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Bill on Issuance vs. Bill on Redemption

Which One is Right for You?

Insights from
,

Laughing colleagues in discussion during a meeting

Updated on 

April 4, 2024

4

 

April

 

2024

Employee recognition is an important investment—in your people and your business. That’s why you want to make sure your money makes the highest possible impact on each award recipient. To do that, you need to know how to compare billing and pricing models within the recognition industry.

As you evaluate plans and assess the merits of different recognition providers, look for the provider who gives you options and control. You want to work with a company that is stable and trustworthy—and who will work with you to make sure your investment reaches your employees. Billing models affect that equation.

With a nearly a century of experience in the recognition business, O.C. Tanner has the expertise to offer both bill on issuance (BOI) and bill on redemption (BOR) plans. We work with each client to help them understand pros and cons and create the billing plan that best suits their needs.

In this quick guide, we’ll cover the terms and models you need to understand to make the best decisions for your company and the employees being recognized.

Billing Glossary

Bill on issuance (BOI): You are billed upfront—either for a bulk total of points that will later be rewarded to employees  or upon each instance that points are issued.

Bill on redemption (BOR): You are billed for the value of the award once it has been redeemed (usually with points).

Breakage: Points or value left unredeemed. Example: You’re given a gift card for $50.00 but you only spend $45.00 and never spend the rest. The unspent $5.00 represents breakage. Note that BOI recognition programs, where points are pre-paid, often incur breakage.

Expiration: Some recognition providers set expiration dates for points. Be careful to watch for companies that assign expiration dates without clearly communicating deadlines to clients or their employees.

Gross up: Raising the total amount of a bonus or reward so the net value after tax withholding is equal to the amount the employee intended to receive.

Points: Employees can accrue points as part of a company’s employee recognition program. Those points can then be redeemed for rewards.

Subscription fees: A set amount that you pay at regular intervals throughout the year to maintain access to a program or service. Compared to transaction fees that accumulate across a recognition experience, subscription fees often result in more value delivered to employees.

Transaction fees: Fees charged on every redemption moment across a recognition experience. Beware hidden mark-ups within transaction fees that can translate into less value delivered to employees.

What are bill on insurance (BOI) and bill on redemption (BOR)?

BOI

In a BOI model, you make a larger initial investment and pay for points upfront. Some recognition providers heavily favor this model because it gives them the cash they need upfront to fund their operations before they need to fulfill awards. For clients, BOI has one main advantage—it often offers simpler accounting because pre-purchasing points may make it easier to budget and make financial plans for the year.

As mentioned in the chart above, one red flag to watch out for with BOI relates to expiration dates set on points by your recognition provider. Be wary of providers who accept payments for bulk points but then set expiration dates on those points without clearly communicating that policy to clients. When points expire unexpectedly, the recognition impact is lost, and the recognition vendor receives a windfall profit.

BOR

With BOR you only pay for awards that are actually received by employees. You are invoiced after an employee redeems their points for merchandise (brand name award, custom award, or gift from your award store) or gift cards.

Some clients prefer BOR over BOI because it lowers the overall cost of the program and provides increased transparency. Another benefit of BOR is that it removes financial risk from your shoulders. You keep your money in your own pockets versus in the recognition platform.

BOI vs. BOI: The pros and cons of each billing model

Let’s dive deeper into the pros and cons of BOI and BOR billing models. Here’s how the two compare across six elements of your billing experience. You will note there are advantages and disadvantages to both models. Choosing between them is simply a matter of deciding what works best for you and your company.

Breakage

Bill on issuance: Higher risk of breakage which can translate into reduced value to employees and ROI.

Bill on redemption: Eliminates breakage since you are only billed for points that have been redeemed.

Cost transparency

Bill on issuance: Less transparency, which can result in overpriced awards.

Bill on redemption: Since redemption and billing happen at the same time, there is increased alignment between redeemed award prices and retail market prices.

Supplier risk

Bill on issuance: Because payments made on issuance are essentially an unsecured “line of credit,” you carry some risk until awards are fulfilled.

Bill on redemption: Since there is no pre-payment, you carry less financial risk.

Accounting

Bill on issuance: Reduced accounting administration since you don’t have to maintain accruals to cover future liabilities.

Bill on redemption: Your bookkeeping will need to account for carrying a liability over from year to year for employees with an ongoing points balance.

Cash flow

Bill on issuance: Paying for points upfront can limit your cash flow and pull it away from other business purposes.

