims.com. Phone: 800 690 1860.

 
How Successful Safety Incentive Programs Reduce Injuries Without Injury Hiding

By Bill Sims Jr.

The development of an effective safety incentive program is essential in creating a strong safety culture in your company. Whether your goal is to improve a poor safety record or to maintain an already stellar record, incentive programs are an excellent vehicle to meet both goals. And yet the debate rages on as some claim that safety incentive programs do nothing more than cause hiding of injury, failing to create any real safety behavior improvements.

Of course, no incentive program is a substitute for poor safety management. Before any incentive program should be undertaken, a company must have a good foundation for their safety program in place (safety committees, accident investigations, training etc.)

When starting a safety incentive program, some companies mistakenly believe that a safety incentive is a magic bullet that allows them to ignore all these other needs. Nothing could be further than the truth. An effective safety incentive program will not cover for bad safety management. However, an effective safety incentive program will transform good safety management into spectacular safety management.

Heartland Foods, a Minnesota firm that processes turkeys, needed big improvements. But management was very concerned that the safety incentive program would in no way cause employees to hide injuries. "We had a large number of people who were on Workers' Compensation - employees out on a long-term basis," says Marie Huber, safety health and training director. "In turkey processing, bacteria rapidly enters the wound of a minor cut---a creates a serious infection. So if you don't report a small injury, it becomes a LOST TIME injury. We had to be very careful to avoid any 'injury hiding,' and worked to develop a set of rules that would achieve this. Now our numbers are way down." Heartland went from 285 lost-time injuries to 14 in only 18 months, using an incentive program developed by The Bill Sims Company, Inc. The program has more than paid for itself, and also generated over 200 reports of unsafe conditions &actions that were corrected before injuries could occur. The rules structure helped Heartland to create positive peer pressure, without injury hiding as a negative result.

W.R. Grace, a specialty chemical manufacturer in Atlanta, was trying to sustain a record that was already impressive, says Vic Anapolle, plant manager. "We went eleven years without a lost-time accident - a million-and-a-quarter employee hours. Our recordables are typically one or two a year for a population of about 70 people."

Though successful programs differ widely, their underlying processes are the same. A successful safety incentive program will raise awareness of safety issues, reduce injuries without causing workers to hide injuries and instill proactive behaviors that create a safe working culture.

It should be pointed out that, in recent years, incentive programs have unfairly been characterized as the "bad boys" of safety, due to a longstanding debate of "attitude versus behavior." Many critics contend that incentive programs cause workers to hide injuries.

And in certain isolated cases, they are correct. Incentives can be used properly or misused with disastrous results. Just as a scalpel can be used to save a patient's life by removing a cancerous tumor, it can also be used improperly and cause harm. Incentive programs can be wielded the same way.

Unfortunately, many safety incentive programs are ill-conceived as they are thrown together at the last minute with little thought given to rule making. This is particularly true of programs that are developed in-house. It is not the incentive tool that is at fault, but rather poor rule design which creates excessive peer pressure and results in hidden injuries and lawsuits. Working with an experienced incentive and motivation company helps avoid these pitfalls.

What are the most common root causes of injury hiding in an incentive program? Our 25 years of careful observation reveal these as a few (but not all) of the underlying causes:

  • Use of Big Ticket Prizes (new pickup trucks, $1000 cash per person,etc.)
  • Relying totally on group performance as the sole method of awarding a gift (while ignoring proactive individual achievements)

Successful companies using these programs must ask questions that lead to clear goals, long-term follow through, and meaningful incentives. These factors are even more crucial than the type of incentives used to meet safety goals.

Managers new to incentive programs often get sidetracked by the content of the program, or what types of incentives to offer; one company may offer a steak dinner to employees who pass one quarter without lost time due to injuries, another offers cash and still another offers gift certificates to Wal-Mart. What will work best for your company? While this is a compelling question, it is not the first question that should be asked. The most important question is "What behaviors will be rewarded?" While prizes and awards can be tinkered with, the processes that ultimately drive successful incentive programs must be considered first and foremost.

