When the Tax Cuts & Job Act passed into law, people had different reactions. The law has the potential to stimulate the economy by letting people keep more of their money and providing tax cuts for businesses of all sizes.
Companies have already begun to reinvest some of their savings into bonuses, pay raises, and more for their employees, but an increase in voluntary benefits for employees could also spur the growth that America needs.
The Tax Law
The Tax Cuts & Job Act [PDF] establishes lower tax rates for individuals and doubles the standard deduction. The Child Tax Credit doubles to $2,000. Popular deductions, such as mortgage interest, medical expenses, state and local taxes, and charitable deductions are also preserved in the law with their own caps or stipulations.
For businesses, the tax rates have been lowered to provide an incentive to invest in our economy and strengthen our GDP. The new corporate tax rate is 21 percent. Businesses will be able to write off the cost of new equipment right away and allows small businesses to write off the interest on their loans. These savings incentivize companies to give back to their employees and invest in the future of their businesses.
Companies that have given bonuses, pay raises, or increased benefits to their employees as a result of the Tax Cuts and Job Act passage include Aflac, American Airlines, Canary LLC, Fiat Chrysler, First Farmers Bank & Trust, and hundreds more.
Aflac has increased their 401K matches from 50 percent to 100 percent on the first 4 percent of compensation as well as an additional one-time $500 contribution to every employee’s 401K accounts. American Airlines gave $1,000 bonuses to each of their 127,600 employees to a grand total of $130 million.
Fiat Chrysler presented $2,000 bonuses to 60,000 employees and added 2,500 new jobs. First Farmers Bank & Trust will increase their base wages by another $2.50 per hour. Hundreds of other companies are following suit by offering employees pay raises, bonuses, or 401K matches that will put more money in their employees’ pockets and into the economy.
The Benefit of Voluntary Benefits
One of the reasons that companies are opting for these one-time bonuses over pay raises is that the bonuses do not increase a company’s regular labor costs. In other words, it does not affect their bottom line. Increasing matches to 401K plans also helps to garner employee loyalty, so organizations that invest in the retirement plans of their employees will experience increased retention.
Organizations should also consider adding new voluntary benefits or increasing their contributions to voluntary benefits. Why not add a matching amount to student loan paydown plans or 529 College Funds? Voluntary benefits have shown to be more effective at improving retention over just giving cash.
The Tax Cuts and Job Act has spurred the economic growth that it promised. Of course, organizations can do more to improve the lives of their employees, increase their profits, and drive the economy toward a stronger future. Voluntary benefits can play a role in building a solid economy while also promoting the talent retention that organizations need.
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