Employee Recognition Programs

Acknowledging a job well done can be a powerful motivator for your employees. It can be as simple as a spoken or written commendatory message (See Big Results with a Small Gesture), or it may entail a formal program for recognizing and rewarding outstanding employee contributions to the community or organization.

Unlike their private counterparts, however, local governments must consider constitutional prohibitions against gifts, specifically article 8, section 7 of the Washington State Constitution, which prohibits gifts of public funds, or article 2, section 25 of the state constitution, which deals with extra compensation, if they intend to reward employees with cash, dinners, prizes, etc.

Some Guidance

Municipal Bread and Circuses - Update on Article VIII, Section 7 continues to provide the definitive guidance for any Washington public entity in regard to establishing a formal employee recognition program. This article, written by the former Senior Assistant Attorney General of the State of Washington, addresses the following questions:

• May cities spend public monies on employee awards, prizes, and other tangible symbols of special recognition?
• May cities officially sponsor festivals, parades, and similar events, and directly support them with city funds?
• May cities purchase coffee and refreshments with public funds and serve them to city employees, volunteers, and nonemployees?

Cities and towns of all classes have authority to establish and administer employee incentive programs for their employees, so long as the program and appropriately defined performance standards are established before the period covered by the program (See AGO 1995 No. 13). We are frequently asked if some tangible form of recognition can be given after an employee or group of employees has shown some extra effort or outstanding performance and MRSC consultants consistently reply that any recognition program should be in place beforehand.

In addition to the guidance offered in the memorandum from the former Senior Assistant Attorney General, there are some provisions applicable to state employees that are regularly used by local governments in drafting programs for use at the local level.

• Ch. 41.60 RCW (State Employees' Suggestion Awards and Incentive Pay) — Although this statute only applies to state agencies and state employees, many local governments use it as a model when crafting their own employee recognition policies.
• Title 383 WAC (Productivity Board) — Provides the "guidelines for the employee suggestion program" and the "teamwork incentive program."

Resources for Local Policies

The MRSC webpage Employee Recognition and Suggestion Award Programs includes a number of examples of codes and policies from a variety of jurisdictions.

From these example policies you can see that the agencies have established formal programs for recognizing the efforts of their employees with events and/or awards of nominal value such as plaques, mugs, shirts, etc. The principal requirement is that the governing body formally adopt reasonable policies regarding such activities and that the value of anything received be nominal.

Based on the examples on our website, public entities have established such programs by official action and the awards are usually given for milestones in years of service or for doing something above and beyond the normal expectations of the job. You may wish to contact a counterpart in one or more of the agencies that have adopted a policy you like to see how effective these policies have been, both in practice and in terms of legal defensibility.

A Warning Regarding “Cash” Incentives

Care should be exercised with regard to certain cash incentives that may be considered. We have opined that any type of award or incentive that is in the form of cash or a cash-equivalent, such as a gift card, is considered income. Furthermore, there is no Internal Revenue Service exemption from the definition of “income” that would apply to such cash incentives.

As explained in IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits (2017), there are exclusions from taxation for certain types of achievement awards (see p. 7) and for de minimis benefits (see p. 8). However, note the following statement from on p. 8 of the aforementioned publication, under the de minimis benefits section:

A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare. 

If you use some of the examples from our webpage to draft a policy, we recommend that you also consult with your attorney to make sure it covers the essential requirements for policies regarding such activities.

Questions? Comments?

If you have questions about this topic or other local government issues, please use our Ask MRSC form or call us at (206) 625-1300 or (800) 933-6772. If you have comments about this blog post or other topics you would like us to write about, please email me at lnordby@mrsc.org.