Though these programs differ widely in particulars, their underlying dynamics are surprisingly consistent. The first question should be:

"How do we set goals for our incentive program?"

To say that safety incentives should relate directly to safety goals is a truism. Yet goals can be conceived in a variety of ways. Companies that are successful with incentive programs have learned to set goals carefully, knowing that how you word a goal may lead to different results.

Raising safety performance is an obvious purpose of incentive programs. Given that overall goal, employees can receive incentives based on many different criteria: days without recordable accidents, months without lost-time injuries, decreases in Workers' Compensation claims and more. Any of these results can be achieved with a successful program, each having a different impact on a company's bottom line, but care must be taken to insure rules design that won't produce injury hiding.

Alternately, many firms now choose to reward safe behaviors, as part of a growing trend toward behavioral safety techniques. In a program focused on proactive behavior, companies reward a number of 'upstream behaviors' that ultimately produce a good safety record. Some of these behaviors are making safety suggestions, spotting close calls, achieving behavioral safety goals, attending safety meetings, assisting inspections, etc. These programs produce solid results in long-term safety improvement. Olin Chemical reported they had only 60 percent attendance at safety meetings. In the first month they used our proactive-behavior based incentive program, the figure jumped to 100 percent. Another one of our clients developed an innovative way of just saying "Thanks" to employees nominated by their peers as having a "safety first" mentality…and achieved a 46% reduction in injuries.

Promoting safety awareness, generating safety suggestions and recognizing employees for safe behavior are a top priority in incentive programs. Emphasis should be placed on the rules of the program and how that motivates people rather than on the gift awards. The gift award is certainly the catalyst, but most of the emphasis is on how the program works to build teamwork and motivation.

One goal that fits in almost any case is that of raising safety awareness. An incentive program can work simply by forcing people to pay attention. For example, Bar-S Foods Company in Arizona cut its Workers' Compensation costs in half between 1988 and 1993. The company's main objective was to carefully record lost-time accidents and watch the numbers closely during that time.

Heartland Foods employees use "close call" forms to report situations on the plant floor that could lead to recordable accidents and injuries. With an incentive program in place, says Huber, "all of a sudden there is a reason to pay attention, because you're going to get something back for noticing."

Incentives - From Bananas to Boats

Once the "how" questions have been answered - the rules of the game, so to speak - the incentives can then be addressed. Consider for a moment what the term "incentive" entails. It can mean any item that people deem valuable.

Michael LeBoeuf, a management consultant, lists ten basic categories of employee incentives. Besides money, these include:

  • Recognition
  • Time off
  • Stock ownership
  • Special assignments
  • Advancement
  • Increased autonomy
  • Training and education
  • Parties and other fun activities
  • Prizes

Before you agonize over the value of the awards offered, consider the advice of Bob Nelson, author of 1001 Ways to Reward Employees. Nelson relates the story of an incident that occurred at the Hewlett-Packard Company. A team of workers had been plagued with a problem for weeks. An engineer finally solved the problem and, overcome with enthusiasm, he burst into his manager's office and blurted out the solution. Thrilled by this idea, the manager offered the only reward he could find at the moment -- a banana left over from his lunch. The incident started a trend, and the Golden Banana Award is now a coveted employee prize.

The prize took on a personal meaning to the workers because it implied recognition - a job well done. Nelson found that incentive programs work when they tap into the reward that employees favor the most - an immediate on-the-spot recognition of a job well done by their manager. In other words, a pat on the back. He quotes Mary Kay Ash, founder of Mary Kay Cosmetics, on this point: "There are two things people want more than sex and money ... recognition and praise."

Remember, a pat on the back costs you nothing.

Incentives today can include anything from a five-figure gift, to fishing boats, CD players, electronics equipment and pens. The following considerations should be taken into account when creating your incentive:

How can we get the most "bang" for our incentives buck?

