As the holiday season approaches, business owners often consider gifts, company parties, and other forms of rewards for a year of hard work and relationships — and hope for additional revenue and referrals in the year to come. But it is important for business owners to know that even if they have the best intentions, legal and tax liability can spring from their efforts.
Holiday parties are one form of holiday traditions for small to large companies. Small companies may invite vendors, customers, and other individuals to the party to liven it up. Medium to large companies may invite their top vendors and customers, in addition to all of their employees, if they feel it is appropriate. However, even hosting a party produces legal risks, typically in the form of incidents involving alcohol and sexual harassment.
To minimize the liability of accidents — both at the party and after it ends — having no alcohol is best. If you must have alcohol at your party, use the following best practices to limit the chance or accidents, DUIs, and other incidents resulting from intoxication.
- Ensure minimum age of 21. Limit alcohol to employees and guests 21 and older. It is best not to have anyone under drinking age at the party at all. But if you do, have a clear policy that any employees that help those under 21 drink, or any employees that are under 21 that drink, will be fired immediately with cause.
- Limit alcohol servers to professional bartenders. Bartenders are typically trained to not over serve their customers. You can enforce this by (a) asking bartenders not to serve anyone who appears even slightly intoxicated, (b) handing out tickets to limit the number of drinks each person has, and (c) ensuring that there are plenty of non-alcoholic drinks for the bartender to suggest in lieu of alcohol.
- Offer coupons for alternative transportation. Whether you hand transportation coupons out to everyone or to individuals who may have drank too much, have transportation solutions available.
- Provide disincentives to drink. Have your party early in the day or restrict the time the bar is open. By making sure that guests have disincentives to drink — most people don’t want to be tipsy at noon — or limiting the time that they can drink by having an open bar only from 5 p.m. to 6 p.m., before dinner, you can help guests from drinking too much.
Sexual Harassment Liability
In regards to sexual harassment claims, it is important to remind all employees of the company’s sexual harassment policy before any holiday parties, especially those that will involve alcohol. It is also important to ensure that if there is going to be an “after-party” involving employees, all company codes of conduct are followed there, too.
If your company has a dress code, it may be wise to inform employees the same standards will be used for the party. Making the holiday party open to spouses and significant others can also curb sexual harassment as most people won’t make sexually suggestive remarks to other individuals in front of their spouses.
Gifts to Employees, Vendors, Clients
You may be thinking about giving gifts to employees, vendors, and clients. Each of these may be treated differently for tax and legal purposes. Knowing the rules ahead of time helps.
For employees, if you give cash or gift certificates, the cash value is typically treated as wages and income tax must be withheld. Holiday gifts to employees are only untaxable if they are “de minimis fringe benefits” — i.e., have little value. Examples of this include buying for employees holiday hams or turkeys, flowers, and other low-value gifts. If you worry whether a gift is taxable or not, ask your C.P.A. or attorney before the purchase.
For vendors and clients, the I.R.S. rule typically states that you can gift up to $25 per person per year. If a gift is to an individual, this rule will apply. However, in most instances, you can give a gift to an organization — such as a fruit basket for all of the employees to share — and there is not a limit on the amount of the gift. There are also special rules if you choose gifts that fall under what the I.R.S. considers entertainment. Make sure to check with a C.P.A. or attorney whether a gift can be counted as an expense prior to making an expensive purchase.