Background
Reward Gateway is not only a leading innovator in employee recognition, but also delivers the most popular employee discounts solution in the world. Because of this, we often get asked why users do not get a discount on the value of their recognition awards.
There are several points to this answer, and while they are all interlinked, it might help to look at each point separately.
#1: High discount rates on vouchers through SmartSpending™ are only possible because we are employer-funded
When someone buys a voucher through SmartSpending™, our employee discount product, they are buying a voucher with their own cash. The discount comes from the difference in the voucher face value and the voucher cost. We pass on 100% of the margin available to the end user, so that they are getting the best savings and making their salary stretch that little bit further. This is only possible because all of our running costs are paid for in the flat annual fee that we charge the employer for the SmartSpending™ service.
#2: There are additional operational costs of running SmartAwards™
With SmartAwards™, the employer is giving an award to the employee of a specific value, e.g. $20. The SmartAwards™ platform allows the employee to choose the retailer with which they want to spend the voucher. The employee isn't buying the voucher; they are choosing it. It's the employer who has paid for it and has made the purchase.
We have administration and operation costs on SmartAwards™ that we need to pay for. There is administration around the loading and management of award pots, helpdesk support around redemption, and cost of issuing vouchers (even an electronic voucher has an issuing cost).
When we designed the product back in 2011, we looked at options for how we would recover admin costs and we decided the best commercial option was to charge a low annual fee for the technology. We would, therefore, avoid charging the employer a "per-award" administration fee, by instead using the margin available from the retailer on the voucher redemption.
#3: Charging a per-award admin fee per award causes issues with 'leftover cash'
The alternative option - to charge the employer an administration fee on top of the value of the award in order to cover our operational costs - simply wasn't practical and technically viable. For example, one key complexity comes when we would need to deal with the money leftover when an employee doesn't use the whole voucher amount. Let's look at this point in a bit more detail.
Let's say a client wants to make a $20 award to an employee and we charge $22 to include a $2 processing fee (just an example). Our running costs would be covered, and the employee would receive a $20 credit in their recognition balance.
Let's assume the employee selects Amazon as their chosen retailer with which to spend their voucher. We purchase Amazon vouchers directly from the retailer at 7% discount, making the actual cost in this example $18.60. The difference between the purchase cost and the face value of the award has to go somewhere - and realistically the only place would be in the employee's recognition account, as a $1.40 leftover balance.
There is no practical way of getting that $1.40 out; awards are held as a separate balance to the employee's SmartSpending account, and the mechanism for withdrawal doesn't exist. We have to account for it separately ourselves, and we also need to provide separate reporting to the client on SmartAwards™ spend - so it wasn't feasible to build in a withdrawal functionality.
#4: The retail margin depends on where the employee chooses to spend their SmartAwards™ voucher
Another issue that we would face if we passed on the full retailer discount to the employer purchasing the award, is that the discount obtained from the retail margin is not known until the end user chooses which retailer they want to spend their voucher with. Sometimes this takes months, as not all users take their voucher immediately. Practically speaking, we would have to either a) use a generic % discount for all awards, which could be either less or more than the actual retail discount, or b) charge the employer the admin fee after the employee uses their voucher award (which could take up to a year). Neither of these options is workable for balancing the books and retaining reasonable control of our finances!
#5: There are tax considerations, too
As we've briefly touched on above, the discount margin available from retailers varies - let's assume it varies from 5% to 11%. The tax reporting point in SmartAwards™ is the point when the employer credits the employee's account. At that point, we don't know which voucher the employee will choose, and therefore don't know the actual cost of the award. As well as not being able to bill the client correctly, this also means the client wouldn't know what value to pay tax on.
Essentially, in SmartAwards™, the voucher the employer is buying is an "RG SmartAwards" credit voucher, which can then later be converted into a shopping voucher for a specific participating retailer. But for all accounting purposes, including tax, the award is made at the point of the SmartAwards™ account credit. This is critical because we do not force employees to choose in a specific timeframe (which is practically unenforceable at scale anyway), so sometimes the user has left the business by the time they convert their award. We provide continued access to allow that.
#6: When we're designing products, we think a lot about scale
We've got a lot of experience in running very large programs, and we're always mindful of trying to design out operational issues. Often the most innocent product decision that seems to make sense can cause issues later around the fringes. When running programs with thousands of users, those possible fringe issues (such as someone leaving before they have selected their voucher) become inevitable rather than possible.
One of our goals is to avoid being on the HR Manager's "trouble list" as much as possible, as we are very conscious of how busy our clients are and what a resource drain sorting out admin issues can be.