Financial: Attracting Workers Affordably

Attracting Workers Affordably

By Mark E. Battersby / Published October 2018

Photo by iStockphoto.com/Pixsooz

Whether as a result of a booming economy, tighter immigration environment, or an educational system gone astray, finding qualified job applicants has become increasingly more difficult for those in the pressure washing industry. Even more troubling for many smaller businesses is the question, how can they compete for badly needed, qualified workers?

Fortunately, thanks to our unique tax laws, every pressure washing contractor, distributor, and manufacturing business can afford to offer fringe benefits to their workers and may even be able to benefit themselves. That’s right; our tax laws merely prevent employers from discriminating in favor of owners, key employees, or other highly compensated individuals when setting up any benefits plan that is to be tax deductible by the pressure washing business and tax-free to the recipient.

Fringe Benefits

Fringe benefits are often defined as property and/or services whose benefit to employees frequently outweighs the cost to the employer. With a number of notable exceptions, fringe benefits are generally included in an employee’s gross, taxable income where they are subject to income tax withholding and employment taxes.

However, while some fringe benefits are included in an employee’s taxable wages, other fringe benefits aren’t taxable wages and, yet, remain deductible by the employer. Among these exceptions are nontaxable “qualified” fringe benefits, such as health insurance, medical expense reimbursements, dental insurance, education assistance, and daycare assistance. Yes, tax qualified benefits are deductible by employers and totally free of federal and state income taxes as well as the employee’s Social Security and Medicare taxes.

These tax savings obviously make fringe benefits an attraction. However, thanks to last December’s Tax Cuts and Jobs Act, the array of tax-free fringe benefits that employers can provide employees is not quite as generous as it used to be.

Benefits To Attract and Retain Workers

Surprisingly, survey after survey shows that it is not money alone that attracts new workers and keeps existing employees on the
job. It is the benefits. In fact, currently treasured by job seekers—and employees—are flexibility and the opportunity to balance work with other life responsibilities, interests, and issues. But, obviously, no pressure cleaning business can be an employer of choice without a good benefits package. Job training, educational assistance, and employer-provided vehicles used for business are among the common working-condition fringe benefits for many small businesses.

Job Training and Educational Assistance

On-the-job training provided by an employer is a tax-free hiring incentive as well as an invaluable “perk” for current employees. Educational assistance and tuition reimbursement are also welcome fringe benefits.

A formal, written educational assistance plan doesn’t require immediate employer funding; it only provides reimbursement for an employee’s educational expenses—up to $5,250 per employee, per year, and exempt from tax. Educational assistance doesn’t include just tuition assistance but also payments for books, equipment, and other expenses related to continuing education.

Paying Better Than The Competition

While pay often isn’t the primary goal of many job seekers, every pressure cleaning business owner and manager should keep in mind that in today’s job market, compensation remains an important factor. By surveying the local job market and the compensation offered by others in the pressure cleaning industry, a pressure cleaning business can pay better than average to attract the best candidates.

Benefits offered by a business should also be above industry standards and new fringe benefits added, when they are affordable. Existing employees should be educated about the costs of their benefits so they appreciate that their needs are being addressed.

Job seekers and employees are increasingly looking for cafeteria-style benefit plans in which they
can balance their choices with those of a working spouse or partner. Profit sharing plans and bonuses that pay employees for measurable achievements and contributions are invaluable.

  • Bonuses: Bonuses and awards must, as mentioned, be included in an employee’s taxable income. Should the bonus or award be in the form of goods or services, employees must include the fair market value of those goods or services in their income. The same applies to holiday gifts. However, employees receiving turkeys, hams, or similar items of nominal value from their employers at Christmas or other holidays may exclude the value of the gift from their income.
  • Profit-Sharing Plans: A profit-sharing plan, often called a “deferred profit-sharing plan (DPSP),” is a plan that gives employees a share in the profits of the pressure cleaning business. Under this type of plan, an employee receives a percentage of the operation’s profits based on its quareterly or annual earnings. This is a great incentive to attract new workers and a way to give employees a sense of ownership in the business. Not too surprisingly, however, there are restrictions as to when and how a person can withdraw these funds without a penalty. The contribution limit for a pressure cleaning business sharing its profits with an employee is the lesser of 25 percent of the employee’s compensation or $55,000. In order to implement a profit-sharing plan, the business must file a Form 5500-series return/report and disclose all participants of the plan. Early withdrawals, just as with other retirement plans, are subject to penalties.
  • ESOP: An Employee Stock Ownership Plan, or ESOP, is an employee-owner program that provides workers with an ownership interest in the pressure washing business tax-free. An ESOP is a qualified defined-contribution employee benefit plan designed to invest primarily in the stock of the employer. In general, employees are provided with ownership with no upfront cost. The shares provided can be held in trust for safety and growth until the employee retires or resigns. At that time, the shares go back to the business for further redistribution or are completely voided.

What Do They Want

Among the more common, tax-free employee fringe benefits are the following:

  • Health Benefits. Health benefits are by far the single most important fringe benefit. Health benefits include providing employees with health, dental, and vision insurance as well as paying health-related expenses.
  • Long-Term Care Insurance. This insurance covers expenses such as the cost of nursing home care. While premiums are not taxable benefits, benefits received under the insurance may be partly taxable if they exceed certain limits.
  • Group Term-Life Insurance. A pressure cleaning business can provide up to $50,000 in group term life insurance to each employee tax-free.
  • Dependent Care. Up to $5,000 in dependent care assistance can be provided to an employee tax-free. Of course, many working parents may qualify for a tax credit for child and dependent care.
  • Working Condition Fringe Benefits. Working condition fringe benefits are anything provided or paid for by an employer to help someone do their job. Local and long-distrance travel for business, business-related meals and entertainment, professional publications, and company cars used for business driving are all good examples of tax-free working condition fringe benefits.

The Cheapest May Be The Most Valuable

So-called de minimis benefits may be worth little or nothing in the eyes of our lawmakers, but go a long way toward making employees—and prospective employees—happy without an accompanying tax bill. De minimis fringe benefits refer to any property or service that is so small in value that accounting for it is unreasonable or administratively impractical.

Party Time

A pressure washing business with a happy workplace is often an attraction for job seekers. Whether it’s a nightclub affair or a buffet in the business’s break room, parties are a tried-and-true benefit. And, in addition to making employees feel valued and keeping them motivated, parties have tangible tax benefits.

The tax rules allow a business to throw a holiday party—even a relatively fancy one—with no tax consequences to the employees. Of course, in order to be deductible, the IRS requires the party cost to be “reasonable.” A business cannot deduct expenses for entertainment that are “lavish or extravagant.”

Tax Reform

Last December’s TCJA included important changes to the tax treatment of employer-sponsored benefit programs. The new law restricts an employer’s ability to deduct many common business expenses, such as meals, entertainment, and employee moving expense reimbursements. On the upside, the law also included a new tax credit for employers who provide paid family and medical leave for their employees.

The Bottom Line

In order to attract talented individuals to work for the pressure cleaning business, as well as to retain qualified employees, today’s employer must offer fringe benefits and other perks. Once it has been determined what benefits will best attract badly needed workers in today’s job environment, which benefits employees would prefer, and which benefits the pressure washing business can really afford, then and only then will it be possible to make an informed choice of which benefits will attract job applicants and benefit your pressure cleaning business and your employees the most.

Knowledge is essential when deciding which benefits work in today’s job market, as are the services of a qualified professional. But, wouldn’t it be ironic if those benefits turned out to be the ones which cost your operation the least?