Fringe Benefits: What You Need to Know

As an employer, you want to ensure your employees are happy and thriving in your business. From time to time, you may even reward them for a job well done. But before you give a reward that’s outside the scope of their pay rate, think twice.

Welcome to the world of fringe benefits.

What are fringe benefits?

Fringe benefits are any form of payment that is considered compensation beyond your employee’s normal pay rate. This could include property, services or cash.

Why do I need to think twice?

Often, fringe benefits are taxable to the employee. And if it’s taxable, you have to report it on the employee’s W-2.

Fringe benefits that are taxable include:

  • Vacations
  • Personal use of an employer-provided vehicle
  • Gym memberships
  • Bonuses
  • Moving expenses (those in excess of your qualified expenses)
  • Group term life insurance
  • Gift cards

This is by no means an exhaustive list, but it should at least get you thinking.

What else do I need to know?

When we talk about fringe benefits, we’re often talking about value. The IRS has a little rule called de minimis fringe benefit, otherwise known as “one for which, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical.”

In other words, when you talk about value in regard to de minimis fringe benefits, if the benefit is so small it makes reporting it impractical, you don’t have to worry about it. And before you ask, there’s no specific dollar amount given.

One thing to remember is that cash or cash-equivalent gifts are NEVER non-taxable. For example, gift cards have an easily ascertainable value and can be redeemed for merchandise or a cash equivalent. So they need to be reported as part of an employee’s wages.

If you give items that are not cash, you will more than likely utilize fair market value. For instance, say you have a drawing during your company holiday party and an employee wins a 60 inch TV. This would not be considered de minimis and would need to be included in their income so taxes could be withheld. In this instance you can easily ascertain the value of the TV.

In the above example, you utilize fair market value. However, there are items that don’t have an easily discernible value. In that case, look at what a willing buyer would pay for that particular item. If you need a little more help, the IRS lays out guidelines for the valuation of certain items, like the lease of an employer-provided vehicle. You can find more information on that here.

So what would be considered de minimis?

So what would be considered de minimis? An example would be giving each of your employees a T-shirt, turkey, or something similar in value. The key here is that it HAS to be something tangible (as a reminder, this doesn’t mean cash or anything with a value attached … even a $5 gift card counts).

The moral of the story?

Fringe benefits are a great way to reward your employees and help you stand out from your competition. However, you need to be careful that you’re actually reporting these benefits as part of your employee’s wages.

The Importance of Classifying Workers

Recently, the IRS released a fact sheet to help remind small businesses of the importance of correctly classifying workers. Sometimes IRS lingo can be complicated, so we broke it down for you.

Let’s start with the question that’s probably going through your head – why does this matter?

When you classify your workers, this can help determine if you need to withhold income, social security and Medicare taxes. It also helps determine if you actually have to pay these taxes on employee wages. When it comes to independent contractors, businesses usually don’t have to withhold or pay taxes. If you’re not classifying correctly, you can get stuck with some harsh fines and penalties.

So how do you determine if the individual is an independent contractor or an employee? One general rule to follow is that your worker is an independent contractor if the business has the right to control only the result of the work, not how the work will be done. However, there are three categories that can help you make your determination.

Behavioral Control

A worker is considered an employee when the business gets to be bossy. Okay, maybe bossy isn’t the right word, but the business does have the right to direct and control the work being done. Behavioral control can be broken down into a few more distinct categories:

  • Type of instructions – This can include telling the employee where to work, when to do the work and how the work should be done.
  • Instruction complexity – The higher the complexity of the instructions given, the more likely it is the individual is an employee. When the instructions have less detail, this gives the worker more control to do the job how they see fit, which points towards the worker being an independent contractor.
  • Evaluation – How a business evaluates the work can help determine if the worker is an employee or contractor. If the details of how the work was done are evaluated, then the worker is likely an employee. However, if only the end product is being evaluated, it’s more likely you have a contractor.
  • Training – This one is fairly simple. Would you like someone else telling you how to do your job? If a worker is an employee, the business has the authority to do just that. For independent contractors, they are the experts and generally don’t require training from the hiring company.

Control over Finances

This category looks at what control the business has over the financial and business pieces of the worker’s job. Factors to consider include:

  • Equipment investment – Independent contractors are much more likely than employees to make significant investments in the equipment they are using to get the job done. Employees are often provided equipment from their employer, rather than investing in it on their own.
  • Expense reimbursement – Businesses generally reimburse expenses for their employees, not for independent contractors.
  • Availability – Independent contractors generally have the freedom to seek out more business opportunities, while employees work is usually contained to the one business.
  • Payment – This one is easy to understand. When you have employees, you usually guarantee them a regular wage. With independent contractors, a flat fee is usually agreed upon and paid on the completion of the work.