Managers commonly assumed that an extra $25, $50 or $100 added to an employee check or a Walmart gift certificate is the strongest incentive for employees. Yet, that bonus added to an employee's check can quickly vanish, eaten up by taxes or mundane expenses. Moreover, employees may become dependent on the extra revenue and come to view it as part of their salary, thereby nullifying the reward's purpose - safety awareness. Structuring your program properly with an experienced incentive house can minimize or eliminate the bite that taxes take.

Customize incentives to your company

For the reasons mentioned above, many successful programs rely on low-cost gifts with a high perceived value. Gifts that reinforce corporate identity can spark high interest. One of our clients, a trucking firm that transports new cars, centered its program on a one-of-a-kind jacket imprinted with a special crest. To win the jacket, employees had to drive for three months without an accident. On the last day of the contest, one driver backed his truck into a light pole and damaged the back window of a new car. He asked if he could buy that car. He didn't want to lose out and be the only person at his terminal without a jacket.

Beware of a "canned" incentive program, because what works for one company might not work for yours-each culture requires special changes to adapt a program to fit it. Company cultures differ greatly and that means successful incentives will also differ. Consider the following demographics before choosing incentives: age, rate of turnover, geographic location, racial and ethnic diversity. Nelson suggests distributing a "reinforcer survey: to find out the type of rewards that your employees actually want. Incentive programs thrive on employee input."

The exact kind of incentive program will depend on the culture of your workforce. High turnover and non-English speaking employees all require careful adaptations of incentive programs to ensure success. Your incentive provider must be comfortable with bilingual programs.

Remember the advice of Anapolle, of W.R. Grace, who noted that no employee is going to get rich through the company's incentive program. Instead, the program's goals are to promote safety awareness, generate safety suggestions and recognize employees for safe behavior on a regular basis.

Fair distribution

For an incentive program to work well, incentives must be distributed fairly. Contests that reward only a few people or those that reinforce the view that safety is a matter of chance or luck should be avoided. Heartland Foods and W.R. Grace instituted lottery-style programs that could make everyone a winner. For example, employees who meet safety goals can receive scratch-off tickets called "Star Performer Bucks." Employees can redeem the buck immediately if it contains matching symbols. If not, employees may still accumulate bucks and redeem them later for gifts or other awards.

Meaningful incentives in a timely manner

Incentives are made meaningful when they are well proportioned to specific behaviors or results. "An employee who completes a two-year project should be rewarded in a more substantial way than the one who simply does a favor for you," writes Nelson in 1001 Ways to Reward Employees.

Also, it is important that rewards, whether material or verbal acknowledgment, be given in a timely manner, soon after the goal has been met. This boosts the impact of the incentive.

Joan Klubnick, author of Rewarding and Recognizing Employees, notes that managers and supervisors often fail to give recognition for a simple reason: they don't know what to say. Klubnick offers a "recipe" for recognition, or basic guidelines to use on a daily basis:

  • Thank the employee by name.
  • State specifically what the employee did to earn your recognition.
  • Explain how you felt about this behavior.
  • State how the behavior added value to the company.
  • Thank the person again by name.

Incentive programs and union culture

Some unions have stepped up their efforts against incentive programs in recent years, using the familar objection of injury-hiding. On the other hand, many unions are supportive of incentive programs. One union president told Dorsey Trailers during contract negotiations, "We may pay for a part of health insurance, but if you take away Star Performer Bucks, we're gonna put on the boxing gloves."

A survey showed that unionized firms were even more likely to utilize incentives than non-union operations. One key to success in implementing programs in a union culture is to make the union a partner in the design of the program. Part of the the problem unions have with incentives stem from their not being included in the design phase. Early union buy-in is key to selling the program, as are proper rules designed to eliminate injury hiding. Following these steps will help make unions a supporter of the recognition program rather than an opponent.

At the urging of the UAW, OSHA has examined incentive programs from four decades, concerned with the issue of injury hiding. After pouring over hundreds of programs, Marthe Kent, director of the OSHA office of Regulatory Analysis, submitted an interim status report. In the report, quoted in the September '98 issue of ISHN Magazine she said, "I see no dominant trend…the information is overwhelmingly anecdotal. Companies that have good safety incentive programs already have a strong safety and health program in place. A good safety and health program has employee involvement, hazard analysis, and injury reporting." Echoing matters already discussed, OSHA VPP guidelines emphasize the value of psychological "warm and fuzzy" type rewards rather than large cash rewards.

