Your company party can be hazardous to your business health. Perennial problems include booze-fueled accidents and sexually harassment under the mistletoe. A less obvious risk is breaking employment law because you didn't pay your employees for their time at the event. To complicate things, it's not an automatic rule -- you don't always have to pay them.
If your party or potluck or other fun event takes place during work hours, there's no question about paying employees, even if they're technically not focused on their jobs. If it's a Saturday picnic or an evening party, it depends on whether attendance is mandatory. If you tell the staff they have to show, it's work, and you pay them accordingly. For some employees who've already put in a 40-hour week, that may require paying them overtime.
Even if the party motto isn't "show up or else," you can do things that pressure on employees to attend. If you're handing out bonus checks at the Christmas party or making a big speech about company goals for next year, that's close enough to mandatory that you should treat the time as work hours. If you expect everyone to show make this clear to your staff-- they shouldn't have to read your mind to know there are consequences for not putting in an appearance.
If party time is actually work time, you report the wages paid for the party on pay stubs and W-2s, like other earnings. Even though you're giving employees something -- food, maybe entertainment -- the IRS says you don't have to count that as wages. If you give away something substantial, such as a holiday cruise for a door prize, you should report the gift's value as taxable income. If it's a cheap gift, you don't have to bother.
Don't assume you won't suffer consequences if you don't pay your staff for a mandatory "fun" event. Not paying employees what they're entitled to is wage theft and it's illegal. Your unpaid employees can report you to the state or federal Department of Labor, both of which can force you to make up the lost pay if you lose the case. In some states, the government can also hit you with criminal penalties.
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