Honorarium

 A payment made in acknowledgment of activities or professional services for which set a price is prohibited by tradition or by propriety

Author: Elliot Meade
Elliot Meade
Elliot Meade
Private Equity | Investment Banking

Elliot currently works as a Private Equity Associate at Greenridge Investment Partners, a middle market fund based in Austin, TX. He was previously an Analyst in Piper Jaffray's Leveraged Finance group, working across all industry verticals on LBOs, acquisition financings, refinancings, and recapitalizations. Prior to Piper Jaffray, he spent 2 years at Citi in the Leveraged Finance Credit Portfolio group focused on origination and ongoing credit monitoring of outstanding loans and was also a member of the Columbia recruiting committee for the Investment Banking Division for incoming summer and full-time analysts.

Elliot has a Bachelor of Arts in Business Management from Columbia University.

Reviewed By: Patrick Curtis
Patrick Curtis
Patrick Curtis
Private Equity | Investment Banking

Prior to becoming our CEO & Founder at Wall Street Oasis, Patrick spent three years as a Private Equity Associate for Tailwind Capital in New York and two years as an Investment Banking Analyst at Rothschild.

Patrick has an MBA in Entrepreneurial Management from The Wharton School and a BA in Economics from Williams College.

Last Updated:October 4, 2023

What is an Honorarium?

An honorarium is a payment made in acknowledgment of activities or professional services for which a set price is prohibited by tradition or by propriety.It is generally offered to professionals as a token of appreciation for their services in good faith to an organization or any other institution. 

It is a small payment given to a person in recognition of services they have provided but for which payment is not needed. These payments are generally preferred when a price cannot be fixed due to custom or propriety. As a result, payment to the receiver is at the payer's choice.

It is a payment made in exchange for specialized professional services that aren't officially compensated or for which payment isn't generally made. It is typically a token of gratitude for services rendered outside of one's regular work; it is not a wage.

It can also refer to a one-time payment to a professional for their services.

It is an ex gratia payment, which is a payment paid to a person without the giver acknowledging any culpability or legal obligation for services rendered in a volunteer role or for services for which fees are not generally expected. 

It is a standard payment method for teachers and coaches in schools and sports teams. These payments can be made in the form of monetary exchange, or they may also be made in the form of gifts or some other item that may be of value to the receiver.

A per diem is a daily stipend granted to employees or consultants to cover business trip expenditures such as:

  • Hotel stays
  • Airfare
  • Meals

It is a distinct sort of payment from a per diem.

The main motive behind the provision of honoraria is showing respect to the individual who has graciously agreed to deliver some service to us in which he holds expertise. 

The service they provide may be delivering a lecture at a webinar or seminar, holding some skill development session at some organization, or some other act that adds value to the organization or individual receiving such services. 

Key Takeaways

  • An honorarium is a voluntary payment made in acknowledgment of services rendered, where a fixed price is prohibited by tradition or propriety.
  • It is typically offered as a token of appreciation to professionals for their services, such as delivering a lecture, conducting workshops, or providing specialized expertise.
  • The payment is not official compensation and is not subject to negotiation, making it different from contractual arrangements with independent contractors.
  • Honoraria can be made in monetary exchange or gifts, and the amount is at the payer's discretion.
  • Honoraria are taxable income for the recipients, similar to salary, and are usually treated as "Income from Other Sources" for tax purposes in most countries.

Example of honorarium

A common example could be as follows:

Mr. A has a deep understanding of the emerging market of Digital Marketing. He has done a lot of research on the topic related to the scope of the subject, the future it holds, the career opportunities it holds, the skills required to be good at it, etc. 

ABC Pvt. The college grants a bachelor's degree to its students in the field of marketing and wants to hold a session on digital marketing for its students due to the growing demand in the field. 

They contact Mr. A and request him to deliver a session on the topic, who happily accepts the offer. After the session has been successfully conducted, all the students are quite happy with the knowledge they have gained and want to express their gratitude to the speaker.

Even the college authorities want to honor the hard work and dedication of Mr. A. 

Since Mr. A is not a regular college employee, he cannot be honored by giving a fee or salary for the services rendered to the institution. Hence, the college decides to provide him with a sum of money known as an honorarium and thank him for his time.  

From the above example, the practicability of the concept can be easily understood. Whenever a need arises to give some form of payment to any individual or organization who cannot be presented in the form of a fee or salary, providing so in the form of honoraria is a good option. 

This voluntary payment has many benefits, one of the main ones being it makes the recipient of the payment happier and can thus help to build long-term bonds with them. 

If some future similar activities are also to be held, they can be contacted again, and there are chances that they would agree again.

How an Honorarium Works

It is frequently given for services that deserve pay but cannot be requested due to propriety. 

For example, a world-famous professor delivers a speech to an academic foundation, and the foundation pays the professor an amount in exchange for their efforts per this concept.

The amount of effort put into preparing and providing a service, such as a speech, determines it. One hour of speaking, for example, could take three days of preparation. 

Furthermore, giving a speech several times necessitates hours of preparation and improvement before each presentation.

Travel and recovery time for the speaker must also be taken into account. One hour of speaking, for example, could take three days of preparation: one day for practicing and perfecting the speech, another for travel and delivery, and a third for resuming the speaker's normal schedule. 

