Make fringe benefits a symbiotic relationship

Posted by Jonathan Cook, Senior II, Tax Services on May 25, 2017

None of your competitors will shed a tear at your employee turnover rate. They want the most talented staff, and poaching your best becomes a lot easier if you have lacking fringe benefits that competitors can thrust into the limelight. According to the National Automobile Dealers Association (“NADA”), in 2016, there was a worrying overall turnover rate of 40% at dealerships. Even worse, the NADA reported that turnover among salespeople in 2016 was a daunting 72%.

Offering a robust package of peripherals is one way to help ensure that your salespeople don’t become just another statistic. As a bonus, fringe benefits often open doors to additional tax savings for your dealership.

Insurance: A premium strategy

With an aging labor force and the baby boomers entering retirement in full force, a rising number of dealerships are now folding long-term care (“LTC”) insurance into their fringe benefit portfolio. LTC, once a rarely-offered afterthought, is now becoming a vital concern for employees. Employees are not only worrying about their own long-term health, but how to afford it; increasing life expectancies and exponential cost growth in the nursing home and assisted living facility markets are making LTC more costly. Dealerships that offer long-term care insurance to alleviate the worries of an aging workforce can expect to see benefits beyond employee satisfaction. LTC insurance premiums paid by your dealership are generally a tax deduction for your dealership and are usually not counted as wages. Therefore, they’re not subject to federal income tax withholdings or Social Security, Medicare, or Federal Unemployment Tax Act taxes.

Do you remember what your parents told you about death and taxes? Many dealership employees seem to, as they are placing a high value on life insurance to help take care of their families should they pass away unexpectedly. Generally speaking, as there are always exceptions in the tax code, premiums that your dealership pays toward qualified group term life insurance are tax deductible. Meanwhile, covered employees can exclude the first $50,000 of coverage premiums your dealership pays from their individual taxable income. Any premiums your dealership pays above this limit that also exceed the employee’s contribution must be included in the employee’s taxable income.

The dangers of working with heavy machinery direct some employees toward a third type of coverage, disability insurance. Disability insurance provides respite for employees rendered unable to work due to a serious injury or illness. As with life insurance, your dealership can usually deduct qualified group disability insurance coverage premiums that you pay. On the employee side, employees are facing two doors. Door #1 reveals the ability for employees to exclude premiums the dealership pays from their taxable income, without a dollar amount limitation. The caveat here is that any benefits employees receive must be included in taxable income. Door #2 reveals the opposite strategy. Employees can elect to include all premiums the dealership pays in their taxable income, while excluding any coverage derived benefits they receive from taxable income.

Other benefits on the fringe

Insurances are fantastic fringe benefits, but the dealerships that are bucking the aforementioned turnover trend are offering a smorgasbord of fringe benefits to their employees. Many of these benefits also include incentives for the dealerships that offer them.

A benefit with far reaching impact is an educational assistance program. Many employees want to further their education. Offering assistance for educational expenses like tuition, fees, books, supplies, and equipment is one way for your dealership to cultivate your employees’ skills and job satisfaction. Also, employees can exclude up to $5,250 of educational costs the dealership pays from their taxable income. Finally, your dealership can usually deduct educational assistance expenses without a dollar limitation for tax purposes. 

Dealerships are also beginning to offer dependent care assistance. While more of a niche benefit, the employees that need this assistance place high importance on it. The program includes household and dependent care services for employees that you pay for (either directly or indirectly) or provide. These benefits must be provided under a formal, written dependent care assistance program that only covers your employees. Employees can generally exclude up to $5,000 of these benefits from their gross income, or $2,500 for married employees who file separate tax returns.

Another benefit that dealerships are offering takes advantage of the nature of the industry itself. These dealers are offering employee discounts on vehicles, merchandise, and services. While not tax deductible for the dealership, the value of these discounts can be excluded from your employees’ wages (again, meaning that your dealership avoids federal income tax withholdings and Social Security, Medicare, and Federal Unemployment Tax Act taxes on the discount value) in two ways:

  • Discounts on services – 20% of the price charged to nonemployee customers
  • Discounts on merchandise – your gross profit percentage multiplied by the price charged to nonemployee customers

Yet another benefit that has arisen due to baby boomers hitting retirement are retirement planning services. In general, dealerships that maintain a qualified retirement plan (e.g. a 401(k)) can deduct costs they pay for retirement planning advice or information provided to employees or their spouses.

Some other potential fringe benefits for your dealership to offer include:

Paid time for volunteer work: Many employees want to get involved in their community. Your dealership could help by allowing employees to take days off work with pay to serve at a not-for-profit organization of their choice.

Discount shopping programs: Your dealership could team up with a local or national retailer to offer employees discounts on products or services. One example of this being a dealership that teamed up with an apparel retailer, and offered employees dealership branded apparel at a discount.

Health benefits: With the gaze of the American public focusing ever more intently on physical health, your dealership can do a number of things to ensure employee health, which could help decrease lost productivity due to employee illness. Your dealership would have the ability to do this by negotiating a membership due discount at a local health club for employees, reimbursable by the dealership to a chosen limit. Other methods include a smoking cessation program, a weight management program, an on-site masseuse, or an on-site clinic.

De-stress programs: Likewise, the overall community is beginning to take into account mental and emotional health. So employers have begun utilizing different techniques to help their employees cope with everyday stresses. Some examples include a nap room, a meditation room, and stress management programs.

The above list only begins to scratch the surface, in terms of the many types of fringe benefits offered. Some creative, pioneering employers have begun offering benefits such as on-site rock-climbing walls, on-site dog parks, and on-site arcade halls. Get creative, and your employees will thank you.

Choosing the right benefits

While many of the items listed above may seem like no-brainers, it is vital to first ask your employees what fringe benefits they find appealing. You may get ideas for fringe benefits you haven’t even considered.

Offering appealing fringe benefits is a great way to grow the symbiotic relationship between you and your employees. Based on your benefits portfolio, your dealership is likely to receive valuable tax and human resource advantages, while your employees are likely to receive tax and other financial benefits.

Before implementing any new program, consult with your tax advisor, as new tax laws could be on the horizon.

Contact one of our financial professionals TODAY to learn more about how we can take you to the next level.


Topics: Auto, Accounting Tips, Tax, Audit