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Employee Morale or Entertainment

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Lets look a little closer at the basic guidance. Then you must make a determination on activities cost allowability and be prepared to support your conclusion. Employee Welfare and Morale Expense - Employee welfare and morale expenses are costs incurred on activities to improve working conditions, employer-employee relations, employee morale, and employee performance. Expenses and income generated by employee welfare and morale activities should be reviewed for compliance with FAR 31.205-13. Note that employee morale type expenses are often covered by the entertainment cost principle at 31.205-14. Entertainment costs are not allowable under any other cost principle. By statute, entertainment costs are expressly unallowable, without exception. Consequently, the entertainment cost principle at FAR 31.205-14 takes precedence over any other cost principle. General (1) Aggregate costs incurred for employee welfare and morale, less credits for income generated by these activities, are allowable except as noted below, to the extent that the net amount is reasonable.

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