Weekly Wrap: Is Silicon Valley’s Free Lunch (or Dinner) About to End?

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Silicon Valley may be known for cutting-edge innovation and breakthrough technology from companies like Google, Facebook, Twitter, Apple, and others, but it’s also known for something else.

You know what I’m talking about — the over-the-top benefits lavished upon employees at tech firms and dot coms. Things like free meals, dry cleaning, day care, and workout facilities.

Others may get some of these same benefits in other places, but nowhere do employees get so many generous (some would say excessive) perks than they do in Silicon Valley.

That’s why these goodies have come under scrutiny by everyone’s favorite party pooper, the IRS.

Should Silicon Valley freebies be taxed?

According to The Wall Street Journal:

When outsiders visit Silicon Valley, the first thing they often notice is the food: Cafeterias brimming with free gourmet meals and snacks offered to employees of Google Inc., Facebook Inc. and other technology firms.

But not all is as it seems in the buffet line. There is growing controversy among tax experts about how to treat these coveted freebies. The Internal Revenue Service also has been focusing on the topic, according to attorneys who practice in the area, examining whether the free food is a fringe benefit on which employees should pay additional tax.

Tax rules around fringe benefits are complex, but in general they categorize meals regularly provided by an employer as a taxable perk, similar to personal use of a company car. That leads several tax experts to wonder if some companies providing free food may be skirting the rules.”

The Journal’s story quotes a number of tax “experts” who seem pretty sure of their point of view, and they are certain that all the free meals and other perks that so many Silicon Valley workers take as a given are actually excessive employer goodies that should clearly be viewed  as taxable benefits by the federal government.

An argument for leaving free meals alone

But the most persuasive argument for NOT taxing the free meals is this, as the WSJ reports:

(Some) lawyers point to an exception that allows meals to remain untaxed if they are served for a “noncompensatory” reason for the “convenience of the employer.” The exception generally has been applied to workers in remote locations or in professions where reasonable lunch breaks aren’t feasible. But these lawyers argue that some technology firms could qualify, in part because free food encourages longer work hours and is a crucial part of Silicon Valley’s collaborative culture.”

That sounded familiar to me because back at the turn of the Millennium, in 1999-2000, I was a vice president at a then well-known San Francisco dot com. At some point about a year into my time there, the company started contracting with a company called “Waiters on Wheels” to cater dinner on certain nights, and that quickly ballooned into dinner being brought in EVERY night, Monday through Friday.

The thinking of senior management at my dot com was that we had a severe shortage of engineers (some things never change, it seems) and dinner, it was thought, provided an incentive for the engineers to keep working and get more done. That’s because even the most diligent engineer had to eat sometime, and we had found that frequently, when they went to dinner, they simply didn’t come back to work after that.

Despite the best of intentions, even highly motivated people find it’s easy to throw in the towel and call it a day once they get out of the office, after working 11 hours, and sitting down to eat and decompress.

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So, if you serve them food in the office where they can’t really decompress, and take away what happens when they leave to go relax and eat, well, you actually get more work out of them.

Will a crackdown dampen innovation?

It’s not a particularly nice thing to do to people — the free dinner not withstanding — but it does follow the logic in The Wall Street Journal that “free food encourages longer work hours and is a crucial part of Silicon Valley’s collaborative culture.”

So, I’m thinking the IRS tax scheme is a terribly bad idea — and another reminder that government, at any and all levels, has virtually no understanding of what it takes to encourage a culture of innovation. If they did, they would’t be focused on the the measly few dollars they would get from taxing stuff like this.

And The Journal story makes this very point, saying:

An IRS crackdown could raise hackles in the influential technology industry, and generate concerns that the federal government is interfering — for relative pocket change — with a culture that has made Silicon Valley a world leader.

“There are real benefits for knowledge workers in having unplanned, face to face interaction,” and free food helps facilitate that, said Victor Fleischer, a tax-law professor at the University of Colorado, who argues that aggressive enforcement of tax laws might be poor public policy in this case.”

Yes, poor public policy indeed, but then again, this is the coming from the same administration that seems to be tone deaf and brain dead when it comes to pushing smart policies that would help encourage companies to start hiring more and perhaps REALLY make a difference in getting our mediocre economy going again.

Fired (again) for sleeping (again) on the job

Of course, there’s a lot more than the IRS possibly taxing Silicon Valley perks in the news this week. Here are some HR and workplace-related items you may have missed. This is TLNT’s weekly round-up of news, trends, and insights from the world of talent management. I do it so you don’t have to.

  • Out of touch and now out of a job. Although it was a bit surprising that JC Penney CEO Ron Johnson got canned this week after a series of missteps trying to turn the old-school retailer around, The New York Times reports that Johnson rubbed people wrong from his first day on the job. “No sooner had Johnson been named chief executive in 2011 than he began poking fun at Penney’s way of doing business. At a regular Monday sales meeting, “he was pretty sarcastic about our marketing and how ridiculous it was,” … (He also) brought in his own team, largely from Apple and Abercrombie & Fitch. Johnson commuted from California, and employees said he was a hard worker, decisive and responsive to even late-night emails. But few of the top executives he had hired relocated to Texas, instead working there a few days a week, staying “quarantined,” as a veteran put it. Penney hands used the acronym AAPLE to refer to the newcomers — Apple & Abercrombie Paid to Lose Earnings.
  • Fired (again) for sleeping on the job. How many times can you get fired for sleeping on the job? According to the Chicago Sun-Times, three may be the magic number for “a $78,444-a-year Illinois Tollway garage supervisor who was fired twice by the state agency — only to win his job back both times — (and) has been fired yet again after he was photographed seemingly sleeping at work.
  • Why “thank you” notes matter. Hand-written thank you notes, an HBR blog says, are not only growing rarer, but are increasing in impact when you send them. “While saying ‘thank you’ is important, the beauty of a well-crafted handwritten note is that it can show deeper investment and appreciation than a simple thank-you can. It can follow up on a conversation, remind someone they’re not forgotten, raise new issues, or even include a gift … that carries its own meaning. And in a world where so much communication is merely utilitarian, these simple acts of investment, remembrance, gratitude, and appreciation can show the people who matter to your life and business that they are important to you.”
  • Trust in the workplace survey. There’s still time to complete this survey of HR professionals about trust in the workplace that is being conducted by the good people over at ELI in Atlanta. The results will be published in a white paper and highlighted here at TLNT after April 19, so please click here and take a few minutes to give your feedback on this important and worthwhile topic.

John Hollon is Editor-at-Large at ERE Media and was the founding Editor of TLNT.com. A longtime newspaper, magazine, and business journal editor, John has deep roots in the talent management space. He's the former Editor of Workforce Management magazine and workforce.com, served as Editor of RecruitingDaily, and was Vice President for Content at HR technology firm Checkster. An award-winning journalist, John has written extensively about HR, talent management, leadership, and smart business practices, including for the popular Fistful of Talent blog. Contact him at johnhollon@ere.net, connect with him on LinkedIn, or follow him on Twitter @johnhollon.