Worker magnets

By |  October 5, 2015
IPhoto: 3dfoto

IPhoto: 3dfoto

How can any aggregates mining operation hope to compete for the dwindling number of workers available in today’s marketplace? And how can any producer afford to keep the workers that are so essential to its success, while competing for new workers to help it grow?

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. And, so long as our tax laws are followed closely, the value of many fringe benefits can be excluded from an employee’s income and deducted by the employer.

But, keep in mind, no employer should ignore cash.

Cash is king

People like being paid – and not just cash salaries but also those all-important “bonuses.” Bonuses are a great way to reward the kind of performance an employer is looking for. Recognizing the effort made by a worker or his or her contribution to the profitability of the operation is often included on any list of economical “benefits” offered by employers.

The classic saying that you get what you pay for is very true when it comes to compensation. However, no small-business should provide competitive cash compensation in the absence of employee objectives.

Determining the appropriate level of cash compensation needed to attract and retain workers means employers should get a sense of what their competition is doing to bring in high-quality employees. If the aggregate operation establishes objectives that people will be rewarded for reaching or achieving, that’s exactly what they will do. However, unlike many fringe benefits, bonuses and awards must 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 in their income. The same applies to holiday gifts. (Though employees who receive turkeys, hams or other similar items of nominal value from their employers at Christmas or other holidays may exclude the value of the gift from their income.)

Benefiting from benefits

Fringe benefits – things that if the employees purchased for themselves would normally be considered personal or family expenses – are rewards given to employees for their service and play a crucial role in employee retention and recruiting. Fortunately, while so-called “fringe benefits” are a form of pay other than money, many are specifically excluded from the worker’s taxable income.

An aggregate producer can usually deduct the cost of providing many of the benefits sought by job applicants –  and current employees. Adding to the value of many of these benefits is the fact that the cost can often be excluded from the recipient’s income.

A word of caution, however; fringe benefits that are not specifically excluded under the tax rules, must be included in the employees’ taxable income. They may also be subject to the payroll taxes that the employer pays.

No matter which benefits employees may be clamoring for or which benefits the competition is offering, every owner or manager needs to assess how those benefits will impact their business. If, for example, popular benefits such as generous time-off policies or health insurance are offered, the operation is going to be able to attract – and keep – more and better employees. But will those benefits be worth their cost?

If the shoe fits…

While each employee has different needs, the recent trend has been pointing toward health insurance as the most important and highly valued benefit for employees. In addition to being mandatory for some larger employers, health insurance is usually tax-deductible to the employer and tax-free for the employee.

Some crushed stone, sand and gravel producers have discovered that, especially if they employ a lot of part timers, health benefits may not be required or all that important because the employee is getting health benefits from another source (from another full-time job, through a spouse’s employer, or through a parent’s health insurance). In that case, a smart producer would focus on offering other, less expensive benefits that would still be considered valuable by employees.

Many aggregates operations may qualify for the so-called “Small Employer Tax Credit” to offset the costs of providing health insurance to employees. Through 2015, the credit, a direct reduction in the quarry operation’s tax bill, will reach 50 percent.

Changing benefits

Employers are not required to provide fringe benefits such as paid time off, severance pay, retirement plans or holiday pay. However, while employers can often change or eliminate their paid time off (PTO) policies, they cannot take away PTO hours if they have been accrued. Employees will be entitled to their PTO leave, or the employer will be required to pay workers for the unused time. Similar rules may or may not apply to unused sick leave.

Don’t forget that the federal Family and Medical Leave Act (FMLA) requires employers to give workers up to 12 weeks off to attend to the birth or adoption of a baby, or the serious health condition of an employee or an immediate family member. In most states, only employers with 50 or more employees are subject to the Family and Medical Leave Act. However, some states have family leave laws that place family leave requirements on businesses with as few as five employees.

On the cheap

So-called “de minimis” benefits may be worth little or nothing in the eyes of our lawmakers, but can go a long way toward making an employee happy – without an accompanying tax bill. Under the rules, employees may exclude from their gross income the value of fringe benefits that qualify as de minimis.

De minimis fringe benefits mean any property or service that is so small in value that accounting for it is unreasonable or administratively impractical. Examples include:

  • Occasional meal money or local transportation fare.
  • Occasional group meals or picnics for employees and their guests.
  • Inexpensive birthday or holiday gifts (except cash).
  • Coffee, doughnuts and soft drinks.

And don’t forget what the tax rules label “qualified transportation fringe benefits.” With only a few exceptions, employees can ignore the value of qualified transportation fringes such as employer-provided transportation between home and work, a transit pass, parking, or even cash reimbursement for any of the above employee expenses.

The cheapest may be
 the most expensive

The right benefits package can help a small business attract or hold onto top-notch talent. To be fair, though, just what benefits are used to attract and retain workers depend in large part on the demographics of the workforce. Younger workers care more about cash, while older workers tend to want insurance. Health and disability insurance tend to appeal to people later in life.

Small businesses should, according to many experts, consider a bigger menu of benefits to attract and retain older workers. In many cases, the standard benefits could include health insurance and an employer-sponsored retirement plan such as a 401(k).

After that, an aggregates producer might consider adding a “cafeteria” plan, which allows employees to pay certain qualified expenses such as health insurance premiums, adoption assistance, dependent-care assistance, group-term life insurance coverage, as well as contribute to health savings accounts on a pretax basis, thereby reducing their total taxable income and increasing their spendable/take-home income.

The bottom line

Many small business operators mistakenly believe they cannot afford to offer benefits. However, while going without benefits may boost the aggregate operation’s bottom line in the short run, a “penny-wise” philosophy could strangle the business’s chances for long-term prosperity.

Complications often arise as soon as a producer begins offering benefits. That’s because key benefits such as health insurance and retirement plans fall under government scrutiny, and it is very easy to make mistakes in setting up a benefits plan.

And don’t think nobody will notice. The IRS can discover in an audit what the business is doing doesn’t comply with regulations. So can the U.S. Department of Labor, which has recently been beefing up its audit activities. Either way, a mistake can be very expensive, resulting in the loss of tax benefits, retroactively, and penalties may also be imposed.

One of the biggest mistakes, according to many experts: Leaving employees out of the plan. Examples range from exclusions of part-timers to failing to extend benefits to clerical and custodial staff. A rule of thumb is that if one employee gets a tax-advantaged benefit – meaning one paid for with pretax dollars – the same benefit must be extended to everyone. Of course, there are loopholes that allow the exclusion of some workers, but no one should even think about trying this without expert advice.

It is ironic that in this day and age of escalating costs and increased competition for good, qualified employees, many of the benefits that most reward both the operation’s employees and its owners, are often the ones that cost the least.

Take note

While each employee has different needs, the recent trend has been pointing toward health insurance as the most important and highly valued benefit for employees.

Mark E. Battersby is a freelance writer who has specialized in taxes and finance for the last 25 years.

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Allison Kral

About the Author:

Allison Kral is the former senior digital media manager for North Coast Media (NCM). She completed her undergraduate degree at Ohio University where she received a Bachelor of Science in magazine journalism from the E.W. Scripps School of Journalism. She works across a number of digital platforms, which include creating e-newsletters, writing articles and posting across social media sites. She also creates content for NCM's Portable Plants magazine, GPS World magazine and Geospatial Solutions. Her understanding of the ever-changing digital media world allows her to quickly grasp what a target audience desires and create content that is appealing and relevant for any client across any platform.

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