While it’s important, and necessary, to recognize employees, it is just as important to be fair when doing so.
When designing a rewards policy, never ignore the guidelines of Title VII of the Civil Rights Act of 1964, which prohibit employment discrimination based on race, color, religion, sex, national origin, age, or disability.
It’s also important to follow Internal Revenue Service regulations and any other federal or state income regulations when issuing a monetary award.
Establish specific criteria for recognition.
When issuing an award for a job well done, the employer should ensure that all employees be evaluated by the same criteria.
Your policy should provide a system of validation of the "outstanding performance" to avoid discriminatory practices—for example, a manager who issues these awards to employees he/she likes, or to keep an employee on board, and so on.
An example of a policy might be something as simple as stating the following in your company’s employee handbook:
Merit awards are given to employees who greatly exceed job requirements by exhibiting outstanding performance. Your supervisor may recommend you for a merit award which can be a cash or non-cash award.
Pay close attention to federal regulations.
Many companies recognize employees with incentive compensation plans, stock-option plans, stock awards and so on, when an employee meets specific goals.
Any program that issues monetary awards to employees has to follow the same regulations as when paying an employee.
In other words, these types of programs may have IRS or state tax issues deeming certain reporting or payment requirements.
For instance, when a company issues stock to an employee, the employee may be responsible for reporting any dividend income received to the IRS even if the employee cannot "cash in" their stock for a certain period of time.
Also, when an employer offers stock to an employee at an employer-paid discount, the employee may be responsible for paying taxes on their portion as well as the employer-paid portion. It is important that you cover these types of issues in your policy to educate the employee being provided the award.
Federal contractors also have very specific regulations to follow—for example, the Davis Bacon and the Service Contractor Acts govern pre-determined wage and fringe benefits rates of specific workers on federal contracts.
If a federal contractor issues a monetary award to an employee covered by any of the federal contractor acts, it may violate the very specific pay scale and fringe benefits regulations, and could cause the contractor to lose their contract.
Many federal contractors are only able to provide recognition awards that do not include monetary or gift awards to employees who work on certain contracts.
Be fair in your distribution of rewards.
Every employee who qualifies for an award should receive it in the same manner (for example, at the same time each month or each year) to avoid any discrimination charges.
To accomplish this, try running a query function on your HRIS to capture information about all employees who reach your company’s set milestone(s). It may also prove helpful to have the same person run the HRISreport each time for consistency, and to avoid leaving someone out.
Another good idea is to have the award presented to employees through their direct managers or supervisors, as opposed to sending the award directly to the recipient. A supervisor is more likely to notice if any other employee meeting the same requirements has been left out.
Documentation, documentation, documentation.
Of course you already know this, and you’ve been told this a million times, but—again—state your programs clearly and concisely in a policy.
Make sure that all management is properly trained, and that your employees are made aware of procedures and requirements regarding your recognition and incentive programs.
Workforce, January 2000, Vol. 79, No. 1, pp. 72-73.