Unemployment is at record lows, the job participation rate is the best it’s been in years, and companies large and small are competing for workers to fill their job openings.
Large firms that will reap the benefits of a dramatic tax cut beginning on 2018 returns are taking certain actions.
Can you or should you do the same?
How large firms are using their tax savings
At the time I was preparing this blog, more than 270 large corporations had announced they were giving bonuses to their staff, with most ranging from $1,000 to $2,500, or taking other action. In addition to bonuses, some are doing the following:
- Hiring new employees
- Raising wages
- Increasing 401(k) matching
- Giving restricted stock
- Investing in workforce development (training, facility enhancement)
- Paying toward education
- Expanding “partner and family sick time” and maternity leave
A Towers Watson survey found that 66% of large and mid-sized companies are planning to make changes in their benefits programs or have already taken action. Some actions in addition to the list above include:
- Offering financial planning advice
- Increasing employer health care subsidies
What can small businesses do?
Kathy Walgamuth, director, communication and change management at Willis Towers Watson said, “The results of our survey, coupled with the actions taken by some large employers over the past few weeks, suggest that investing in their people remains a top priority. We fully expect most organizations will take the time to thoughtfully evaluate the impact of the tax law on their organization and then make changes that support their specific business strategy.”
It’s now time for you as a small business owner to evaluate the impact of the new law on your company and decide what changes, if any, to make in wages and benefits for your staff. Because most small businesses aren’t C corporations that will enjoy the new 20% tax rate (most small businesses are pass-throughs with owners paying taxes on their share of profits on their personal returns), tax cuts likely won’t underwrite benefit increases. What can you do to compete in the marketplace for talent that won’t cost you an arm and a leg?
- Consider promoting from within. This practice promotes company loyalty and you know the person you’re promoting. Of course, doing this may require some training to be able to do so.
- Add a mentoring program. It’s a fact that mentoring improves employee job satisfaction. Learn more from Inc. about setting up a program at your company.
- Introduce a QSEHRA. A qualified small employer health reimbursement arrangement, or QSEHRA for short allows you to reimburse employees (up to set limits) for their individually-obtained health coverage; no company plan is needed.
- Set up a retirement plan. If you don’t yet have a qualified retirement plan in place, consider setting one up. Use an automatic 401(k) to minimize some nondiscrimination complexities. You can figure the cost of employer contributions upfront, and you may even qualify for a tax credit to cover the administrative costs to set up the plan and educate employees about their participation.
- Share the profits. If you are an S corporation, you can do this through an S-ESOP where employees gain an ownership interest. If you are unincorporated, you can opt for a profit-sharing plan (and make it your qualified retirement). Either way, you can always give pay raises and/or bonuses reflecting that employees’ good job performance has contributed to higher revenues for your businesses.
To repeat what I said earlier, because the big boys are doling out benefits to employees stemming from their tax savings, small companies are challenged to do so as well. This is so whether or not owners see any significant tax savings. Think about what you can do with the money you have to stay competitive in the job market.