Bill on redemption: Cash stays in your own bank accounts so you can earn interest or fund other business needs.

Shipping

Bill on issuance: Shipping costs are usually estimated by your vendor and then bundled into your upfront issuance fee. Since some points will never be redeemed, the shipping prepayment built into those points is also forfeited.

Bill on redemption: Shipping is billed only when an award is shipped. Cost reflects standard carrier rates to deliver a specific item to its destination.

Accounting and Tax Compliance Considerations

Accounting considerations

Some people favor BOI over BOR simply because of accounting issues. However, it’s important to remember that most companies are already accruing liabilities for employee compensation such as those related to retirement plans and health insurance.

While it is true that in a bill on redemption model a company may carry the liability until the award is actually redeemed, O.C. Tanner provides reporting to support this liability. Regardless of which billing model you choose, we provide reporting on things such as issued activity, redeemed activity, and a points summary report. These reports help with managing liability, tracking redemptions, and providing data on the total points outstanding. They provide the details that allow each client’s accounting department to adjust liability attached to their employee recognition program between periods, organizations, and teams.

Tax compliance

You will also need to determine the point of taxation on awards processed through your recognition program. Some tax jurisdictions require that employees be taxed on award income when they earn an award versus when they redeem it because of the “constructive receipt” doctrine in U.S. income tax regulations. In this case, the value of the award is considered received compensation. Other tax jurisdictions require that employees be taxed when the award is received. Reporting needs to provide the detailed information necessary to allow for appropriate taxation.

Determining the value of awards in terms of compensation is relatively simple under both systems. Whether the point value is 1 cent per point or 10 cents per point or 1 dollar per point, that is the compensation to the employee. The nature of when the client is billed does not change when the points become taxable to the employee or the value of the points taxable to the employee.

The Real Goals of Recognition Programs

Regardless of which billing model you choose, remember to encourage your employees to redeem their points. If points end up sitting stagnate, you miss out on the positive impact of employee engagement—things like connections across teams, improved morale, and higher work/life satisfaction. Redemption is key to maximining your investment and ensuring your recognition program improves your culture and bottom line.

We offer both BOI and BOR, so you can pick the system that makes the most sense for your company and your employees. Keep in mind that not many recognition parters offer BOR. Our decades of experience in the employee recognition business means we can help you manage a BOR system if that is the approach that’s best for you.

Employee recognition is an important investment—in your people and your business. That’s why you want to make sure your money makes the highest possible impact on each award recipient. To do that, you need to know how to compare billing and pricing models within the recognition industry.

As you evaluate plans and assess the merits of different recognition providers, look for the provider who gives you options and control. You want to work with a company that is stable and trustworthy—and who will work with you to make sure your investment reaches your employees. Billing models affect that equation.

With a nearly a century of experience in the recognition business, O.C. Tanner has the expertise to offer both bill on issuance (BOI) and bill on redemption (BOR) plans. We work with each client to help them understand pros and cons and create the billing plan that best suits their needs.

In this quick guide, we’ll cover the terms and models you need to understand to make the best decisions for your company and the employees being recognized.

Billing Glossary

Bill on issuance (BOI): You are billed upfront—either for a bulk total of points that will later be rewarded to employees  or upon each instance that points are issued.

Bill on redemption (BOR): You are billed for the value of the award once it has been redeemed (usually with points).

Breakage: Points or value left unredeemed. Example: You’re given a gift card for $50.00 but you only spend $45.00 and never spend the rest. The unspent $5.00 represents breakage. Note that BOI recognition programs, where points are pre-paid, often incur breakage.

Expiration: Some recognition providers set expiration dates for points. Be careful to watch for companies that assign expiration dates without clearly communicating deadlines to clients or their employees.

Gross up: Raising the total amount of a bonus or reward so the net value after tax withholding is equal to the amount the employee intended to receive.

Points: Employees can accrue points as part of a company’s employee recognition program. Those points can then be redeemed for rewards.

Subscription fees: A set amount that you pay at regular intervals throughout the year to maintain access to a program or service. Compared to transaction fees that accumulate across a recognition experience, subscription fees often result in more value delivered to employees.

Transaction fees: Fees charged on every redemption moment across a recognition experience. Beware hidden mark-ups within transaction fees that can translate into less value delivered to employees.

What are bill on insurance (BOI) and bill on redemption (BOR)?

