With the holidays upon us, some cities want to thank their employees for another year of hard work with employee-focused festivities and special recognition programs. It’s a good time to remind cities that while some forms of recognition are allowed, they should know the rules when organizing special recognition programs for city employees.
Our friends at MRSC have some great resources regarding these programs for cities that want to stay on the “nice” list, and provide a good starting point for cities that want to learn about these types of programs. Here, we summarize a few key points and make sure you have some of the resources needed to celebrate your employees the right way this holiday season.
Employee recognition programs
As noted in this MRSC article, the guiding principle when it comes to local governments managing employee recognition programs comes from the state constitutional prohibitions against gifts of public funds and against granting “extra compensation” to public employees after services have been rendered.
That said, cities can establish employee incentive programs (including ones expending public money) if the program has appropriately defined performance standards and the program was established before the period of time the employee earned the recognition. We discussed a similar issue regarding COVID-19 pandemic era “premium pay” programs that were being contemplated for essential workers at that time.
MRSC does note that for cash or “cash-equivalent” incentives, such awards may still constitute income under federal law and would need to be treated accordingly to avoid coal in your city’s stocking from the IRS. Under 2024 IRS guidance, “Cash and cash equivalent fringe benefits (for example, gift certificates, gift cards, and the use of a charge card or credit card), no matter how little, are never excludable [from employee wages] as a de minimis benefit.”
You can find some examples of local government employee recognition and suggestion award programs here.
Other holiday considerations
Another MRSC article outlines some of the guidance related to other ways that cities celebrate the holidays. Here’s a quick rundown of their advice:
- Holiday cards – Though the cost can be nominal, cities may want to avoid sending holiday cards to avoid running afoul the state constitution’s prohibition of spending public funds to promote religion. Even secular cards may not pass constitutional muster as a “proper municipal purpose” for the use of public funds.
- Holiday gifts – As noted in the above section, the state constitution prohibits gifting public funds. However, in certain circumstances a local government can accept a gift. Public employees (in their public capacity) can generally only accept gifts of “de minimis” value.
- Decorations – Secular holiday displays to beautify streets, parks, and generally celebrate the holidays are typically ok. Decorations can attract tourism and promote economic development – recognized public purposes. Decorated trees in public spaces are also usually ok, though it's advisable for it to be called a “holiday” tree.
- Nativity scenes – Lone nativity scenes in front of public buildings have historically been considered an improper endorsement of religion. In the past, MRSC recommended that if a city feels the need to include a nativity, it should be mixed in with other secular holiday displays. That said, federal law is changing as a result of the U.S. Supreme Court’s 2022 decision in Kennedy v. Bremerton School District, so it's not clear how a court might view a nativity scene or other religious holiday display now.
- Holiday parties – MRSC gives a very festive “maybe” when faced with the question of holding a holiday party, especially one open to the public. For staff holiday parties, it is generally ok if the city has previously adopted a policy of providing one, especially if considered part of an existing employee recognition program.
For more staff holiday party considerations, make sure to review our 2022 “Annual holiday party pitfalls” conversation with Summit Law’s Kristin Anger on the AWC CityVoice Podcast!