Thursday, April 11, 2013

Now there's a problem pharma doesn't have: "Do we have to pay taxes on the food we give away?"

What's the problem with giving your employees free food? Well, if you give enough of it to them, it starts to look like non-monetary compensation:
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 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... 
...Technically, any unpaid back taxes would be owed by individual employees. In practice, tax lawyers say, the IRS tries to dun the employer for failing to withhold taxes on the meals' collective value. 
Yahoo Inc. instituted free meals last year, after new Chief Executive Marissa Mayer took charge. On an investor conference call soon after, the former Google executive twice mentioned the perk in the context of recruiting, at one point saying free food was among the cultural changes intended to make "Yahoo the absolute best place to work. And if you're that, I think attracting talent comes reasonably easily." A Yahoo spokeswoman said in a statement, "We cover all related expenses." She declined to elaborate on how the company handles the tax treatment of its free meals.
I haven't heard about any pharma companies offering free food in the cafeterias (my brief experience being that you had relatively reasonable (subsidized, I assume) prices, but you still had to pay for your own food.)

This is the sort of thing that marks an expanding industry, one that is competing for workers -- as opposed to one that is shrinking in fits and starts.


  1. It wasn't too long ago that the shoe was on the other foot. Remembering back to 2000-2003, people who (formerly) worked in Silicon Valley were incredulous when I told them about the booming (and seemingly invincible) pharma sector I was lucky enough to have the training to work in.

    Imbalances have a way of correcting themselves over time. Chasing what's hot now has it's own risks, both as an employer and an employee. As the famous quote says, better to "skate to where the puck will be". Scientists probably shouldn't have to deal with the business cycle, but that's the reality.

    1. I'm of the opinion that this sort of thing definitely marks the computer sector (however defined) as being in the '7 fat years'.

      You raise some interesting questions, i.e. was this expansion in the computer/software sector seen in 2000? What were projections after the dot-com crash?

  2. "I haven't heard about any pharma companies offering free food in the cafeterias"

    Actually, Sirtris had lunch catered in for a few years. A carryover from the pre-GSK days, I believe, but it continued even after GSK.

  3. There's plenty of free food in every pharma company, just check the dumpster behind building. Meet some former coworkers along the way.

  4. Rules in the UK are funny too. Some of my friends work in software and have free cafeterias. If the benefit is provided equally to all employees, then it doesn't count as a taxable benefit. If, for example, only people above a certain level got free food, then it would be a taxable benefit.

  5. You can easily track the decline of the pharma industry by the price of food in the cafeterias. Food was ridiculously cheap primo food with daily/weekly free handouts when I started my career, but the subsidies and food quality have been reduced each year, especially when budget cuts have been needed to stave off robber investors or patent cliffs. Cafeteria employees went from being long term company employees to contract workers.

    Start-ups seem to often begin with catered food (presumably to chain people to the lab bench), but as money gets tight...

  6. When I worked in Pharma it was a big deal to give us free coffee for our 24/7 manufacturing operation. Everyone I knew there quit at some point so I don't know if they still do that. *shrug*

  7. According to friends who work for Google in the UK, there's the "Google Stone" which you tend to put on when you start to work there...