There is increasing noise about legal and compliance issues around reloadable debit cards being used to pay for SPIFFs. Do you have some information that you can share as part of that? And how does a points-based rewards program address the potential liability?
We typically don’t advise on legal or IRS issues, however, we do share information that we find useful to help guide clients to make their own determinations. Ultimately, it is our client’s legal teams who evaluate and approve a program’s terms and conditions.
What is occurring is that enterprise clients’ legal compliance teams are very concerned that the U.S. government, in search of new sources of tax revenue, is doubling down its efforts to identify large companies who are potentially misclassifying workers - think funded heads! Moreover, the U.S. Department of Labor and the IRS refer to situations where two companies maintain control over an employee's work as co-employment.
You may ask yourself, "What does that have to do with re-loadable debit cards?" Well, if you're paying straight cash to a partner sales rep on an ongoing basis via a branded, re-loadable debit card for work such as making sales, training, marketing, and you're doing this on behalf of your company; and you're then reporting those earnings to the IRS by issuing 1099s to those partner sales reps, you're going to certainly be raising a red flag with some government agencies.
When these agencies determine that a supplier is a co-employer, the IRS for example, uses what is known as a “common-law employee” test. This test states that under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. Cash for transaction is seen as such.
That is why using a third party incentives agency, using a points-based rewards program with a catalog of reward options, including fixed amount debit cards, as opposed to a straight cash for transaction SPIFF, eliminates this liability.
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