Decreasing Employee Salaries via Benefits

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Decreasing Employee Salaries via Benefits

The tech employment market is highly competitive, with companies finding it increasingly more challenging attracting and retaining quality staff. As a result, the tech industry is recognized as providing some of the most competitive benefits packages out there. What is ingenious about the benefits package they are offering is the majority of the benefits, until the Tax Cuts and Jobs Act was implemented, were considered not taxable income. This makes them attractive options for cash-strapped employers. GoDaddy and Keay are two different companies working in the tech industry. Both offer attractive benefits packages that are predominantly classified as not taxable. Four insights regarding the practices companies can use to reduce tax liability relate to the provision of company vehicles, computer equipment and professional development programs, and offering paid family and medical leave. Benefit packages can be used by tech companies to either defer or reduce their tax liability. The final insight is a comprehensive overview of other non-taxable benefits.

US Income Tax Laws

  • Any payment from an employer to an employee is considered income, and federal income taxes must be paid on that income. This includes salaries, bonus payments, and any other employer payment. In addition, the employee is required to pay social security and medicare taxes. Most states also collect income tax, which is calculated on the same payments as federal income tax.
  • There are certain payments, known as tax-qualified employee fringe benefits, that an employee receives from the employer that are exempt from income tax. These benefits include health insurance, long-term care insurance, group term life insurance, disability insurance, educational assistance, dependent care assistance, transportation benefits, working condition fringe benefits, and other fringe benefits.

GoDaddy

  • GoDaddy is an internet domain and web hosting company. Headquartered in Scottsdale, Arizona, the company has offices in 14 offices scattered around the world. They currently host more than 78 million domain names. In 2018, they had a revenue of $2.7 billion and employed nearly 7,000 staff globally.

Reasons GoodDady Offers Benefit Package

  • GoodDaddy believes the success of a company lies with the success of the employees. The benefits package that comes from working at GoDaddy is the company's way of maximizing each employee's success.
  • The culture at GoDaddy encourages staff to "Be Extraordinary, Own Outcomes, Join Forces, Work Fearlessly, and Live Passionately." They use the benefits not only attract but retain staff with a focus toward personal development. GoDaddy states that the well-being of their employees is the primary reason for the benefits they offer.

GoDaddy Benefits Package

  • Health and wellness benefits available to US employees are, generous time away benefits to enable employees to rest and recharge, healthy living programs, employee assistance program, mental, dental, vision, and disability, health fairs, flu shots, and wellness perks, and onsite health and wellness checks.
  • As part of the employment package offered by GoDaddy staff receive equity via option grants, an employee 401k program with employer match, professional development and tuition support, subsidized meals, transportation assistance, and flex spending accounts.
  • Also, included as part of the benefit package offered, GoDaddy offers what it calls "Beyond the Basic." This component of the benefits package includes company-wide celebrations and events, team kudos and peer recognition awards, GoDaddy Cares volunteer opportunities, team-building and professional development, and GoDaddy University.
  • GoDaddy operates globally, so there is some variation in the benefits they offer based on location. Packages typically include, healthcare, professional development, time away from work, and retirement saving.

Classification of Employee Benefits for Tax Purposes

  • Based on the US Tax Code, the employee would pay tax on their income and any bonuses received. They would also pay social security and medicare taxes. State income tax would be paid by those in the US, which varies depending on the State.
  • Tax does not need to be paid on health, dental, vision, mental, and disability insurance, health and wellness checks, flu shots, wellness perks, healthy living programs, employee assistance programs, and health fairs.
  • Time away from the office, company-wide celebrations and events, professional development, and team kudos and peer recognition awards are not taxable.
  • Subsidized meals may or may not be taxable, depending on the details. Subsidized meals for the employer assistance are not taxable. In other instances, they are taxable fringe benefits.
  • It is a similar situation with transportation assistance. It will be subject to tax unless it is less than $255 per month and paid for parking, van pool transportation, or mass transportation passes for non-drivers. If it is paid as a contribution to commuting costs, then unless it needed for the employee's safety, it is taxable pursuant to the Tax Cuts and Jobs Act.
  • The GoDaddy University tuition support is not taxable, up to a value of $5,250 annually. It becomes taxable over that level.
  • Employer matching on 401k accounts is considered pre-tax income because they are deferred accounts. The employee will pay the tax when they withdraw the money.
  • Flexible spending account contributions are not tax-deductible. Like 401k accounts, they are considered deferrable accounts. There is an additional requirement. The maximum amount of salary deferral available is $2,700 per year. This typically increases by $50 each year. If contributions are over $2.700, then they are taxable.

Specific Reimbursements Offered by GoodDaddy

  • GoDaddy has clearly thought out its benefits package for employees, as salary and bonuses aside, all the benefits offered are not taxable if the noted criteria are met.
  • The Tax Cuts and Jobs Act has made some changes, and several of the benefits offered have become taxable, except in defined circumstances. Whether these benefits continue to be classified not taxable, will depend on the detail around their provision.

Keap

  • Keap provides customer relationship management, marketing automation and sales tools for those working in sales and marketing. They had an estimated annual revenue of $100 million in 2018, and employ 650 staff. Founded in 2001, and previously known as Infusionsoft, Keap are headquartered in Chandler, Arizona.

Reasons Keap Offers Benefit Package

  • Keap is all about growth, the word appears with regular consistency across the website, The growth is not just company growth, but employee and individual growth.
  • The financial benefits and promotions are available to all, but only those driven to grow will achieve them. Keap is a tech company, but it is also excited that it is contributing to the employees' future by giving them the opportunity to build a career.
  • There is an unwritten reason behind the benefits package provided, not just by Keap, but also GoDaddy. The reality is that the tech industry is crying out for talent. These benefits packages are typical to most of the tech industry because that is what the market is currently dictating.