Relationship Elements

What the business or worker offers in the relationship can also determine classification. Some key elements to consider are:

  • Contracts – Written contracts which describe the relationship the parties plan to create are a fairly simple way to determine which type of worker the business has. However, it’s important to note that a contract stating the worker is a contractor or an employee isn’t enough on its own to classify the worker’s status.
  • Benefits – Insurance, retirement, vacation and sick pay are benefits provided to employees. It’s rare for these benefits to be given to independent contractors.
  • Forever or just a fling – The length of time of the relationship can help determine a worker’s status. When an employee is hired, the expectation is that the relationship is long term. For contractors, the relationship isn’t permanent. Instead, both parties enter the relationship with the assumption of a certain amount of time for the work to be completed.

When businesses wrongly classify their workers, they are still liable for the related taxes and payments for those workers, and may even face other sanctions. Correctly classifying your workers helps you avoid this, making it easier for you to run your business.

We know this stuff can be kind of confusing – and even scary. But don’t fear! We are here to help.. just ask!

 

Is it Time for a Promotion?

We’ve said it before and we’ll say it again: one of the coolest parts about starting a business is that you get to hire awesome employees to work for you. These employees are (hopefully!) putting a large amount of dedication and effort into the work they’re doing for your business, and they’re really impressing you. You might even be considering whether or not they deserve a promotion.

Here are four signs it might be time to hand out that promotion.

    1. They go above and beyond | All businesses dream of them, some businesses actually have them – the employees who go above and beyond what is stated in their job descriptions. When you hired this employee, you went over what was expected of them in their position – what their duties were, who they reported to and the scope of their work. However, you might have gotten lucky and found someone who does what is expected and then some. Maybe it is picking up slack of others, taking on multiple projects at a time or even working extra hours to get things done – this employee is a potential candidate for a promotion.
    2. They have a proven success record | When you hire an employee, your hope is they will do their job well. What’s even better is when they prove just how well they are doing their job. Success can be measured in many different ways, often depending on the type of work being performed. For example, maybe this employee has brought in more new referral sources than anyone else, or has seeing the greatest return on investment from a marketing project he or she completed. Another measure of success can be key performance indicators, or KPIs. KPIs can help hold everyone accountable for their tasks, make sure everyone is on the same page and ultimately map out goals that your business wants to reach. How well the employee is meeting these KPIs can indicate whether they are promotion ready.
    3. They’ve been with you through it all | Starting and maintaining a business is no simple task. It involves the highs and lows, the risks and rewards. Having an employee who has stuck by your side through everything is a huge bonus. When times got tough, this employee didn’t turn and run. Rather, they stuck around and helped the business fight its way out of the dark period and thrive.
    4. They’re a walking, talking version of your business | Your employees should promote the values of your business. If your business values giving to charity and volunteer work, you want your employees to participate and be involved with these initiatives. If you want your business to be seen as respectable and trustworthy, you want your employees to act in a manner that promotes this idea and lets people know what kind of people fit in your organization. An employee who displays the values and characteristics of the business at all times is not only a good fit for your company, but also helps promote a positive image.

 

Once you have decided to promote an employee, there are a few things to consider. When someone gets a promotion, it often comes with a pay raise. You will need to be ready to discuss this new pay rate, as well as ensure you are able to actually pay them the promised amount. You also need to note if there will be any benefit changes, such as extra PTO or bonus eligibility.

Another item to keep in mind is how you will communicate this promotion. Will you alert the employee privately and then tell the whole staff, will you hold an event or will the promotion remain private between the business and the employee? Also, keep in mind that other employees may be upset with this decision if they feel they deserved a promotion but were not given one. These employees need to be addressed individually so they understand the reasoning behind your decisions.

Employees are great and there are often times they are so great they deserve to be recognized for it! Considering the tips above can help you decide when it is time to give your employees the promotion they deserve.

 

 

 

 

 

 

 

 

The Value of Employee Referrals

By: Sarah Sanborn, Eide Bailly Recruiter

While it may seem like recruiters have an endless supply of candidates just waiting in the wings to be called, this isn’t quite true. You, and every member of your team, are a valuable resource that is vitally important to attracting top-notch employees.

