◆The long service award system: classic but highly effective

As many companies face the problem of urgently responding to HR shortages, the welfare system is gaining importance in terms of both securing human resources and improving morale. Meanwhile, the long service award system is gaining attention as a system that proves particularly effective. Many might respond feeling that “we are no longer in the age of the lifetime employment system. How out of date!” In actual fact, however, there is an increasing trend for companies to set up this kind of system, particularly in small- and medium-sized enterprises. The main reasons for this are the sense of fairness that it provides, together with way that it increases the sense of belonging to and feelings of unity with the company.

◆Enhancing the effectiveness of the system

If companies are going to all the trouble to set up such a system, they will also want to apply strategic mechanisms to increase its effectiveness. In the past, it was common to engrave commemorative objects such as plaques, watches, and fountain pens with the person’s name and award these as prizes, although this was not particularly well received. These days, therefore, it has become main stream to award items offering wide freedom of choice, such as catalog gift items, gift certificates, and travel coupons, in order to motivate employees. For example, more and more companies are aiming at offering travel coupons plus leave, which is a useful combination for employees to refresh themselves.

◆Points to note about tax

With regards to the provision of commemorative items etc. under the long service award system:
(1) the amount of gain relative to the length of continuous service corresponds to current social standards,
(2) on the whole, only employees who have completed at least 10 years of service are eligible
(3) for employees who receive awards on two occasions or more, the award is not taxed as salary if more than five years have elapsed since the previous award.
If not one of these stipulations can be met, the award is taxed as salary to the value of its market price. In addition, when awards are given in cash or as product coupons, they are taxed as salary at their total amount (calculated at face value for product coupons).