Employee-recognition programs are intended to boost morale, strengthen retention, and reinforce culture. But many organizations may be unknowingly reducing the impact of those efforts through the way rewards are delivered.

At From Day One’s Boston benefits conference, Tray Ross, VP of growth at Corporate Traditions, said common incentives such as gift cards, bonuses, and other cash equivalents often create avoidable tax consequences, payroll complexity, and employee frustration. His message to HR leaders: appreciation programs should feel rewarding to employees while remaining efficient and compliant for the business.

Ross says he frequently hears from HR leaders who begin the year energized to launch or refresh employee-recognition initiatives. “They get super pumped that this is going to be the year they roll out an employee recognition program or revamp it,” he said. 

But once rewards begin reaching employees, confusion can follow when the value is reduced through taxation or the program becomes harder to understand than expected. “Employees don’t understand,” he said. That disconnect can turn a positive gesture into a frustrating experience while creating extra work for managers and payroll teams.

The Hidden Cost of Cash Rewards and an Overlooked Opportunity 

Many organizations underestimate the real cost of taxable rewards, says Ross. Employers may choose to gross up the value so employees receive the intended amount, or allow taxes to reduce what employees ultimately receive. He added that when taxes are passed through to employees, “they don't see the entire value or benefit.”

Ross pointed to de minimis fringe benefits as a lesser-known tax-code opportunity that may allow certain modest, infrequent tangible gifts to be excluded from payroll tax obligations. “These particular types of gifts can be excluded from payroll tax,” he said.

He referenced occasions such as holidays, birthdays, work anniversaries, and service awards as examples of moments where organizations may have more flexibility in how they recognize employees.

The Importance of Choice

Ross acknowledged that many organizations default to familiar branded merchandise because it is easy to approve and easy to repeat. “You guys have enough t-shirts that have your company logo on it, or sweaters, umbrellas, and mugs.”

But he says that appreciation becomes more meaningful when employees can choose items they actually want. “They don’t want another umbrella. They want to be able to get what they want off of their Amazon wish list.”

Programs built around catalogs or e-commerce-style selection tools, he says, can still remain compliant while improving the employee experience.

Recognition systems should also reflect the realities of today’s workforce, whether employees are remote, hybrid, or in-office. Ross said ease of use matters for both employees and administrators. “You want to keep it easy and simple.” The right program, he says, should scale from a single team to an enterprise-wide initiative without creating unnecessary training or operational burden.

Ross summarized what effective recognition partners should deliver: practical compliance support without losing the emotional value of appreciation.“The best recognition partners keep the compliance under control, but the gratitude visible, by allowing employees to get what they want.” For employers balancing budget pressure, employee expectations, and tax complexity, that combination may be the real key to successful recognition.

Appreciation should not create hidden costs or unnecessary headaches, says Ross. “We want you to win, and tax free gifting is the best way to make it happen.”

Editor’s note: From Day One thanks our partner, Corporate Traditions, for sponsoring this thought leadership spotlight. 

Chris O’Keeffe is a freelance writer with experience across industries. As the founder and creative director of OK Creative: The Language Agency, he has led strategy and storytelling for organizations like MIT, Amazon, and Cirque du Soleil, bringing their stories to life through established and emerging media.

(Photo by Josh Larson for From Day One)