Don't worry, this will not be another article about reducing turnover and the savings for not having to recruit and replace employees. :)
Top employers have stopped comparing themselves to average companies and these are the companies that are hiring the best employees.
The following article and examples are to be considered strategic and are not provided as tax advise. Please consult with a CPA or attorney to determine individual outcomes.
1. Understand the True Cost of Wages
Yes, companies can deduct wages & other employer taxes as business expenses. Yet a $100 in wages paid to an employee can actually create an additional expense of $10-$15 depending on industry and tax caps. Consider the following example of employer taxes:
*Tax table is used for illustrative purposes only.
Not only does a $100 in wages cost the employer more but it also costs the employees more. If an employee has 20% of their wages taken for taxes, they only get to take home $80 of the well intended $100. Unfortunately, the employee now only has $80 to purchase their own health, dental, or other insurances in the open market.
2. Understand the Value of $100 of Benefits
Employers that provide a $100 in employee benefits can deduct the entire amount for most employee benefits. So the after tax deduction cost to the employer is most likely going to be $65 to $78, depending on their tax structure.
The employee will receive the full $100 benefit without the added time & stress to find their own insurances in the open market.
3. Help Employees Understand Their Total Compensation
Incorporating the first two benefits, Shea Insurance encourages to utilize annual reviews as a positive time to meet with each employee to reinforce what a great job they are doing. We encourage our clients to NOT use annual reviews as a time to discipline employees.
During this time, many employers provide wage increases. Again, think about the tax disadvantages of giving an employee the additional $100 in wages vs. giving the employees the additional $100 worth of employee benefits.
Consider lowering the employee contribution on the health insurance by $20 a week is better financially for them than giving them an additional $20 a week in their paycheck. Or if the budget for a wage increase calls for a $1.00 per hour increase, consider showing that you are going to give a $0.50 per hour increase in wages while lowering their health insurance contribution by $20 a week. If an employee is working a full 40 hours per week, the company will save more money each week and the employee will receive more take home pay.
4. Understand That Employee Benefits Are a Fixed Cost
ACA requires that employers offer health insurance to employees that work 30 hours per week or more. Most companies have chosen to bring their other insurances like dental and vision to match the same requirement. Our Shea Insurance Team advises clients to maintain employee schedules as close to 40 hours per week as possible. Consider the following chart to show the cost per hour advantages of paying for insurances for employees that work 40 hours per week vs. 30 hours per week.
*Table is to be used as illustrative purposes only.
The cost per hour savings for maximizing employee hours will pay off week-over-week.
5. Customize the Employee Benefits
In our opinion, this is the fun part of employee benefits. In other words, offer benefits that are tailored to what your employees are already buying. Cell phone plans, meal plans, dry cleaning, etc. All of these fringe benefits may not be tax deductible. Yet not all employee benefits are insurance related. These are the benefits that further help recruit & retain top talent. Beyond the employee insurances... fringe benefits will help provide employees with more dinero and time.
The larger benefit lies within the fact that employees tend to use company time to research some of these purchases as well as time to purchase these products. The more 'stuff' the employers can provide at discounted/predetermined pricing that employees have access through work... the less time employees spend trying to find or negotiate on such services.
Do you have other ideas? We would love to hear them. Message us to receive a free gift.