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5 Year-End Planning Tips for Employers

Now that we are in the last quarter of 2022, it is time to make adjustments for this year and prepare for changes needed in the upcoming year. One important area to focus on is your employees, which are critical to your company’s success. Especially in this competitive labor market. It has been challenging for employers to attract and retain the best employees amidst the Great Resignation. This is a big concern for employers nationwide because the cost of employee turnover is high. These costs include recruitment costs, onboarding costs, lost productivity, impact on employee morale and engagement, customer service errors, training costs, and lost skill sets and knowledge. Below we have outlined five areas employers can focus on as they prepare and plan their business for year-end changes that can also help their business boost employee retention and compete with other employers for the best talent.

1. Retirement Plans

Offering your employees a retirement plan is a smart business decision. There are numerous qualifying retirement plans available for small businesses to use. The choice is based on the business’s circumstances, including its profitability, workforce size, and other elements. Some plans, for instance, can be funded solely by employee contributions, which is advantageous for businesses that wish to offer a plan but lack the financial resources to make contributions.

Tax benefits for your business:

  • Employers can deduct contributions made to qualifying retirement plans
  • Employer contributions are not subject to Social Security or Medicare (FICA) taxes.
  • Salary reduction contributions made by an employee are not taxed until distributed to the employee (except for Roth contributions)
  • Contributions made to the plan grow tax-free.
  • Tax credit is available to small employers starting a new plan to help reduce costs.
  • Additionally, retirement plans can help you attract and retain employees

If you choose to implement a qualified retirement plan for your business, make sure to follow the proper procedures to avoid fines or other issues. There are certain responsibilities that must be fulfilled, such as:

  • Correctly establishing the plan (e.g., completing forms in a timely manner).
  • Notifying staff members of the plan and their participation eligibility.
  • Correctly administering the plan entails adding contributions within predetermined time restrictions and providing distributions in accordance with the plan’s rules.
  • If applicable, filing annual informational returns.

Generally, you have until your company’s income tax return deadline to set up and fund a plan. Consult with your advisor to learn about the many retirement plans that are offered as well as the tax advantages for small businesses.

2. Year-End Bonuses

There is still time to consider offering your staff a year-end bonus if you’re searching for a way to let them know how much you value their contributions. Whether it’s to reward individual, departmental, or company achievement, offering monetary incentives to staff can help with retention and even recruitment efforts. It might also be used as a tool to boost team engagement and productivity for the coming year.

It’s important to note that any financial bonus provided to your employees will have tax implications. Your employees may receive the bonus as part of their regular paychecks, or you may distribute it to them separately. If you choose to use gift cards or certificates instead of a check, keep in mind that these are also taxable. IRS treats bonuses as supplemental wages. To withhold taxes on supplemental wages, an employer can either use the percentage or aggregate method:

  • Percentage Method: Identify supplemental wages separately and withhold a flat tax rate of 22%.
  • Aggregate Method: Add together the entirety of the employee’s wages (supplemental and regular) and withhold taxes on the entire amount.

In addition to the bonus’s gross value, factor in;

  • Payroll taxes paid by employers. The employer portion of FICA can be 7.65% of the bonus amount
  • Benefits for employees tied to pay, such as employer contributions to a company’s qualified retirement plan

3. Educational Assistance

Educational Assistance programs, also known as tuition assistance programs, have become a highly sought-after employee benefit in recent years. Tax savings for the employer and participating employees are a major advantage of having an educational assistance program. Up to $5,250 of educational assistance provided by the employer under an educational assistance program may be excluded from an employee’s gross income.

Employees must satisfy at least one of the following two criteria for the education to be considered work-related in order for the payment or reimbursement to be tax-free:

  • The education is expressly required by the employer or legally required to maintain the current position
  • The education maintains or enhances the abilities that the employee needs for their current position.

4. Non-Monetary Incentives

Despite your best efforts, it’s possible that your company may not have the money to offer year-end bonuses or other monetary incentives in 2022 or 2023. However, you might be able to provide non-monetary incentives that employees greatly value.

Several factors besides pay influence whether employees stay with a business or leave to work elsewhere. Now more employees expect non-monetary incentives that increase their quality of life; providing opportunities for training and advancements, as well as flexibility at work, can help you attract and retain the best employees. Here are some additional examples:

  • Recognition in the workplace
  • Remote work arrangements
  • Additional vacation or sick days
  • Training and development
  • Time for volunteer work

The incentives you can offer your staff have no boundaries. You can design and create an excellent incentive program that best suits your business’s objectives and your workforce’s needs.

5. Healthcare Benefits

Due to rising healthcare costs, employers should prioritize ensuring that employees have access to high-quality, affordable healthcare, especially since healthcare is one of the most sought-after employment benefits.

Although traditional group health insurance is a great option for many businesses, some smaller businesses may not be able to afford it due to escalating insurance costs. Additionally, employees may be obligated to use networks that might not suit their individual needs.

Due to its flexibility and cheaper costs, a Health Reimbursement Arrangement (HRA) is a popular choice among businesses. With an HRA, you can reimburse your employees back for certain medical expenses, including out-of-pocket costs and individual health insurance premiums. In addition, you can also give your employees a health stipend. This functions similarly to an HRA but with fewer rules and limitations on what expenses can be reimbursed.

Note: Under the Affordable Care Act mandate, Applicable Large Employers (ALEs) must offer essential minimum coverage or pay a tax penalty. To be considered an ALEs, the employer has to have had at least 50 full-time equivalent employees on average during the prior year.

Bottom Line

Finding and keeping the best employees is crucial for businesses to succeed in today’s environment. Keep in mind that benefits significantly influence employee retention; thus, offering high annual salaries isn’t the only method to compete with large companies with larger budgets. Your employee turnover rate will decrease if you provide benefits tailored to your employees’ needs.

As we approach the end of 2022, you have the opportunity to analyze and determine any actions you take, which will depend on your business’s particular situation. Therefore, now is the ideal time to discuss your situation with your advisor.

Eco-Tax Advisors

When working with Eco-Tax, you will be paired with an experienced Certified public accountant (CPA) or licensed Enrolled Agent (EA) tax advisor who is an expert in both your industry and your state. Your dedicated tax consultant will be your trusted advisor, providing you with support year-round.

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