How to sustain incentives programs?

Willingness to experiment and learn by trial and error are indispensable in creating a successful incentive program. One way to reduce the learning curve is find out what other companies are doing and consult recent literature on incentives.

Anapolle sees advantages in designing a cohesive program and then giving it time. "We took a lot of separate programs that were giving out premiums and various small cash awards. Then we added up what we were doing and said, let's roll these all into one program and see how that works for the next three or four years."

Consistency and follow through are key according to Huber. "You can't start an incentive program and then walk away and expect that it's going to run itself. You have to have safety meetings and give away incentives every month. Programs work when you implement employee suggestions and correct safety problems as they happen."

Both Huber and Anapolle agree that the incentive program should be changed periodically so that it stays fresh. Even a minor change such as a new gift item may be enough to sustain your employee's interest.

Huber and Anapolle, along with others who've succeeded with incentives, also report that these programs are simply the "icing on the cake" - one part of an overall program that emphasizes safety at every point from hiring to training and daily supervision. By asking "how questions" a safety manager can restore the needed perspective and lift his eyes to this larger horizon.


Sources:

  • Vic Anapolle, plant manager, W.R. Grace;
  • Marie Huber, safety health and training director, Heartland Foods;
  • Michael LeBoeuf, professor of management, University of New Orleans;
  • Bob Nelson, management consultant and author.

Callouts - catch

    Some incentives, such as a pat on the back and a compliment, cost nothing.

    An incentive program can work simply by forcing people to pay attention.

    Incentive programs are simply the "icing on the cake" - one part of an overall program that emphasizes safety at every point from hiring to training and daily supervision.

Sources:

  • Nelson, Bob. 1001 Ways to Reward Employees. New York: Workman, 1994.
  • Klubnick, Joan P. Rewarding and Recognizing Employees: Ideas for
  • Individuals, Teams, and Managers. Chicago: Irwin, 1995.
  • LeBoeuf, Michael. The Greatest Management Principle in the World. New York: Putnam's, 1985.

Contact information:

  • Vic Anapolle, plant manager, W.R. Grace, 5225 Phillip Lee Drive, Atlanta, GA 30336; 800-509-9816.
  • Marie Huber, safety health and training director, Heartland Foods.
  • Bill Sims Jr., president, The Bill Sims Company, 102 Lake Vista Drive, Chapin, SC, 29036; 800-690-1860.

About the author:

    Bill Sims Jr., president of The Bill Sims Co., Inc., began work with Norfolk Southern Railway, Walt Disney World and Coca-Cola in the early '80s, helping them with employee motivation and recognition programs in safety and quality improvement. He has spent his career helping employers increase workplace employee performance. In business since 1945, The Bill Sims Co., Inc., includes among its clients Walt Disney World, Chrysler, General Motors and Coca-Cola. The company's website is at www.billsims.com and offers further articles on this subject.
 
Many Employers Seek to Replace Cash Bonuses With Other Work Incentives

family-incentive-tripFrom the Wall Street Journal, April 3, 200

Many employers seek to replace cash bonuses with other work incentives. Merchandise and travel awards are more memorable with employees, officials say. Diebold Inc, Canon OH, which makes automated teller machines, recently scrapped cash for sales people as lacking trophy value, says Jerry Bryan, marketing services manager. "Recipients tend to spend their cash incentives on routine expenses such as house payments or braces for their children", says the Society of Incentive and Travel Executives.

When American Express Incentive Services polled 1,101 workers, 29% said they used their cash rewards to pay bills and 18% couldn't remember what they did with the money.

 

MasterCard International, has replaced cash bonuses for its employees with hotel, show-ticket, and other gifts.

A customer-service rep for American Century Cos., a Kansas City, MO, mutual fund firm, refused to work on Y2k problems over New Year's after learning that $250-a-day bonuses were pretax, not after tax.

 
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