There's no one-size-fits-all approach to using your tax cut; the right solution for your business depends on your unique situation.
The Tax Cuts and Jobs Act represented one of the largest tax cuts in American history, especially for businesses. The law made it easier to deduct the cost of equipment and other property, got rid of the alternative minimum tax for corporations and slashed the maximum corporate tax rate from 35 percent to 21 percent, according to The Washington Post.
There's a good chance that 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-Term vs. Long-Term Investment
The government designed the tax break to start right away in 2018. With this influx of cash, many businesses started spending immediately on short-term goals.
Some, like Apple, announced one-time bonuses for their staff. Other publicly traded organizations 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 this tax break ultimately more beneficial as an opportunity to grow your business over the long term, especially by investing in your employees. This way you may be able to strategically translate your immediate tax savings into even greater profits going forward.
Here are seven long-term investment options to consider:
1. Employee Training and Development
A 2017 Deloitte report found that annual productivity growth is the lowest it's 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 subscribing to learning platforms to help your staff learn new skills. Or simply help make time on your employees' schedules to take classes online through free resources like YouTube. A little training time now could pay off later in big gains in productivity, not to mention employee engagement and retention.
2. 401(k) Investments
According to Fast Company, 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.
3. Expansion Opportunities
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 also be a great opportunity to promote existing employees into more senior roles with heftier 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.
4. Higher Compensation
While one-time bonuses are a great short-term reward, a permanent pay raise will inspire more long-term loyalty from your staff. 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.
5. 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, 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.
Or go beyond traditional benefits and try creative ways to make the workplace more enjoyable for your employees. Offer free lunches, yoga classes or onsite daycare, for example.
6. Company Events
Company events can be a fun way to build morale and reward your employees for their hard work. Consider using some of your tax savings to fund an annual picnic or retreat. While it might be wise to use the event to simply relax, you could also hire trainers to lead team-building exercises at the same time. Either way, this will be an event your employees will look forward to.
A related option would be to sponsor group volunteer days where employees can spend the workday volunteering at the local food bank or other charity.
7. Collaboration With a PEO
As you prepare to plan your next steps, engaging with a professional employment organization (PEO) can be a smart move. These organizations handle HR tasks like benefits administration, employee onboarding and payroll on your behalf. This service can be invaluable as you deal with new tax rates and execute your plan for investing in your employees.
A PEO offers several financial benefits that can make the investment worthwhile. By handling your HR work, these organizations save you from having to hire as many full-time employees. Small businesses may also qualify for discounts on benefits by signing up through a PEO, as PEOs may combine all their clients' employees into plans in order to qualify for larger group discounts.
There's no one-size-fits-all approach to using your tax cut; the right solution for your business depends on your unique situation. But taking the time to consider both the short- and long-term possibilities will pay off as you plan this year's budget.