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New Year, New Benefits

By BarbaraWeltman, Guest Blogger
Published: January 30, 2013 Updated: January 31, 2013

You love your staff and want to show it by giving them more in a tangible way. Increasing their pay may not be the best strategy for you or your employees. Added pay is taxable to employees, so they net less (how much less depends on their tax bracket). And added pay has additional costs to you in the form of payroll taxes. What to do? Think about giving them fringe benefits.

Overview

You’re not obligated to provide any benefit (starting in 2014, employers with more than 50 full-time employees will have to provide health coverage or pay a penalty for not doing so). If you choose to give fringe benefits, it’s a win-win for you and your employees:

  • You reward your staff without incurring additional employment taxes, such as the employer’s share of FICA (covering Social Security and Medicare taxes) and state unemployment insurance. Some benefits won’t even cost you a penny because you merely arrange for workers to buy them on their own with favorable tax results to them (explained later).
  • Your employees get valued benefits that do not increase their taxable pay. If they’d had to buy these benefits on their own, they would have had to earn enough, after tax, to cover the cost. For example, say you offer dependent care assistance of $2,500 annually for all employees. If an employee in the 25% tax bracket had to pay this cost on her own, she should have had to earn about $3,350 more in wages to cover this cost.

If you provide any fringe benefits, you must do so on a nondiscriminatory basis (with few exceptions). This means that benefits cannot go merely to owners and highly-paid employees; they must be available to rank-and-file employees as well.

Tailor your benefits plans to the needs of your staff and to your pocketbook. Remember that health coverage and retirement plans are the top two most-valued employee benefits.

Transportation fringe benefit

Employees know that their commuting expenses are not deductible, regardless of the length of the commute or how much it costs. However, you can pay for certain transportation fringe benefits that will be tax free to employees. For 2013, transportation fringe benefits are:

  • Free parking, transit passes and vanpooling up to $245 per month
  • Bicycle assistance (to maintain and store the bicycle) up to $20 per month

Alternative: Instead of paying these benefits, you can arrange for employees to pay for them on their own on a pre-tax basis (i.e., the portion of their wages used to pay for the benefits don’t count as taxable income). Your cost: only minimal administrative costs. For more about this, look at *TransitChek or the websites of other companies that arrange for transportation fringe benefits.

Child-related benefits

You can help your staff with family obligations in a tangible way by paying some child-related costs:

  • Dependent care assistance. You can pay up to $5,000 of assistance for each employee each year; this amount is tax free. Alternatively, you can enable workers to pay for their dependent care needs on a pre-tax basis by setting up a dependent care flexible spending account (FSA). The funds in this FSA cannot be combined with funds in a medical FSA.
  • Adoption assistance. You can pay up to $12,970 for adoption assistance in 2013 (the limit increases annually for inflation).

Small employers may not be able to offer these benefits and enjoy them personally. The law prevents “highly-compensated employees” (e.g., owners) from excluding company-paid benefits if the plan skews benefits toward them. In other words, the plan must be nondiscriminatory for all workers.

Cafeteria plan

Workers usually prefer to have a menu of benefits from which they can choose. A cafeteria plan lets employees choose between cash (or taxable benefits) and tax-free benefits; they are not taxed on the tax-free benefits merely because they could have opted for cash.  Some of the benefits you can offer under the plan include:

  • Adoption assistance
  • Athletic facilities
  • De mimimis (minimal) benefits
  • Education assistance
  • Employee discounts
  • Employer-provided cell phones
  • Health benefits
  • Meals
  • Moving expense reimbursements
  • No-additional-cost services
  • Transportation commuting
  • Working condition fringe benefits

As a small employer (no more than 100 employees), you can opt to use a simple cafeteria plan. A simple cafeteria plan is presumed to be nondiscriminatory. You must make minimum contributions (e.g., at least 2% of worker’s pay) to workers in the plan who are not highly-compensated employees; all employees can enjoy benefits under the plan. Your contributions to the plan are tax deductible.

You can find more about cafeteria plans in IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits. (The 2013 version is not yet out but should be shortly.)          

Conclusion

Whether you offer benefits, what they are, and how much you pay depends on your company’s financial situation. Obviously, you can only do what you can afford to do, no matter how generous you may want to be. Always discuss your benefits plans with a knowledgeable tax advisor.

