In a study of 3.5 million members of one US airline's frequent-flyer program, travelers on pace for elite status paid on average 8% more than other passengers on the same flight. The researchers found that more than a third of that extra spending came on tickets the traveler was unlikely to be paying for personally.
Airline and hotel loyalty programs already reward your travelers for sticking with one brand, whatever the fare. A savings reward gives them a reason to book the cheaper of two comparable options instead. This guide covers how to set one up so it pays only for real savings, where hotel points fit, and what the IRS has said about travel rewards.
How a savings reward works
Every savings reward has four parts:
- A benchmark, the price the trip would normally cost.
- A threshold, how far below the benchmark a booking has to come before it counts.
- A share, the part of the saving the traveler gets back.
- A payout, whether that's cash, gift cards, points or miles.
Say the benchmark for a three-night stay is $600 and the traveler books a comparable hotel for $480. That's a $120 saving. At a 20% share, the company spends $24 of it on the traveler's reward and keeps $96.
Most of the design work is in the benchmark. If it's set too high, you pay rewards on bookings that would have come in cheap anyway.
Set the benchmark first
The benchmark decides what counts as a saving. There are three common choices.
Your policy cap. It's the easiest to explain. But a cap has to cover the most expensive week of the year, so in an ordinary week plenty of bookings come in under it without anyone trying.
The average rate for that city. Closer to what a stay costs, if the average is current and from a source you trust.
The typical fare for the trip. For flights, the median fare on the route for those dates moves with the market, which makes it a fair yardstick.
For hotels, using the lower of your cap and the city average stops you paying for savings that were never savings. If your cap follows federal per diem, our per diem rates by state show where it lands in each city.
Only reward comparable options
A hotel an hour from the client's office can save money on paper and cost your traveler two hours a day. The reward should never push anyone into a worse trip.
Three rules keep the comparison fair:
- Same area. Only reward hotels close to where the traveler searched.
- Same standard. Keep your minimum star rating in force, so nobody earns a reward for dropping below your policy.
- Same trip. For flights, leave out early departures, long layovers and airlines whose bag fees cancel the saving.
Set a minimum saving too, in dollars and as a percentage. Without one, travelers get offers over a few dollars, which feels petty and teaches them to ignore the offers.
How much of the saving to give back
Too small a share and nobody changes how they book. Too large and the company keeps little of what it saved.
We start companies at 20%. That's enough for a traveler to notice, and the company keeps four-fifths of the saving. Past 50%, the traveler gets more of the saving than the company does, and the program is hard to justify to finance.
Because the reward is a share of a real saving, it never costs more than the saving you measured, which is why the benchmark matters. A traveler who ignores it costs you nothing extra.
Hotel points and airline status still pull the other way
A savings reward competes with the loyalty programs your travelers already belong to, and for some of them the loyalty program will win. Someone a few nights short of hotel status will book the chain that gets them there. Let them. The reward still works on everyone else.
Tell travelers what they give up when they book a cheaper option through a third party. Marriott's program terms give no points or elite benefits on rooms booked through a third-party channel or at a wholesale rate. Other large chains have similar exclusions in writing, though front desks usually credit points when a guest gives their member number at check-in.
Don't promise travelers they'll get points. Our guide to how private hotel rates work covers the detail.
If your policy lets people keep their points, say plainly that the reward comes on top of them. For the wider question of who keeps loyalty points, see our guide to travel policies employees follow.
What the IRS has said about travel rewards
Since 2002, the IRS has said it won't challenge employees over the frequent-flyer miles and hotel points they earn on business travel and use personally. Announcement 2002-18 also names what that relief doesn't cover: benefits "converted to cash," "compensation that is paid in the form of travel or other promotional benefits," and benefits used to avoid tax.
The announcement covers miles and points an airline or hotel gives the traveler. We found no IRS guidance on rewards a company funds for booking cheaper travel.
How Dyme for Business does it
We built Smart Offers into Dyme for Business on these rules. It stays off until an admin turns it on, separately for hotels and for flights.
- Benchmark. For hotels, the lower of your policy's nightly cap and the city's average rate. For flights, the median fare on the route, leaving out departures before 6am and itineraries half again as long as the quickest direct or one-stop flight.
- Threshold. By default a hotel stay has to come in at least $50 and 5% under the benchmark, and a flight at least $50 and 2% under. Admins can change both.
- Share. 20% of the saving by default. Admins can set it anywhere up to 50%.
- Comparable. Search results show up to three bonus picks from the hotels closest to where the traveler searched: the best deal, the best deal at one of your preferred chains, and the best rated. Any hotel that clears the threshold earns the bonus, featured or not. Budget airlines with bag fees are left out by default.
- Payout. Bonus Dyme Miles go to the employee's personal account, on top of the Miles every booking earns. Employees redeem them on personal travel.
Checklist before you launch
- Choose the benchmark. For hotels, use the lower of your cap and the city average.
- Set a minimum saving in dollars and as a percentage.
- Define comparable: distance, star rating, flight times and bag fees.
- Choose the share and the payout.
- Decide how the reward is treated for tax and payroll, and write it into the policy.
- Tell travelers what happens to their hotel points and airline status.
- After a quarter, check three numbers: the share of bookings that earned a reward, the average saving on those bookings, and total rewards as a share of total savings.
FAQ: rewarding employees for saving on travel
Do employees pay tax on rewards for booking cheaper travel?＋
The IRS's 2002 announcement covers the frequent-flyer miles and hotel points employees earn on business travel. It excludes benefits converted to cash and compensation paid in the form of travel, and we found no IRS guidance on company-funded savings rewards.
What share of the saving should employees get?＋
We start companies at 20%, which is enough for travelers to notice while the company keeps most of the saving. Above 50%, the traveler gets more of the saving than the company does.
Won't travelers book worse hotels to earn the reward?＋
Not if you only reward comparable options. Limit the reward to hotels near where the traveler searched, keep your minimum star rating in force, and set a minimum saving so small differences don't count.
Can employees still earn hotel points on a cheaper booking?＋
Often, but not always. Marriott gives no points or elite benefits on third-party or wholesale bookings. Other large chains usually credit points when the guest gives their member number at check-in, but it isn't guaranteed.
