Dec 04, 2013

Beware the Perils of End-of-the-Year Bonuses and the Office Holiday Party


During the holidays, many employers provide non-exempt employees with prizes, awards, nondiscretionary bonuses and incentive payments dependent on the quality, quantity or efficiency of production or hours worked.  The value of such a prize, award, nondiscretionary bonus and incentive payment must be allocated over the period during which it was earned to determine the resultant increase in the average hourly rate for each week.  This means that any overtime worked in the pay period covered by the bonus would need to be recalculated to adjust for the value of the prize, award, nondiscretionary bonus or incentive pay.  If the prize is merchandise, the amount that must be allocated is the actual cost to the employer.  Exclusion of a bonus from the regular hourly rate depends on whether the bonus was discretionary. The bonus is excluded from the regulate rate for purposes of calculating overtime if the allocation and amount of the bonus are left to the employer’s sole discretion, and the payment was not made pursuant to any prior contract, agreement  or promise which would lead  the employee to expect the payment.

Office Parties

It is also the time of the year that many businesses host a holiday party for their employees.  While many companies will still be attempting to pinch pennies in these uncertain economic times, the slow economic recovery will likely spur the return of many seasonal office gatherings.  These events, while intended to be jovial affairs, often lead to litigation and office gossip.  While such functions often take place outside of regular business hours, employers should note that they are considered to be within the scope of employment.  Accordingly, it is important for business owners and human resources professionals to be prepared to address the following issues, should they arise:

Discrimination/Retaliation Concerns

Sexual harassment is likely the most significant risk that companies will encounter at the holiday party.  The most obvious and effective measure to reduce the possibility of improper fraternization is to host an alcohol-free event, or at least limit the employees’ access to drinks. First, removing hard liquor from the menu goes a long way to reduce drunkenness.  Second, drink tickets limit the number of beverages each employee may consume at the event (two is standard).  Finally, a fairly effective solution is to charge attendees for their beverages, even if at a subsidized, reduced rate.

Supervisors and managers must be reminded to maintain professional standards and to serve as examples for their subordinates.  Avoid any activities which may lead to physical contact or inappropriate conversation (“Twister” and “Win, Lose, or Draw” may be fun, but they do not evoke professional behavior in the workplace).  Finally, monitor behavior, alcohol consumption, the incorrigible flirt and the dirty dancer, and remove offending individuals prior to them doing any real damage.

Employers should keep in mind that they must comply with equal employment opportunity laws during company-sponsored functions.  For example, religious themes should be avoided in order to respect the diverse beliefs of the attending individuals.  The party and any activities should be accessible to employees with disabilities.  Gifts to employees should be appropriate and neutral—gift cards being the safest bet.  In the event that any complaint or report of inappropriate behavior emerges, the complaint should be taken seriously, documented, investigated promptly and remedial action should be taken, if necessary.  Any employee who reports this behavior should be treated fairly and protected against any action that could be viewed as retaliatory.

Independent Contractor Status

In response to the economic climate, companies are increasingly utilizing the services of temporary agencies and other independent contractors to supplement their employee base as business increases.  These workers often become a part of the everyday workplace, and it is not uncommon for them to be invited and included in extracurricular activities such as holiday parties.  Employers should take proactive measures to avoid creating evidence that the DOL, IRS, or other agencies might use to argue that an employer-employee relationship exists.  First, employers may prohibit temporary employees and independent contractors from attending holiday functions.  If such exclusion is too harsh a penalty, the company may negotiate with the independent staffing agency that provided the temporary workers to have the staffing agency provide some benefit or involvement in the function to solidify its role as the true employer.  For example, the staffing agency may be required to pay a small fee to subsidize the temporary workers’ attendance, to send invitations through the agency, and to have an agency representative on-site at the event.

Physical Injury

Recreational functions that serve alcohol always involve the possibility of injury.  Slips and falls, coffee burns, broken chairs, and automobile accidents are all-too-common occurrences at holiday parties.  These injuries can render employers liable to the employee under workers’ compensation, negligence, premises liability statutes, and state laws targeted towards providers of alcohol. 

Many states’ workers’ compensation laws consider the holiday office party to be within the scope of employment and would award workers’ compensation benefits to any employee who was injured.  Such benefits are considered to be the “exclusive remedy” for the injury, thus preventing the employee from seeking any supplemental recovery from the employer.  If the injury is considered to be outside the scope of the employment, employers would face potential liability if the act was caused by the employer’s actual or imputed negligence, or if the injury was the result of a dangerous condition the employer knew or should have known about.    Many states have “Dram shop” laws that impose a duty upon hosts to ensure that guests are not served an excessive amount of alcohol.  In these states, damages caused by an intoxicated employee who is involved in a car accident after the holiday event could be imputed to the employer.  Therefore, employers should arrange taxi services for its employees who have imbibed in excess to assure they get home safely.

Employers should keep the company function safe, inclusive and in good taste, and be extremely cautious with the quantity of alcohol being served.  Control any potential adversarial situation before it escalates, document any complaints by employees, be sure managers and supervisors set a professional example, and designate a non-drinking HR representative to patrol the party.

Wage and Hour

Attendance at a Company-Sponsored Party

The majority of holiday hosts would rather not pay hourly wages to have guests attend their party.  However, employees may be entitled to regular or even overtime compensation for the time spent at the holiday event if attendance is mandatory.  If the event is voluntary, be sure to advertise it as such in any e-mail or invitation to avoid potential liability under the Fair Labor Standards Act (“FLSA”), or the equivalent state law.

Volunteers for Charitable Activities

The holidays are the perfect time for many workers to commit their services toward philanthropic pursuits.  The FLSA permits individuals to donate their time as non-employees for humanitarian, religious, charitable or other public-service reasons.  However, the individual must conduct such services on a voluntary basis without the contemplation of pay.  Moreover, employees may not volunteer services to for-profit private sector employers.  Additionally, Congress has made it clear that a public sector employee may not volunteer his or her services to a public sector employer without additional compensation where the employee is performing the same work for which he or she is employed. The Department of Labor takes the same position if the employee provides different services for a charity that are done at the employer’s request, under its discretion or control, or during the employee’s regular work hours.  Private sector employees can volunteer their services to public agencies without limitation.

If you have any questions about any of the issues discussed in this alert, please contact your employment counsel at Smith, Gambrell & Russell, LLP

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