Employee Benefits: From 401(k)'s to Profit Sharing
When I was a poor college student, I worked for the survey center at my university for extra money. Timberland, the New Hampshire-based outdoor shoe and clothing company, had contracted my employer to process their annual employee surveys. As I manually entered the responses into the computer, I was struck by the amount of benefit programs the company offered and the level of satisfaction their employees felt. Timberland is a company that goes above and beyond the standard benefits package. The company offers tuition assistance and a flexible schedule. Employees at their headquarters have access to a fitness center, on-site daycare, dry cleaning services, the company store, and a subsidized cafeteria. No wonder their employees were happy!
Employee benefit packages are vital to attracting and retaining quality, long-term employees. Most benefit packages make up 30 to 40 percent of the employee’s total compensation for their position. When the economy is good, employers scramble to offer their employees a range of benefits to keep them from straying elsewhere. However, as we’ve seen during the current economic meltdown, some companies have been reducing the amount of benefits offered to their employees in an effort to save money, keeping only those benefits that are required by law, including overtime pay, worker’s compensation, unemployment insurance, etc.
Most companies offer their full-time staff the standard benefits, including health, dental and vision insurance, sick and vacation days, and life insurance. Others go above and beyond and offer paternity leave, discounted gym memberships, a flexible work week and a company car. These benefits help promote company loyalty in employees apt to take advantage of them. However, for many employees, the biggest motivator is money, especially in the form of a 401K, profit-sharing or regular salary raises.
The 401(k) has become a staple of employee benefits at most companies, with the employer matching contributions up to 6 percent. While the economic recession may have caused employers to temporarily stop matching their employees’ contributions, it hasn’t stopped people from investing a pre-tax percentage of their earnings with this retirement fund. However, many people choose to stay with companies that match a certain percentage of their investment contributions, even though they can take their money with them in the event of voluntary or involuntary termination.
Profit sharing is an incentive program in which the employee receives a percentage of the revenue, often in the form of a cash bonus, a contribution to a retirement plan, or company stock. The percentage that the employee receives is defined even before the profit is made. Often, the percentage an employee is entitled to depends on how long they have been with the company, meaning employees who have been with the company more than ten years receive a higher percentage than those who have been there five years or less. With profit sharing, employees are motivated to work harder and stay with the company longer in order to reap the financial benefits over the long run. If an employee knows that if they stay with the company for ten years, they will be entitled to a nice sum of money, they may remain with the company instead of being wooed away to the competition.
It may seem obvious, but the best way to retain employees is through regular salary raises. Salary raises reward employees for working hard to achieve the goals of the company. While some companies base the criteria for a salary raise on an individual’s length of employment with a company, others base an increase in pay on merit. In either situation, employees will often remain with a company when they have the monetary incentive to do so.
Some employees cannot be bought, no matter how much money is waved at them. For these people, quality of life is worth more than a bonus or an investment plan. Similarly, some employees have unique family or life situations that require flexibility in the workplace. To recruit and retain these employees, businesses offer a variety of nonmonetary incentives including the option to telecommute, a flexible four day/forty hour work week, job sharing or a generous paid time off schedule. These options allow the employee to reconcile their home and work commitments, a convenience that may instill company loyalty.
An attractive financial benefits package will recruit and retain qualified employees for long-term employment. Invest in your employees and your return on investment will be a happy, dedicated workforce.
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.