AmTrust Workplace

Employers Giving Tax Windfalls Back To Employees: Are There Risks?

The recent tax overhaul dropped the U.S. corporate tax rate to 21 percent. As a result, some companies are giving back to their employees.

Home Depot recently announced all hourly employees would receive a $1,000 bonus because of the tax reform law. Lauren Thomas "Home Depot hourly employees to receive up to $1,000 bonus due to tax reform" cnbc.com (Jan. 25, 2018).

Starbucks recently announced it plans to expand the benefits offered its employees by $250 million and provide a pay boost for workers. Leslie Patton "Starbucks Employees are Getting a Pay Raise" time.com (Jan. 24, 2018).

Apple announced it will provide employees a $2,500 bonus in restricted stock units as a result of the new tax law. Chaim Gartenberg "Apple is giving employees $2,500 bonuses in restricted stock units after new tax law" theverge.com (Jan. 17, 2018).

Verizon announced it is providing 50 shares of restricted stock to employees who are not executives, approximately 150,000 employees. Scott Moritz "Verizon Using Some Tax Savings to Give Each Employee 50 Shares" bloomberg.com (Jan. 23, 2018).

Disney announced it will provide 125,000 employees a $1,000 cash bonus and will reinvest $50 million in tuition assistance for employees who are not executives. Christopher Palmeri "Disney to Give Employees $1,000 Bonuses in Wake of Tax Reform" bloomberg.com (Jan. 23, 2018).

Commentary by Jack McCalmon

Giving back to employees from a tax cut is a smart employee relations move. In addition to helping employees and their families, it builds good will; helps talent retention; is positive for public relations; and attracts talent. It is a win-win, but not without some risk.

If bonuses and benefits are not dispersed equally among rank-and-file employees, employers run a risk of equal pay or discrimination claims. If unequal distribution is viewed to favor or disfavor a particular group of employees because of age, race, national origin, gender, or other protected status, employers may lose all the value provided with these financial benefits.

For that reason, you can see how the above-listed employers provided the bonus to a large class of employees, typically non-executives.

Is it okay to differentiate between executives and non-executives? There is a risk, in particular the risk of age discrimination charges because executives tend to be older. However, if worded correctly, and all executives are excluded, the risk is minimized, especially because of the pay differential between executives and non-executives.

Employers that plan to give a bonus in cash or stock should provide notice that the bonus is a "one-time only" benefit; that it is because of the new tax law; and that it will be distributed equally among all employees, without regard to performance.

 

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