Weekly HR - Avoiding Holiday Liability - Holiday Bonuses

Weekly HR - Avoiding Holiday Liability

Part 2 of 4

Holiday Bonuses

Many city employers want to recognize their employees during the holidays by giving them a bonus either in the form of money, or a gift such as a turkey or a ham.  While all that sounds like a good idea, cities must tread carefully when making these considerations. 

There are several important things to keep in mind when considering any sort of bonus or gift.  First of all, in general, officers and employees can only be paid for services actually rendered. Section 3 of the Kentucky Constitution provides, in pertinent part, that ". . . no grant of exclusive, separate public emoluments or privileges shall be made to any man or set of men, except in consideration of public service. . . ." This language means that a city may only pay its officers and employees for services actually rendered.

In addition, KRS 83A.070 requires the compensation of city officers and employees to be set by ordinance. These two provisions prohibit a city from giving any bonus, gift or extra compensation to city officers or employees over and above that which is fixed in the ordinance setting their compensation. However, a city may avoid the restriction on bonuses or extra compensation by providing in the compensation ordinance that bonuses or extra compensation may be paid for actual services rendered. The ordinance should also establish the criteria that will govern the decision to pay the bonuses or extra compensation. In that case, the bonus or extra compensation becomes a part of the fixed compensation, subject to the decision of the legislative body to appropriate the funds in the budget ordinance. So remember, it can only be done if the city appropriates funds within the budget and establishes criteria for bonuses and extra compensation that are to be given for actual services rendered

Examples of this include, all employees who do not use any sick time will receive a $100; or employees that have worked for the city for five years receive an additional $100, in 10 years they will receive $200 and so on.  Another option is to have a local store donate turkeys or hams to give to the city employees.

Once you work out the details, don’t forget that all taxes and other withholding, including retirement, would need to be taken out of any additional compensation.  In regards to gifts, in many cases they must be included on the employee’s W-2 as supplemental wages.  So, before you make a decision to give your employees a gift, make a phone call to your CPA for their advice as to how to handle.  

Although it may seem complicated, it can be done, and incentives can be a great motivational tool for your employees, as long as they are handled correctly.  For more information, sample ordinances or questions contact Andrea Shindlebower at ashindlebower@klc.org.

Next week: Avoiding liability that can occur during holiday parties.