Use Tax Reform to Invest in Your Employees

The Tax Cuts and Jobs Act represents one of the largest tax cuts in American history, especially for businesses. There's a good chance the tax cuts mean some extra spending money for your organization. But before you write any checks, it's crucial to weigh all your options for investing in your employees and growing your business.

Short- vs. long-term investment

The government designed the tax break to kick in right away, with the new rates starting in 2018. With this influx of cash, many organizations started spending immediately on short-term goals.

According to Reuters,1 some organizations, like Apple, announced one-time bonuses for their staff. Other publicly traded companies gravitated toward stock buybacks to reward their shareholders. Similarly, owners of privately held businesses might take advantage of the opportunity to treat themselves to some extra income.

While there's nothing wrong with these short-term rewards, you might find the tax break is ultimately more beneficial as an opportunity to grow your business over the long term, especially by investing in your employees.

Why invest in your employees?

As you know, employees are the core of your business and fuel your success. But do they feel that way? Investing in your employees with things like more robust benefits or additional professional development opportunities should lead to a happier, more productive workforce — and increase your long-term profitability. This investment is critical, as 70 percent of the American workforce is currently disengaged.2

With today’s tight labor market, investing in your employees is more important than ever. Workers have other options and if you don’t properly reward them, you could miss out on the best talent available, or lose your best workers to someone else.

Employee training and development

A recent Deloitte3 report found that annual productivity growth is the lowest it has been since the 1970s. Why? One of the top reasons is that employees aren't using new technology in their jobs — because they don't know how. Unlock this potential by using your tax savings to invest in employee training and development.

Consider holding training seminars or subscribe to learning platforms to help your staff acquire new skills. Or you could reimburse employees for tuition when they go back to school. When an employee reaches a development goal, like completing an online course, you could pay them a bonus as extra motivation.

A little training time now can pay off later in big gains in productivity — not to mention employee engagement and retention.

401(k) investments

According to Fast Company,4 employees rate retirement plans as a top-five workplace benefit. A generous 401(k) plan can not only help you retain the employees you already have, but also attract new talent. If you don't offer a 401(k), consider using your tax break to set one up for your organization.

If you do have one, think about adding a company match, or increasing your existing match so that employees will receive more tax-free money whenever they contribute to your plan. Your employees will appreciate the extra help and the investment in their future.

Expansion opportunities

If you want to grow your business, you ultimately need to expand your workforce. Not only do you need more employees, you also could need more specialized employees with different skillsets. This is especially true if you’re going after opportunities like developing a new product or expanding into new markets.

If you've been thinking about expanding your workforce, now could be the perfect time. Your tax savings can help you cover the costs of hiring new employees or even launching a new division.

At the same time, this could be a great opportunity to promote existing employees into more senior roles with greater responsibilities and higher pay. Their years of experience will come in handy as they supervise your new employees — and they'll appreciate the reward for their hard work.

Higher compensation

While one-time bonuses are a great short-term reward, a permanent pay raise will inspire more long-term loyalty from your employees. How do your wages stack up against similar businesses? With today’s low unemployment rate, your compensation must be competitive.

Since the new law will mean lower taxes each year, you might invest those savings into your employees by increasing their annual pay. Or, if you prefer more control over when you spend, setting up an annual bonus program might be your preferred option.

To improve retention, let employees know that they can look forward to future bonuses, not just a one-time payout. And calculating bonuses as a percentage of profits or sales may motivate employees to work harder to grow your business.

Additional benefits

Beyond salary bumps, you boost your ability to attract and retain top employees by improving your overall benefits package. According to Harvard Business Review (HBR),5 88 percent of job seekers take better health, dental and vision insurance into consideration when selecting a job. Consider increasing paid time off, covering more of your health insurance plan premiums, or offering new insurance benefits like disability insurance.

Or go beyond traditional benefits and try creative ways to make the workplace more enjoyable for your employees. Offer free lunches, yoga classes or on-site daycare, for example.

HBR5 asked employees what benefits they wanted most. Better health, dental and vision insurance was the number one choice. More flexible hours, more vacation time, student loan payment assistance and paid maternity/paternity leave were also popular choices. If you invest in additional workplace benefits, keep these options in mind.

Leverage HR outsourcing

If your HR department is struggling with the burden of administrative work, you could outsource some of these tasks to a professional employer organization (PEO). This is another investment for your tax savings that offers many long-term benefits.

The outsourcing firm can handle routine work like payroll and employee benefits so your in-house HR team can focus on other areas, like training your employees. You can also lower costs by not needing as many full-time HR employees.

Your HR outsourcing package could include technology to track employee performance metrics, while giving employees the ability to self-manage benefits. Finally, a PEO will allow you and your employees to access cost effective, more robust benefits than you may currently be offering.

There's no one right way to use your tax savings. The best solution for your business ultimately depends on your unique situation. But taking the time to consider both the short- and long-term possibilities should pay off as you plan this year's budget.

ADP® can help you find the answer

In a tight talent market, strategic investments in your employees are key to retaining your best and keeping them motivated. With ADP at your side, you can rest assured that you’ll discover the best possible return on your investment.

1 Reuters, Apple issues $2,500 bonuses to employees after new tax law: Bloomberg, Jan. 17, 2018.
2 Glassdoor, The Cost of a Disengaged Employee, May 25, 2015.
3 Deloitte, 2017 Deloitte Global Human Capital Trends: Rewriting the rules for the digital age.
4 Fast Company, These Are The Best Employee Benefits And Perks, Feb. 3, 2016.
5 Harvard Business Review, The Most Desirable Employee Benefits, Feb. 15, 2017.

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