Those three days can't be utilized to make money in any other way, so an honoraria payment is appropriate. 

Since neither side negotiates the payment amount, an honorarium differs from a contractual arrangement with an independent contractor. Instead of making any extra payment for the recipient's services, the payer merely offers the amount as a gesture of goodwill.

The process of receiving payment by this method is explained below: 

1. The specific task is agreed upon by the parties. 

An organization must first hire the person or group to carry out a particular job or service, before they may pay an amount in consideration, such as:

  • A speaking engagement
  • Manuscript review
  • Small workshop 

The task or service must not be repeated; it cannot, for instance, be a protracted teaching commitment. 

Normally, the standards of decorum would forbid a discussion between the two parties over the amount of money the payer will provide the payee in order for it to be considered proper.

2. The group completes the unique task. 

Once the two parties have agreed on the task, the payee completes it virtually unpaid and in a voluntary capacity. The scheme could range from coaching a said group of students to holding some training sessions. It can also include being the judge of a competition.

3. The company handles the honorarium.

The organization will complete the necessary papers when the contractual party has finished its unique task. Many organizations have a set procedure for receiving money requests. 

Honoraria payments to foreign nationals or non-resident foreigners may be subject to unique regulations set forth by organizations, which call for certain visa categories.

4. The payment is sent from the payer to the recipient. 

Finally, as a token of appreciation for the payee's personal services, the payer will present the said amount to the payee. 

The Internal Revenue Service regards honoraria as a form of self-employment, and as such, they may be considered taxable income that must be taxed in the relevant calendar year.

Tax Treatment of an Honorarium

Just like any other source of income, it is taxable in the hands of the receiver. It may be different from salary in the basic theoretical concept, but from the point of view of taxation, it is treated with an effect similar to that of the salary in most countries.

However, sometimes it may be considered a gift when the party's intent to provide such compensation was so. 

A brief summary of the treatment of honoraria in different countries has been discussed below:

1. Australia

The sums paid by Australian schools to their athletic coaches serve as an illustration of this. In exchange for their voluntary work as instructors, they presumably get paid back for their expenses. Honoraria have tax repercussions, according to the notion. 

In Australia, receivers of these payments submit a tax declaration to the tax office, so they are exempt from including this money in their yearly tax return.

2. Canada

Honoraria are taxable income under the Income Tax Act in Canada since they are regarded as salaries. The Canada Revenue Agency still classifies gifts that are given in place of honoraria (gifts in lieu of cash) as taxable benefits.

Unless prior clearance was obtained from Revenue Canada, honoraria paid to a person who is not a Canadian resident are nevertheless subject to income tax withholding (often 15%).

3. The United States of America

Federal (and occasionally state) income tax may be due on honoraria given to a resident of the United States for work done inside or outside the country.

It is against the law for members of the US Congress to accept honoraria for speeches or writings, for example.

4. India

In India, such payments exceeding the basic exemption limit of Rs. 2 lakhs per annum are subject to taxation by the Tax Authority of India. They can be shown as a part of "Income from Other Sources."

5. The United Kingdom

Employee honoraria are subject to income tax and national insurance under PAYE. However, payments are made depending on the services required and are not constrained by any agreements in writing.

Bribes are euphemistically referred to as "Honoraria" or "King George's cavalry" by British intelligence services.

6. New Zealand

Honoraria given to employees, such as mayors, chairs, and members of neighborhood organizations and societies, are not subject to withholding tax but are instead taxed on their salary. 

If the payment was not sent to the group above recipients, it is nevertheless subject to a withholding tax rate ranging from 33 cents to 48 cents.

Honorarium vs. salary

A salary is a compensation given to an employee after an agreement to uphold the terms of employment. It may comprise many elements, such as basic pay, DA, and HRA. 

An honorarium is a one-time payment made voluntarily to a person who is not an employee in exchange for using their skilled services. Depending on the specifics of each case, PF and ESI may or may not be payable on honoraria.

The consensus is that honoraria qualify as taxable income and fall under "Income from Other Sources." However, if the same amount has been paid to employees, it will be considered salary income in their hands.

Cash payments are accepted. However, there are restrictions.

An honorarium is a small sum of money given to someone as a favor. It is typically far less than the wage. Typically, it is an event- or time-based.

While a salary is a set sum of money paid to a worker, an honorarium is a recompense for services that do not have a fixed value.

Difference between Honorarium and Salary
  HONORARIUM SALARY
Definition It is a small payment given to a person in recognition of services they have provided but for which payment is not needed. It is the compensation given to an employee after an agreement to uphold the terms of employment.
Components It does not have any other components. A lot of other components form a part of the salary, like basic pay, DA, PF, and gratuity.
Regularity It is a one-time payment. It is given regularly, say monthly or weekly.
Recognition It is generally granted for completing a specific task. It is provided for general, day-to-day tasks.
Example Attending a panel discussion. Salary is given to the manager of a certain organization.

Honorarium FAQs

 

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Researched and Authored by Kanishka Bajoria LinkedIn

Reviewed and Edited by Nick Palmer | LinkedIn

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