Keap Benefits Package

  • Various health benefits are offered by Keap, including health, vision, dental, and life insurance, a rewarding well-being program, premium workspaces, and amenities, and a diverse and inclusive work environment.
  • As with the majority of tech companies, stock options and an employer-matched 401k plan are offered by Keap.
  • Additionally, Keap offers fully stocked meals and snacks, generous paid parental leave, engaging team building activities, and a flexible PTO and work schedule.

Classification of Employee Benefits for Tax Purposes

  • Based on the US Tax Code, the employee would pay tax on their income and any bonuses received. They would also pay social security and medicare taxes. State income tax would be paid by those in the US, which varies depending on the State.
  • Tax is not payable on health, vision, dental, and life insurance, well-being programs, premium workspaces, and amenities, team building activities, flexible PTO and work schedule, stock options, and the diverse and inclusive work environment. The employer-matched 401k account is deferred income, and as such, not currently taxable.
  • The fully stocked meals are subject to the Tax Cuts and Jobs Act, with certain requirements having to be met if they are to be considered not taxable benefits.
  • Paid parental leave will result in Keap receiving a tax credit.

Specific Reimbursements Offered by Keap

  • Like GoDaddy, Keay has structured its benefits package to ensure that the benefits can be classified as not taxable or deferred income, subject to the relevant criteria being met.
  • As previously noted, the tech industry has a major shortage of talent, meaning securing talent is competitive, and companies are faced with making offers either similar to or better than their competitors. The flow-on effect is that there is less ability to offer benefits that are less traditional to reduce their tax liability.

Company Vehicles

  • A company that has a fleet of cars for employee use are eligible to deduct the mileage from the company's tax liability. The provision of a vehicle is a benefit that is not taxable from the perspective of the employee.
  • The employee mustn't use the vehicle for the sole purpose of commuting to work, as the Tax Cuts and Jobs Act excludes this use explicitly if the benefit is to remain not taxable.
  • The potential issue relates to the high tax paid on fuel, which can be offset by joining a fuel discount program.

Company Equipment

  • Working in the tech industry, employees must have access to computer and electronic equipment, mobile devices, and a range of other technologies.
  • Increasingly, employees are forgoing the office and electing to work remotely, with a 159% increase in the number of remote workers since 2005. This means that employees need this equipment in, not just their work office, but their home office as well. This type of computer and mobile equipment is considered a non-taxable benefit.
  • The employer is eligible to a deduction from their annual tax liability for the cost of depreciation. This can be claimed for between one and four years.

Corporate Learning and Professional Development

  • Keap emphasized growth on its website because they have recognized for a company to be successful and grow, its employees need to be successful and grow. Research has overwhelmingly proved this hypothesis to be true. Most companies want their workforce to develop with the company.
  • Offering a professional development and corporate learning program or a tuition allowance to employees ensures all employees have the opportunity to be successful. In addition, there are a number of collateral advantages to the company when an employee is motivated, including improved employee retention rates. It is also a non-taxable benefit from the employee's perspective.
  • GoDaddy University is an excellent example of a company offering this benefit to the maximum available allowance and is benefiting from its employees' personal growth.
  • A company can offer non-taxable professional development courses and opportunities as a benefit for their staff. Tuition fee reimbursement is also non-taxable, up to the value of $5,250 annually.

Paid Family and Medical Leave

  • Paid Family and Medical Leave for employees can result in a tax credit for the employer. Under the Tax Cuts and Jobs Act, an employer can receive a tax credit by voluntarily offering employees 12 weeks paid family and medical leave each year.
  • This is a relatively new tax credit first offered in the 2018/19 tax year.
  • The credit contributes to the employer's general credit that serves to decrease their total tax liability.

Summary of Non-Taxable Benefits

  • Health benefits are the most important of all employee benefits and covers health, dental, and vision insurance, and payments for uninsured health-related expenses.
  • Long-term care insurance covers the cost of residential facilities and nursing homes. While the premiums are not taxable, the benefits received under the insurance are likely to be taxable if they exceed a certain amount.
  • Group Term Life Insurance allows for life insurance up to $50,000. If the policy is over $50,000, then the employee is subject to pay tax on the amount over $50,000, although the tax rate is more favorable than some other applicable taxes.
  • Disability insurance premiums are excluded from tax calculations. However, if a benefit is received under the policy, then it is subject to taxation.
  • The educational assistance exemption allows for payments up to $5,250 annually. The payment can be used for tuition, books, and fees.
  • Up to $5,000 per year can be claimed in dependent-care assistance. Dependent-care assistance relates to things like childcare. An election is made, and the employee either takes a credit or the employee benefit. Both cannot be claimed.
  • Employers can pay $255 per month for parking, van pool transportation, or mass transportation passes for non-drivers. A recent change to the law means that while these benefits remain tax-free for the employee, the employer can no longer claim a deduction from 2018 to 2025. The change also disallows employer deductions for "commuting transportation," unless it is required for the employee's safety.
  • Things that an employee is required to do or need, as part of their job are exempt. This includes professional memberships, long-distance travel, entertainment, and company cars for business driving.
  • Other fringe benefits include employee stock options, employee discounts (including meals provided for employer assistance, up until 2025), adoption assistance, achievement awards (not including cash, gift cards, vacations, meals, lodging, theater or sporting tickets, stocks, or bonds), retirement planning assistance, and other minimal benefits (office parties, occasional tickets to events, etc.).
  • When the fringe benefit is defined as taxable, it must be included in the employee's pay and salary records.


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