What do FED, FICA, INS, and SS all have in common?
These are all standard paystub deduction codes that you may have seen on your paychecks before. Yet, while these are a few common codes, dozens of codes are available for employers to use. One example is SPIFF.
But what is SPIFF on a pay stub? Keep reading to learn what you need to know.
Performance Pay Explained
Performance pay is an incentive employers pay to employees based on performance metrics or achievements. It comes in the form of a:
- Salary
- Wage
- Bonus
These incentives work to increase employee engagement and retention. This is ideal for companies because it creates long-term financial savings and gains. Hiring and training new employees is expensive, so businesses want to keep their turnover rate low.
But sometimes, employees need extra motivation to hit their sales targets and improve their performance or productivity. That’s where performance pay comes in. It incentivizes employees to sell high-profit items, which will increase sales.
There are two types of performance pay. They are SPIFFs and commissions.
SPIFF vs. Commission
Sales Performance Incentive Fund (SPIF or SPIFF) is a short-term sales incentive that encourages immediate results.
Most SPIFFs are financial, but they can also include rewards such as prizes, vacations, or recognition. In addition, they pay out faster than commissions because they aren’t paid out at the close of the month or quarter.
SPIFFs are excellent for increasing engagement and helping employees attract new customers.
Conversely, a commission is a lump sum of money an employer pays to an employer after completing a task. It’s a replacement or add-on to the standard pay cycle.
Often, employees receive a commission based on the number of goods or services they sell.
Employers will set commissions at the beginning of a month, quarter, or year and pay them out at the end of the period. The payment structure of commissions doesn’t change much since it affects the employer’s compensation package.
Commissions motivate employees to work hard and assist employers with managing payroll expenses.
SPIFF Tax
The IRS will tax SPIFFs because they count as income. Therefore, they are subject to the same income tax you pay. The employer may or may not withhold taxes from a SPIFF payment, so employees need to know which option the employer has chosen ahead of time.
If the employer doesn’t withhold taxes, the employee is responsible for reporting the payment on their income tax forms. If the employer does withhold taxes, they will report it on a 1099-MISC form.
Both employers and employees can speak with a certified public accountant (CPA) to get more guidance on the taxation of SPLIFF payments. Always seek out expert advice to ensure you follow IRS regulations.
“What Is SPIFF on a Pay Stub?” Answered
Whether you were wondering because you saw SPIFF on your pay stub or you’re an employer who wants to include SPIFF on your employees’ paychecks, you know the answer to the question, “What is SPIFF on a pay stub?”
For business owners looking to create pay stubs for their employees, get started right away! Pay stub customization is here for you.