 

*denotes non-government website

About the Author:

BarbaraWeltman
Barbara Weltman

Guest Blogger

Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser's Small Business Taxes, J.K. Lasser's Guide to Self-Employment, and Smooth Failing as well as a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for three years in a row. Follow her on Twitter: @BigIdeas4SB or at www.BigIdeasforSmallBusiness.com

3 Ways Business Planning is Like Dribbling a Ball

By Tim Berry, Guest Blogger
Published: January 24, 2013

Think of basketball or soccer. In both of these popular sports, dribbling is what the players do to move the ball in the right direction. It's not the point of the game, it doesn't score baskets or goals, but it's an important skill, right? I think of dribbling as a great analogy for business planning. And here are some reasons why—and some lessons I suggest we can take from that.

  1. Dribbling is a means to an end—not the goal. Planning is like that too. It's about results, running a business—not at all about the plan itself. Good planning is measured by the decisions it causes. It's about managing, allocating resources and accountability. I’ve written this in several places: “You measure a business plan by the decisions it causes.” And this: “Good business planning is nine parts execution for every one part strategy.”
  2. Think of the moment when the player gets the ball in the wrong end of the court or field. That’s either a defensive rebound in basketball or a missed shot on goal in soccer. The tall player gets the basketball and gives it to the one who normally dribbles up court. Or the goalie gets the ball and gives it to a defender. At that moment, in a well-coached team: 1) there is a plan in place and 2) the player knows the plan but is completely empowered to change the plan instantly depending on how the play develops. Business planning done right is very much like that. The existence of a plan—take the ball up the side, pass to the center—helps the team know what ought to happen. But changes—the opponents do something unexpected—are also expected. The game plan doesn’t lock the players in to doing the wrong thing or not responding to developments. It helps them make the instant choices, changing the plan correctly...and when they do, the other players can guess the next step better because of the plan.
  3. Dribbling involves simultaneously looking up, at the field, and developments going on; and down, at the ball, hands, and feet, to manage the details. Proper business planning, in very much the same way, requires looking up at the figurative horizon—­threats, opportunities, competition, market developments, etc.—and down at the details: tasks, deadlines, budgets, accountability, and of course cash flow and plan vs. actual.

I’ve always liked this analogy because it dispels the myth that having a plan reduces flexibility to react to developments. Planning isn’t voided by change; on the contrary, having a plan makes reactions easier. There is no virtue in following a plan just because it’s the plan. Proper planning means regular review and revision. 

About the Author:

Tim Berry
Tim Berry

Guest Blogger

Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, blogging at timberry.bplans.com. His collected posts are at blog.timberry.com. Stanford MBA. Married 46 years, father of 5. Author of business plan software Business Plan Pro and www.liveplan.com and books including his latest, 'Lean Business Planning,' 2015, Motivational Press. Contents of that book are available for web browsing free at leanplan.com .

6 Tips for a Fiscally Fit and Successful Freelance Business in 2013

By Caron_Beesley, Contributor
Published: January 24, 2013 Updated: January 24, 2013

Thinking of becoming a freelancer or hoping to make this year’s freelancing more fiscally fruitful than last? Freelancing is a money game and cash flow is king. And while there may be times when your cup runs over, there will no doubt be other times when it looks ominously dry.

To be a successful freelancer—in addition to being good at what you do—you need to be agile, tenacious, a consummate planner and equipped to deal with fiscal downtimes.

Here are some money-saving and business growth strategies that you can use to ensure the fiscal fitness of your freelancing business this year.

Have a Financial Cushion

Every freelancer needs a financial cushion; in fact, you shouldn’t quit your day job unless you have one. It can take up to six months to build your client base and develop consistent income. Instead, start your freelancing activities “on the side” until you are ready to transition to full time business ownership.

How big should your cushion be? Start by factoring in your living expenses for the next six months and allow for any emergencies that may arise. Next, assess what percentage of your income you’ll need to put aside to make your estimated taxes, social security and Medicare payments. Consider setting up a separate bank account and allocate 30-35 percent of every check you receive for work done into that account. This will help you avoid any day-to-day temptation to dip into it while ensuring you have the money to pay your estimated tax requirements when the time comes.

