Free care for veterinary practice employees: Good or bad?
Sounds nice, but Uncle Sam might have other ideas ...
Q. We want to give team members a 3 percent bonus to use for products or services at our practice. Employees without pets can use it for others' animals. And employees who leave can take 50 percent of the balance (cash) with them or keep at the hospital to use in the future. Any problems?
While giving back to employees is a great idea, doing it this way could run afoul of tax laws in the eyes of the IRS, says Mark McGaunn, CPA, CFP, who works with veterinarians and veterinary practices at McGaunn & Schwadron, CPAs in Boston.
“In this instance, bonus is interchangeable with compensation," McGaunn says. "If employees are able to cash out at the end of their employment, this money should be running through the payroll system. If you're taxing the money when you give it initially, that's fine. But if it's free care and the employee won't pay anything out of pocket for a $200 procedure, the IRS won't like that and could perform an audit."
An option might be to give an employee discount or reduced pricing on food or retail products.
“In the eyes of the IRS, a 20 percent discount is fine. More than that is a problem," he says, “Or if the employees want to purchase food or retail products at the hospital, you could reduce the price to cost. So the employee would save the money on markup for profit on the item.”