When federal tax reform happens, it makes headlines across all media, with the news of sweeping tax changes and how they impact businesses and individuals.
And, although change can be a good thing, that doesn’t mean it happens without some growing pains.
Our nation’s first major tax reform in more than 30 years has spurred many business owners to spend hours with their CPAs and tax consultants over the past few months. Topics being discussed include re-evaluating major areas such as corporate tax structure, executive compensation, employee bonuses and depreciation of assets.
Tax reform did a number on payroll
Federal tax reform has resulted in big changes in the payroll arena, so your payroll to-do list likely just got a lot longer than in recent years, especially if you have employees in multiple states.
Here are some tips to help you stay on top of any changes that may affect your business:
1. Keep employees informed
When there’s change of any kind, one of the most important things you can do as a business leader is keep your employees informed.
Knowledge is power, and when people’s paychecks are involved, effective communication is even more critical. Let your employees know that the IRS withholding tables have changed – and how that may impact them.
Make no mistake: It’s essential for you and your payroll managers to be informed enough to communicate changes accurately. Otherwise, you risk diluting employee trust and damaging employee morale if employees experience surprises in their paychecks.
2. Have employees do a “paycheck checkup”
New federal tax rates mean that every individual needs to reassess their withholding. To help with this, payroll managers and employees can access the Withholding Calculator provided by the IRS.
This online tool was created to help individuals do a “paycheck checkup” and determine if they need to adjust their withholding, and if so, submit a new W-4.
It’s difficult to predict exactly how many employees will need to adjust their withholding, as there are many variables for each individual to consider. However, it’s a good idea to recommend that all employees do their own paycheck checkup to be certain.
3. Be proactive to avoid fines and penalties
Of course, getting employees’ paychecks right is vital to your business. But that’s only part of the puzzle.
You’ve also got to get the taxes right, as they pertain to those paychecks, in order to satisfy IRS requirements, as well as state and local tax laws. This isn’t an area where you can afford to slip up. Doing so can be costly for your company since your company’s income taxes and payroll taxes are subject to audit.
Employers can face under-withholding penalties from federal, state and local governments. You may want to make sure you haven’t already been assessed for an employer penalty for not updating tax tables by the February deadline.
On the flip side, over-withholding can be a serious employee relations issue. When employees find out the company over-withheld taxes from their paychecks, it can bring down company morale. They won’t be able to get their money back until they file their taxes in April of the following year.
That’s why it’s important to assess whether or not each employee should change their W-4 to prevent them from temporarily loaning the government their hard-earned cash for the whole year.
4. Invest in the bigger picture for your business
Considering the updated federal tax law reduced the corporate federal tax rate from 35 percent to 21 percent, many companies find they finally have the means to bring on additional employees to support the business.
If you’re not planning to hire more employees, you may be able to give raises or one-time bonuses that will help retain employees.
When you share the bounty with the people who keep your business going and growing, you improve employee retention, which can help keep your company’s momentum rolling and build loyalty among employees.
5. Be prepared for more changes to come
Like the old saying goes, the only constant in life is change.
So, keep in mind that, while the federal tax reform is now in effect, nearly all 50 states are likely to roll out state tax reforms in response to updated federal law over the next few years.
Louisiana was among the first states to do so, and more and more states are sure to follow suit on their own timetables as tax laws continue to evolve. If you have employees in multiple states, it’s especially important – and equally challenging – to stay up to date.
Is it time to think about outsourcing your HR?
Payroll is just one major area where tax reform impacts businesses. Such intricate payroll and HR compliance issues can be daunting for business leaders and payroll managers.
In fact, relief from the complex, tedious tasks of payroll and tax filings is one of the top reasons many small and medium-sized businesses outsource their HR. But the benefits don’t end there.
Outsourcing your HR to a reputable PEO or CPEO (certified professional employer organization, as designated by the IRS*) can provide many advantages to your business:
Payroll with peace of mind
- A PEO takes an integrated approach to payroll, handling the majority of your payroll-related tasks.
- These tasks include submitting tax documents, keeping up with payroll tax changes, updating tax withholding tables for each state where you have employees working, and handling payroll tax deposits and filings.
- This can be a cost-effective choice for companies with as few as 10 employees.
Guidance with HR-related government compliance
- PEOs provide valuable advice on employment-related federal, state and local government regulations.
- Regarding tax reform, a PEO takes care of the inherent employee communication challenges and assures any W-4 changes are reflected in the employee’s payroll after the W-4 is submitted to the PEO.
- Their human resources specialists can also help you develop solutions for sticky employee relations situations that sometimes arise between employees.
- You can lean on their seasoned and impartial guidance to determine the best path to help protect your business and satisfy the parties involved.
- A PEO can help you provide your employees with access to competitive benefits that include medical, dental and vision insurance, 401(k) retirement plans and much more.
- A comprehensive benefits package can help you attract and retain top talent.
- This is also an area where partnering with a PEO can be a lifesaver. Finding the time to read résumés and interview candidates isn’t always easy when you’re already juggling a full load.
- Your PEO can focus on creating job listings, recruiting, screening and hiring new employees because they have a dedicated team of recruiting specialists.
Streamlined employee onboarding and self-service
- Most reputable PEOs offer comprehensive, integrated HR technology.
- With a cutting-edge human capital management (HCM) system, you’ll be able to easily provide compliant new hire paperwork and keep track of employee data in one convenient online platform.
- Your employees will also have self-service access to their information, making benefits elections and enrollment much easier for them and you.
As a business leader, you have a lot on your plate to ensure your company stays in compliance with the recent federal tax reform. Just remember, payroll and human resource help is available. You don’t have to navigate these complexities alone and risk the potentially devastating effects of non-compliance.
It’s important to recognize when it makes sense to entrust a good PEO with all the important, yet painstaking, payroll and other HR-related tasks that require valuable time you could spend growing your business.
Federal tax reform is just one example of how changing laws can impact your business. Learn more and minimize your risk by downloading our e-book: Employment law: Are you putting your business at risk?
*The IRS does not endorse any particular certified professional employer organization. For more information on certified professional employer organizations go to www.IRS.gov.
IRS Circular 230 Disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from an independent tax advisor with respect to any federal tax transaction or matter addressed herein.