Salespeople: Legal and Tax Issues

As employees of your organization, salespeople’s compensation and benefits are governed by state and federal statutes related to discrimination and unfair labor practices, and in unionized organizations, they are subject to negotiated agreements. That generally means that your sales incentive program has to apply fairly to your entire audience, and cannot discriminate against specific groups. It should also fulfill all of the promises made in the promotional material.

In the case of unionized employees, incentive programs, even those involving non-cash awards, may fall under the terms of negotiated contracts.

Of course, as with any critical compensation issue, planning for an incentive program should include the input of the appropriate legal counsel.

Generally speaking, employers must declare non-cash awards provided to employees if the fair market value is $600 or more, and they must provide employees with a corresponding 1099 to file with their taxes. Some companies will make an additional cash payment to cover taxes on non-cash awards.

For additional information on legal and tax issues related to sales incentives, see the White Paper “Tax Considerations for Incentive Programs.”