BOI

In a BOI model, you make a larger initial investment and pay for points upfront. Some recognition providers heavily favor this model because it gives them the cash they need upfront to fund their operations before they need to fulfill awards. For clients, BOI has one main advantage—it often offers simpler accounting because pre-purchasing points may make it easier to budget and make financial plans for the year.

As mentioned in the chart above, one red flag to watch out for with BOI relates to expiration dates set on points by your recognition provider. Be wary of providers who accept payments for bulk points but then set expiration dates on those points without clearly communicating that policy to clients. When points expire unexpectedly, the recognition impact is lost, and the recognition vendor receives a windfall profit.

BOR

With BOR you only pay for awards that are actually received by employees. You are invoiced after an employee redeems their points for merchandise (brand name award, custom award, or gift from your award store) or gift cards.

Some clients prefer BOR over BOI because it lowers the overall cost of the program and provides increased transparency. Another benefit of BOR is that it removes financial risk from your shoulders. You keep your money in your own pockets versus in the recognition platform.

BOI vs. BOI: The pros and cons of each billing model

Let’s dive deeper into the pros and cons of BOI and BOR billing models. Here’s how the two compare across six elements of your billing experience. You will note there are advantages and disadvantages to both models. Choosing between them is simply a matter of deciding what works best for you and your company.

Breakage

Bill on issuance: Higher risk of breakage which can translate into reduced value to employees and ROI.

Bill on redemption: Eliminates breakage since you are only billed for points that have been redeemed.

Cost transparency

Bill on issuance: Less transparency, which can result in overpriced awards.

Bill on redemption: Since redemption and billing happen at the same time, there is increased alignment between redeemed award prices and retail market prices.

Supplier risk

Bill on issuance: Because payments made on issuance are essentially an unsecured “line of credit,” you carry some risk until awards are fulfilled.

Bill on redemption: Since there is no pre-payment, you carry less financial risk.

Accounting

Bill on issuance: Reduced accounting administration since you don’t have to maintain accruals to cover future liabilities.

Bill on redemption: Your bookkeeping will need to account for carrying a liability over from year to year for employees with an ongoing points balance.

Cash flow

Bill on issuance: Paying for points upfront can limit your cash flow and pull it away from other business purposes.

Bill on redemption: Cash stays in your own bank accounts so you can earn interest or fund other business needs.

Shipping

Bill on issuance: Shipping costs are usually estimated by your vendor and then bundled into your upfront issuance fee. Since some points will never be redeemed, the shipping prepayment built into those points is also forfeited.

Bill on redemption: Shipping is billed only when an award is shipped. Cost reflects standard carrier rates to deliver a specific item to its destination.

Accounting and Tax Compliance Considerations

Accounting considerations

Some people favor BOI over BOR simply because of accounting issues. However, it’s important to remember that most companies are already accruing liabilities for employee compensation such as those related to retirement plans and health insurance.

While it is true that in a bill on redemption model a company may carry the liability until the award is actually redeemed, O.C. Tanner provides reporting to support this liability. Regardless of which billing model you choose, we provide reporting on things such as issued activity, redeemed activity, and a points summary report. These reports help with managing liability, tracking redemptions, and providing data on the total points outstanding. They provide the details that allow each client’s accounting department to adjust liability attached to their employee recognition program between periods, organizations, and teams.

Tax compliance

You will also need to determine the point of taxation on awards processed through your recognition program. Some tax jurisdictions require that employees be taxed on award income when they earn an award versus when they redeem it because of the “constructive receipt” doctrine in U.S. income tax regulations. In this case, the value of the award is considered received compensation. Other tax jurisdictions require that employees be taxed when the award is received. Reporting needs to provide the detailed information necessary to allow for appropriate taxation.

Determining the value of awards in terms of compensation is relatively simple under both systems. Whether the point value is 1 cent per point or 10 cents per point or 1 dollar per point, that is the compensation to the employee. The nature of when the client is billed does not change when the points become taxable to the employee or the value of the points taxable to the employee.

The Real Goals of Recognition Programs

Regardless of which billing model you choose, remember to encourage your employees to redeem their points. If points end up sitting stagnate, you miss out on the positive impact of employee engagement—things like connections across teams, improved morale, and higher work/life satisfaction. Redemption is key to maximining your investment and ensuring your recognition program improves your culture and bottom line.

We offer both BOI and BOR, so you can pick the system that makes the most sense for your company and your employees. Keep in mind that not many recognition parters offer BOR. Our decades of experience in the employee recognition business means we can help you manage a BOR system if that is the approach that’s best for you.

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