Keeping the employer and the employee content

Posted by Dawn Möeder, CPA of England and Wales on Aug 23, 2017

Like many industries, the manufacturing industry has fallen to the provisions of the Affordable Care Act (“ACA”) and the updated Department of Labor overtime regulations. Many companies are struggling to maintain their overhead, comply with regulations, and pay for the ever-increasing health care costs, all the while attracting and retaining skilled workers. If you have felt the heat, you are not alone. According to the 2016 Manufacturers’ Outlook Survey, a lot of companies are dealing with these same concerns.

The ACA holds the power

Nearly 75% of respondents claimed rising health care/insurance costs as a “primary current business challenge.” As it stands, the employer mandate requires that companies with at least 50 full-time employees need to offer insurance. And yet, the Employee Benefit Research Institute conducted a study showing that coverage among employers was not aligning with the mandate. For those not offering coverage of “minimum value,” or provides coverage that is unaffordable, then those employers owe, per-employee, the “Employer Shared Responsibility Payment” each month. That is $2,000 a year, per full-time employee (excluding the first 30). For a bigger business that may not seem like much, but over the course of 3 years that could be $6,000 just for one employee. It might have been more cost-effective to provide coverage. It should also be noted, that employees will be more likely to accept a job with an employer who does provide coverage.

Time to cut costs, you have options

Although health care is a major expense, there are ways to help curb the costs. The easiest way is to limit overtime. For nonexempt employees, keep them to 40-hour work weeks whenever possible. If there happens to be a rush order, require preapproval before the employee goes beyond 40 hours. Another option is to use independent contractors, or part-time employees during peak times of the year.

If that does not sound like something you want to do, there are other possibilities. You could talk with your broker to look over your health insurance policy. Maybe you increase the deductible. Perhaps you cut down on the number of retirement plan options. Or, you turn the benefits offerings on its head. Instead of yearly bonuses, you offer employees the opportunity to buy stock in the company.

You can also survey your employees. What all extra benefits are currently being offered? Do you offer education assistance? Do you hold an extravagant holiday party each year? Is the vending machine free? Which benefits do employees rank as “needed” and which can be removed?

A different approach

Like most manufacturers, you care about your employees, as well as your business. You do not want to cut anything, because your employees are happy with the benefits. The Outlook Survey shows that “unfavorable business climate” (taxes, regulations) are just as much as a concern for employers as the rising health care costs. Here are some things to consider.

The Work Opportunity Tax Credit. Employers can hire eligible employees from target groups for the tax credit. Specific veterans, designated community residents, supplemental security income recipients, among a few other target groups can lead to a tax credit. The Department of Labor website goes into specifics in order to qualify. There is no limit to the number of qualifying hires, however, your time is, as employees must begin work before January 1, 2020.

Another tax credit is the R&D tax credit. Expenditures of research and development can be deducted as business expenses. There are two ways in which to do so. You can deduct the expenses in the same tax year in which you paid or incurred the expenses. Or you may amortize over a period of time, no less than 60 months. Not sure which option to choose? One of LGT's tax professionals can help you make a decision.

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Topics: Manufacturing & Distribution, Accounting Tips, Tax, Healthcare