by Mike Searcy
Michael J. Searcy, ChFC, CFP
is the managing partner for Searcy Financial Services, LLC,
contact him at 913-814-3800 or
e-mail him at mike@searcyfinancial.com
If you are like most smaller employers in the Kansas City metro area you undoubtedly have experienced your fair share of employee turnover. With tight employment these days and the need to attract and retain excellent employees it is essential to provide a competitive compensation package. The following are some ideas to discuss with your own financial advisors.
Simple IRA
There are a multiple of retirement plan choices that employers can utilize, but there is one plan that could be of benefit to employees that bears relatively little cost for the employer - The Simple IRA. Establishing the plan involves a few simples to understand forms and no annul reporting or administrative costs besides your basic in-house payroll deduction procedures. Contributions are deposited into the employee's Simple IRA account that they direct. If you want or need help you can pay a financial planner a modest fee for assistance. I prefer these methods because once you are up and running, there should not be any need for additional assistance. Before you ante up any cash for fees or sign up for funding products that generate commission, you might find that a couple calls to Schwab, fidelity or one of the no-load mutual fund families will probably get you all the help you need. Pretty simple, isn't it? If you are willing to pay fees for assistance, your money would be best spent with an independent advisor who can help you figure out exactly what type of plan would work best for you given your specific set of circumstances.
Flexible Spending Account
For this benefit program you will want to hire a record keeping or administrative firm. You can expect up-front set up charges, a monthly per participant charge and an annual or monthly ongoing fee to handle all the administrative functions. However, these cost are normally afforded from the employer's savings on FICA and Medicare payroll taxes. This is how the program works. The employee picks a specific dollar amount that they are willing to payroll deduct for future benefits. This amount is withheld from payroll and escrowed. Then, the employee submits their qualifying expenses to the administration firm for reimbursement. The firm processes the claims and makes the reimbursement. Expenses that the employee can submit for reimbursement include items like non-reimbursed medical, chiropractic and dental expenses, vision care and dependent care.
Since the amount the employee selects to deposit to the plan through withholdings reduces their W-2 income, they do not pay federal or state taxes on this income. If the employee's income falls below the FICA and Medicare wage base, they save these taxes as well. In essence, the expenses are paid with pre-tax dollars. Also, since the W-2 amount is reduced by the amount withheld by the employee, any employer cost savings from the reduced matching FICA and Medicare tax is available to pay the administrative costs associated with the plan. There is one drawback to this program. Unless the company is a Regular C Corporation, the principals are not eligible to participate. Therefore, if you operate as a sole proprietorship, a partnership, an LLC or a subchapter S Corporation, the principals cannot participate.
Longevity Bonus
Would a promise to pay a longevity bonus after the employees completes five years of service be a worthwhile incentive for the employee to stay with the company? If so, you might want to consider this strategy. If you consider the expense for recruitment, placement and training of a new employee, this bonus may be an incidental cost.
Education
You might reimburse educational expenses for the employee. If courses are geared specifically toward improvement in your company's specific industry, these courses should be good for the employee as well as the employer. Have the employee pay for the course up front and then seek employer reimbursement after successful completion.