Did you know that the average employee will have 150 contacts on social media networks? In other words for every 100 employees, there are 15,000 contacts and potential candidates (according to Hebberd). Need some more proof? Jobscan notes that “research has shown that acquaintances whose social and professional circles don’t have as much overlap with yours are more likely to connect people to new jobs.”

Chances are you, or someone you know, has many exceptional referral candidates waiting in the wings collecting dust.

Perhaps you can’t think of anyone you know who is actively seeking out a new job. Or, maybe you think there’s no one in your network that would have the skills you are looking for. Recent research has shown that more than 83% of candidates would consider leaving their current company if another company with an excellent reputation offered them a job (Hebberd).

There are a lot of great reasons for encouraging your employees to refer hires:

  • “Referral hires are widely known to stay longer on the job, perform better and have greater job satisfaction as well as have shorter time-to-fill periods.” (Jobvite) In other words, referral hires can make doing your own job easier.
  • A referred candidate is faster to hire than a traditional candidate. “On average it takes 29 days to hire a referred candidate, compared to 39 days to hire a candidate through a job posting, or 55 days to hire a candidate through a career site.” (LinkedIn)

So, how do you move forward from here? Share your network and refer, refer, refer!

  • If you haven’t already done so, connect with your company’s recruiters on LinkedIn. Share your social network – if you don’t have the time to dig through your contacts for referrals, connect with your recruiters, and they can do it for you. (PS, if your company doesn’t have recruiters, or feels too small to hire recruiters, we can help! Our HR team is always ready to help you recruit top talent for your business – just ask!)
  • Actively think about the people you are connected to. Who’s the best accountant (or engineer or administrative professional) you know? Who attended college classes with you? Who do you see at your professional networking events? Who works in your industry? Who’s up and coming?       Think of anyone and everyone you’ve had professional contact with or worked with – you never know where that talent may be hiding!
  • Most importantly, don’t forget to refer those that you think might not be interested. Recruiting includes reaching out beyond the initial candidate and expanding to include their network! If they aren’t interested, they might know someone who is.

Your company hired you, and they want to hire more people like you! With your help, recruiters can confidently identify and hire top talent. The ultimate goal of a recruiter is to help you with your staffing needs so you can remain focused on your business. Help them help you!

Important Items When Hiring

Have you ever thought about hiring staff? You know, bringing in employees to work beside you in your business to keep it awesome and running smoothly? As a business owner, it’s likely the thought has at least crossed your mind. What you might not have thought about is the legalities that come along with hiring staff.

Before you hire staff, the Small Business Administration says you need to take care of some very important to-do items.

  1. Employer Identification Number (EIN) — To hire employees, you will need to get an Employer Identification Number (EIN) from the IRS by filing an application. This can be done on the IRS website. An EIN is the unique code the IRS uses to identify your company – similar to how your social security number identifies you.
  2. Forms W-2 and W-4 — Having employees means you will have to file taxes on their wages. You will need your employees to fill out W-4 forms when they are hired. You will also need to submit W-2 forms for employees to Social Security. Getting these records set up right away will make for smooth(er) sailing during tax season.
  3. Form I-9 — You also need to make sure the employees you’re hiring are legal to work in the United States. To do this, you as the employer will need to complete Form I-9 within three days of hiring someone. You may need to do an online verification during this step as well. This will depend on what state you are in and whether you are a Federal contractor or sub-contractor.
  4. Two Words: Worker’s Compensation — In the somewhat unlikely – but still very serious – event someone gets injured on the job, you typically need to pay worker’s compensation. Your business will need to have specific insurance to cover this, and this insurance needs to be in place as soon as you have employees. It’s better to be safe than sorry.
  5. Form 941 — More on taxes. Employers who pay wages are usually subject to other taxes, such as social security. Because of this, employers have to file Form 941, or the Employer’s Quarterly Federal Tax Return.
  6. New Hire Reporting — You will need to register with your state’s New Hire Reporting Program, which is essentially just a large directory of all employees. Employers must report newly hired or rehired workers within 20 days. What must be reported? Federal and state laws in North Dakota, for example, require you report the employee’s name, address, social security number, date of hire and whether or not health insurance is offered. These criteria can vary from state to state.
  7. Workplace Posters — Employers are required by law to display certain posters in the workplace. Such posters usually inform employees of their rights under labor laws. Some examples include the Equal Employment Opportunity poster, the Fair Labor Standards Act poster and the Family and Medical Leave Act poster. Most of these posters can be found online through the US Department of Labor’s website.

