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updated: 3/22/2013 8:31 AM

What employers need to know about office pools

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National Federation of Independent Business

It's March, and people across the country are watching their brackets, partly for love of the game but also in hopes of winning the office pool, but there's something employers need to keep in mind: Office pools may be illegal.

"That's the No. 1 thing employers should remember," said Beth Milito, senior executive counsel with the National Federation of Independent Business' Small Business Legal Center in Washington, D.C. In some jurisdictions, she said, betting on college sports is illegal, and employers shouldn't allow them or look the other way.

While she said the odds of being prosecuted are practically nil even in places where office pools are indeed illegal, employers can avoid trouble by following a few simple guidelines.

1. Managers and supervisors shouldn't coordinate the pools; Employees may feel coerced into participating, and that could be grounds for legal action down the road.

2.Participation in employee-organized pools should be voluntary.

3.Employees organizing the pool shouldn't take a cut of the money. "This is where you risk crossing the line," Milito said. "Most states have laws against people earning a profit from this kind of activity."

4.The stakes should be low -- say, $5 a bracket with a maximum of two brackets per employee.

5.Employers who want to have a contest build around a basketball tournament should consider prizes such as an extra vacation day; employer-run contests shouldn't have an entry fee or involve money.

6.Winners technically must declare their earnings on their income taxes. While most office pool winnings aren't reported, if there's a comma in the number, winners should report it. "You don't want the IRS to discover you have undeclared income," Milito said.

In addition, Milito offered these suggestions for keeping a business up and running when employees are distracted by the tournament:

7.Establish a Game Central. Set up a television in the break room or conference room to discourage employees from streaming video of games on their computers. Allow employees to drop in throughout the day to watch games. Your IT department will thank you since streaming videos tie up company bandwidth and could bring real business to a halt.

8.Embrace the Spirit. Consider holding an office party and ordering pizza for staff. Relax the dress code that day and encourage employees to wear their team's colors or jerseys. Use the event to bring together employees and increase morale. And remember that March Madness happens just once year -- the time your employees spend following the brackets and watching the games will likely not mean the downfall of your business. Like nearly everything in life, moderation is the key.

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