Reduce Your Overheads

Most freelancers can work from home. If you really need social interaction or want to leverage the brainpower of fellow freelancers, consider a co-working space (now available for a low-cost in many cities) or even your local coffee shop. 

Likewise, buy as little as you need. If you’re not commuting anymore, do you really need an expensive 4-wheel-drive SUV or truck in the driveway? Do you really need the latest high-end smartphone or laptop or could a cut-price one do the job just as well? What about computer software—could you cut costs by using a free email service or a low-cost word processing app? What about buying surplus office furniture?

For more lean spending tips, read: 6 Tips to Rein in Spending and Be a Lean Start-Up.

Invest in Good Back-Up and Use it

If there’s one thing that any freelancer can be sure if in their business, it’s that one day your PC will succumb to the dreaded “blue screen of death,” be infected by a virus or taken over by malware. Without an IT department to turn to, you’ll end up throwing cash at an expensive fix and risk losing all your work and business records in the process. Regularly backing up your work, both to a standalone hard drive and to an online location (providers like DropBox, Symantec, and Carbonite offer free or low-cost services) will ensure your data is protected and always accessible. Get more tips here: Finding the Best Backup Option for Your Small Business Data.

Look for Ways to Expand Your Business on the Back of Existing Work

Growing a freelancing business is a challenge. Networking often takes you away from existing work, while developing and nurturing new relationships into profitable clients takes time. Instead, look for to expand your business and earn more money with existing clients, based on the work and track record that you already have. Check out some tips for doing just this in my earlier blog, 5 Ways to Become an Indispensable Freelancer and Earn More Money from Your Clients.

Collaborate with Others

Growing existing business is good, but it’s also important to have multiple streams of income. One option for growing your business this way is to team with complementary businesses. For freelancers, for example, work on building relationships with those who serve your target customers. Photographers could collaborate with wedding planners, or graphic designers could team with marketing consultants.

Don’t Be Afraid to Ditch Unprofitable Clients

Freelancers often price their services at different rates in order to secure business. But if a low-paying client is also your most demanding and tricky client—whether based on the work you are required to do or the nature of the relationship—it might be time to cut your losses, walk away from this type of low-margin work and concentrate on deepening other relationships.

About the Author:

Caron_Beesley
Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Meal and Rest Breaks – What Small Business Employers Need to Know

By Caron_Beesley, Contributor
Published: January 23, 2013

Should you pay employees for rest and meal breaks? Are you even required to offer such breaks?

We all need rest and meals during work hours and the law stipulates standards for these breaks, including whether your employees should be paid for them. Here’s what you need to know:

Federal Wage and Hour Laws

Under the Fair Labor Standards Act of the U.S. Department of Labor, non-exempt employees can take short breaks (although it’s not mandatory). A short break is typically considered to be 20 minutes or less, and employees must be paid for these as hours worked. When it comes to meal breaks, anything more than 30 minutes does not generally need to be compensated as work time (although again, meal breaks aren’t required under federal law). But here’s the caveat – if your employee does any kind of work during that meal break, such as answering email or taking a business phone call, then you must pay them for that break.

Bathroom breaks, which are required under the Occupational Safety and Health Administration, are excluded from the definition of rest breaks.

To avoid any legal hassles, be sure you communicate your break policy to employees. For example, employers have been known to come under the spotlight for permitting certain workers to take frequent (paid) cigarette breaks, while other employees do not. If employees are taking unauthorized breaks, or unauthorized extensions of authorized breaks, you are not required to count the unauthorized time as hours worked (so long as the terms of what is authorized/unauthorized have been expressly communicated to employees).

State Wage and Hour Laws

Even though meal and rest breaks aren’t required under federal law, some states do impose mandatory breaks for employees in specific industries after a certain amount of hours worked. For example, in California, a meal break must be provided no later than the end of the employee’s fifth hour of work. So giving employees the option of skipping lunch to get out of work early is breaking the law.

Generally, state laws stipulate a 30-minute paid meal break. For laws in your state, check this consolidated breakdown of state meal break requirements and rest break laws from the Department of Labor. You can also refer to your individual state labor office.

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About the Author:

Caron_Beesley
Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

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