Hiring employees can be an exciting step for your business. Not only can they help your business succeed, but they may be a sign that business is good and you need more help to serve your customers.

If you have any questions about the hiring process, our HR consultants are here to help you take this step!

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Are you an intrapreneur?

Have you ever thought of yourself as a risk taker? You know, someone who pushes the envelope, challenges the status quo or maybe someone who finds the word “impossible” to be a challenge. Now, what if you were acting this way in an attempt to better your business/employer? If you are taking risks and being innovative for the possibility of bettering your business, you might be an intrapreneur.

An intrapreneur is defined as “an employee of a business who is given freedom and financial support to create new products, services, etc. and does not have to follow the usual routines or protocols” according to the dictionary. The American Heritage Dictionary adds on that an intrapreneur takes responsibility for an idea through assertive risk taking and innovation. Further yet, Christian Koch goes on to say that intrapreneurs are the “secret weapon” of the business world.

To sum it all up, an intrapreneur is an employee who takes risks in the hope and desire they pay off for the better of the business.

Intrapreneurs can have a very positive impact on a business. The work of intrapreneurs can lead to increased productivity. When new ideas and tasks are presented, more people are often needed to make these dreams a reality. Adding more people to a new project can lead to more work being completed and more employee engagement.

Along with increased motivation in a business, intrapreneurship can also lead to an increase in innovation – and who doesn’t want that? New ideas can bring about a need for new processes, technology, etc. Acknowledging this need and acting on it can introduce new-to-your business tools that can help foster growth and change which could help your business get ahead.

Another positive impact from intrapreneurs comes from their understanding of current trends and issues. The risks these employees take are usually to address a need or opportunity their business can capitalize on. By keeping up with, and acting on, trends, intrapreneurs can help the business gain a competitive advantage by being early adopters. This competitive advantage can help your business get the leg up it needs to be successful.

These intrapreneurs sound pretty great, right? So how do you go about creating a culture of intrapreneurship in your business?

  • Reward and Recognize Behavior — Reward your employees for taking the initiative or for thinking ahead on projects. Whether it’s a simple thank you, pat on the back or going for lunch, this can show your employees you value (and encourage) them to step up and be innovative.
  • Encourage Healthy Competition – Healthy competition can be extremely helpful when trying to foster a culture of intrapreneurship. This can often times lead to employees working hard in order to win by getting the best results. To do so, it’s possible they will have to come up with new or unique ideas – which can help them transfer this skill over to other parts of their work.
  • Encourage Networking and Collaboration – You’ve heard the saying – two minds are better than one. Encouraging your employees to network and work together on projects can lead to more innovation and productivity, as well as new ideas and feedback. Offering brainstorming sessions allows a set time for employees to get together and collaborate at a time that works for everyone.

As great as having an intrapreneur sounds, it’s important to remember that intrapreneurs simply do not fit in some businesses.  Because intrapreneurs take risks and like to push the envelope, they usually do not fit well with businesses who have a tried and true way of operating. Businesses that have been around for many years, or those who have a set process in place might struggle to adopt and compliment the skills and characteristics of an intrapreneur. Because of their risky behavior, intrapreneurs can cause conflict and disruptions between employees and the business. In this case, it is best to focus on communication in order to keep everyone on the right track and working efficiently and effectively.

Although intrapreneurs can have both positive and negative impacts on a business, it’s important to remember that intrapreneurs typically have the business’s best interest as heart. They’re not just showing up to work for the paycheck. Rather, they are investing in the company by bringing passion and a desire to better the business through innovation and risk taking.

 

Forms W2 & 1099: What You Need to Know

w2-bookAs 2017 begins, one of the things at the top of a business owners list is forms. Tax forms, to be more specific.

These forms are complex and take some time to go through. However, they’re necessary for your business for a multitude of reasons, one of which is not getting in trouble with the IRS.

Two of the most common tax forms you’ll get to deal with are the W-2 and 1099. These particular forms deal with reporting worker wages and income … and employees like to get paid.

Need a refresh on what they are? Check it out here and here.

To learn more about these important forms, and how to complete them correctly, check out our annual W2/1099 Book. In it, you’ll find:

  • Answers to who is an independent contractor and who is an employee
  • Information specific to the 1099
  • New Hire Reporting requirements and info
  • Information specific to Forms W-2 and W-3

Check out all the goodness here.