By Mark Battersby
How can any rural building business hope to compete for the dwindling number of skilled workers available in today’s marketplace? Most importantly, how can any building operation keep the workers that are so essential to its success and afford to compete for new workers to help it grow?
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. The value of many fringe benefits can be excluded from an employee’s income. And, so long as our tax laws are followed closely, every smart builder can afford to offer fringe benefits.
Although perks or benefits play an important role in the lives of employees as well as their families no employer should ignore cash. 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.
Keep in mind that 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. If the building operation establishes objectives that people will be rewarded for reaching or achieving, that’s exactly what they will do.
Obviously, cash compensation including bonuses is really important. 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. 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.
Fortunately, while so-called “fringe benefits” are a form of pay other than money, many are specifically excluded from the worker’s taxable income. Many builders have discovered that benefits (things that if the employee purchased for themselves would be considered personal or family expenses), are well-proven motivators.
Fringe benefits are rewards given to employees for their service and play a crucial role in employee retention and recruiting. These benefits can include paid life insurance, dependent care assistance and group insurance among other perks. And now, thanks to our unique tax laws, every smart builder and contractor can not only afford to offer fringe benefits to their workers, they may even be able to benefit themselves.
Among the benefits or “perks” most often chosen by employees, only one—education or personal development—actually costs the employer. Training and education are vitally important for every builder and contractor in order to ensure the success and continued profitability of the building operation. Remember, however, the cost of providing many employee benefits is often tax deductible.
Those training and educational expenses, whether paid for by the builder/employer, by a supplier or equipment distributor, subsidized or sponsored by an industry group or association can be considered fringe benefits because they are, for the most part, tax-free to the recipient.
When education is offered as a fringe benefit by an employer, the payments received by an employee for tuition, fees, books, supplies, etc., under the employer’s educational assistance program may be excluded from the employee’s income up to $5,250 per year.
No matter which specific benefits employees may be clamoring for, or which benefits the competition is offering, every employer needs to assess how those benefits will impact their building business. If 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?
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. While required for larger employers, health insurance is tax-deductible to the employer and tax-free for the employee. Many builders and contractors, even those not required to provide health insurance, can often purchase it at a lower cost than the employee would ordinarily pay for an individual policy.
Some builders have discovered that, especially if they employ a lot of part timers, health benefits may not be 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).
Many builders and contractors may qualify for the so-called “Small Employer Tax Credit” to offset the costs of providing health insurance to their employees. Until the controversial Affordable Care Act is repealed and replaced, the tax credit, a direct reduction in the building operation’s tax bill, will reach 50 percent.
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. 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, qualified parking, or even cash reimbursement of any of the above employee expenses.
Recognizing the effort made by a worker or his or her contribution to the profitability of the business is often included on a list of economical benefits offered by employers. They’re not always inexpensive to the recipient, 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. 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.
Many small-businesses mistakenly believe they cannot afford to offer benefits. However, while going without benefits may boost the building operation’s bottom line in the short run, a “penny-wise” philosophy could strangle the business’s chances for long-term prosperity.
Unfortunately, complications often arise as soon as a building business begins offering benefits. And don’t think nobody will notice. The IRS can discover in an audit what the building operation is doing that doesn’t comply with regulations. So, too, 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 can also be imposed.
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 building business’s employees and its owners, are often the ones which cost the least. RB