Haul out the holly: increasingly, companies are deciding that they need a little Christmas this year. According to global outplacement consultancy firm Challenger, Gray & Christmas, Inc., 80% of companies are planning to host holiday parties this year. Challenger, which conducts an annual holiday party survey, found that more than 1 in 5 of those companies hosting a holiday party expect to spend more in 2016 than they did last year. What’s driving holiday party budgets up? Caterers, booze, and more guests.
Companies may throw holiday parties for many reasons but typically, it’s a way of saying thank you to employees for their service. Done right, a holiday party can be fun and be tax-free to the employees – as well as tax-deductible to the company – making everybody happy this holiday season.
Here are tips to keep in mind to ensure a great holiday party for employers and employees alike:
- Go ahead, hire the caterer. For tax purposes, an employer can throw a firm holiday party – even a fancy one – with no tax consequences for the employees.
- You don’t have to be cheap. The cost of the party is tax-deductible to the company so as long as the expense is reasonable. A company may not deduct expenses for entertainment that are “lavish or extravagant” which can be subjective. Best practice? Spending for your party should be consistent with the type and level of your company – think about what similarly situated companies are doing. What’s considered reasonable at Goldman Sachs may not be reasonable at your own company.
- Don’t just toss your invite. Generally speaking, an employer can require employee attendance at holiday parties, both during and after work hours. However, to keep employees happy, Erica Intzekostas, an attorney who focuses on corporate law at The Erb Law Firm, PC, in Pennsylvania, strongly recommends that employers not make attendance mandatory during non-business hours.
- Be careful when sending out invites. Cherry-picking employees for a holiday party can cause all kinds of problems from human resources complaints to a potential tax audit. An invite to the office holiday party should be extended to all employees: limiting the fun to top level management is not fully tax-deductible. Plus, it’s tacky, and your mother taught you better.
- Your time is valuable – and that doesn’t change during the holidays. Non-exempt workers still receive regular pay if a holiday party is held during their regularly scheduled hours. Overtime pay is required if attending a mandatory holiday party will tip you over a 40-hour work week. However, Intzekostas notes that if attendance at the party is not mandatory, then no overtime pay would be required.
- Feel free to talk about the Kardashians. Or the best place to find Hatchimals. Unlike other business lunches and dinners, employees don’t have to “talk business” at any time to make it deductible to the company.
- Remember that professionalism still counts. You don’t have to talk about business, but you should avoid discussing potentially controversial topics like politics (and politics again, just for good measure), as well as office gossip and other work-related talk.
- Giving employees expensive gifts or cash – even at the holidays – can result in income tax consequences for employees. Gifts other than cash at the holidays will be tax-free so long as the gifts have a low fair market value. There’s no hard and fast dollar amount so use common sense: a Ferrari is too much, but a box of chocolates will pass muster on the tax side.
- Consider grossing up. If you want to give your employees expensive gifts, add in some extra cash to help out with the tax bill (yes, that’s taxable, too, but a good tax professional can help out with the math).
- It’s okay to serve booze. Despite the rumors, there’s no Internal Revenue Service (IRS) ban on serving alcohol at parties: it doesn’t change the deductibility of the event. That said, serving alcohol does increase the liability risk, both in terms of injuries and inappropriate behavior.
- Have plenty of non-alcoholic beverages and food available at the party. And don’t hesitate to take advantage of the spread. If you do drink at a holiday party, make sure you eat something and pace yourself by adding at least one glass of water or other non-alcoholic drink between glasses of wine, beer or cocktails.
- Know who’s in charge. If you have concerns about serving alcohol, Intzekostas recommends that companies have someone in a supervisory position be in charge of serving alcohol, rather than allowing employees to self-serve. Better yet, hire a professional bartender. And, of course, instruct those serving alcohol to refuse to serve anyone who is visibly intoxicated.
- If you’re under 21, don’t ask for a drink. It’s against the law – and could also get you fired.
- Employers may want to check personnel records to ensure that no one under 21 is permitted to drink. Intzekostas warns this is particularly important from a liability standpoint as most states, including Pennsylvania, do impose liability on “social hosts” who serve alcohol to those under the legal drinking age.
- Take advantage of free rides. If there’s booze at the party, it’s a good idea for employers to consider providing transportation for employees (think designated drivers, hired car services, or taxis). And employees shouldn’t worry about the perk: cab fare or other transportation is tax-free so long as it’s occasional. To help out with planning, employers may wish to send a memo in advance of the party advising of the measures the company is taking to ensure everyone’s safety, including free rides home.
- Check your insurance. Employers should check the company’s general liability policies to determine what, if any, kind of coverage is in place for holiday parties. According to Intzekostas, many policies specifically exclude coverage for events where alcohol is served. If your company policies do not cover your holiday party, you may want to consider a “special events” or “dram shop” policy to cover the event. And yes, that’s tax-deductible, too.
Just two more important points: no amount of eggnog can make you sound like Bing Crosby and “Dominick The Donkey” is not funnier the louder you sing it. Otherwise, eat, drink (a little) and be merry this season!
