by Daniel Kittell | Accounting News, Business Growth, Industry - Professional Services, News, Professional Services
Professional services organizations were already doing their best to embrace the challenges of ever-evolving technology developments when COVID-19 hit, forcing remote work, which in turn affected project delivery and resource management. Read on for growing trends that will support and enable growth and profitability for professional services businesses long after the disruptions of the pandemic have passed.
Implementing Automation and Artificial Intelligence
Extensive data-analysis is the most effective way to provide useful business solutions to clients, but it is a time-consuming process that is sensitive to human errors. Enter smart technologies enabled by artificial intelligence and machine learning. By decoding real-time data and systematizing large chunks of data into usable information, the process becomes simpler and less laborious. Utilizing past data can also help generate strong and clear data-driven insights for the client.
Look for organizations to start using emerging technologies to automate back-end tasks, which will allow employees to focus on specific roles within the company and grow in individual skill sets and abilities.
Increasing Remote Work and Virtual Offices
The pandemic pushed us into a virtual world overnight, and now that we know video-conferencing and collaboration tools are vital information-sharing resources, remote work has become an integral part of the work culture. Additionally, managers can keep track of project progress and employee performance across diverse geographic boundaries through resource management software. Virtual offices allow companies a wider reach of clientele, who have the opportunity to vet companies based on reputation and work portfolios, regardless of location.
Enforcing a Value-Driven Revenue Model
Some professional services charge clients by the hour, but this method excludes the value generated out of each task. For example, when an accountant saves a client 10% in taxes after an hour of billable work, the client is still invoiced based on the employee’s charge out rate instead of on the task’s value. Not only does this decrease profit margins for firms, but clients may not recognize the benefits realized. However, with the adoption of a value-driven revenue model, invoices to clients can reflect the benefits and profits made over the duration of the project (e.g., tax savings, ROIs, and insurance claims), which will increase earnings for firms.
Adopting a Hybrid-Talent Model
In order to reduce project resourcing expenses, professional services firms are embracing the use of digitized project management tools that predict resource demand ahead of time. This provides firms with the opportunity to draft a hiring plan based on project costs and demands. As such, many firms are moving toward a hybrid-talent model—a team comprised of contractors, freelancers, etc., as well as full-time employees. Not only does optimizing resource allocation help to prevent employee burnout, but it also controls project financials and helps to increase profitability.
Establishing a Tech-Supported and Connected Team
Research suggests that highly engaged and connected teams experience greater productivity, improved performance, and enhanced team morale. Moreover, an engaged team produces greater profitability. However, if some or all of your team is working from remote locations, encouraging team engagement can be challenging. By investing in a tech-enabled work culture with the use of collaboration tools, employees can communicate, problem-solve, and share important information in real-time.
by Daniel Kittell | Accounting News, News, Retirement, Retirement Savings
The definition of a retirement gap is when the income you are on track to have when you retire—from sources like Social Security, pensions, part-time work, or a 401(k)—falls short of the income you will actually need to retire the way you want. While you may be working with a well-planned budget in your golden years, rising costs and unexpected expenses could cause a discrepancy between your retirement income and your actual needs. Thus, when drawing up your retirement plan, you need to be prepared for the possibility of income gaps.
Longevity and Lifespan
The good news: overall we’re living longer and healthier lives. The bad news: as lifespans increase and the economy experiences unforeseen shifts, the amount of money needed in retirement may be more than you planned for. This isn’t bad news, exactly, but it does create the need for more foresight and flexibility when it comes to long-game financial planning. A greater duration of longevity likely means a longer retirement, and that creates the potential for a greater money deficit.
Total Income Gap
Your total income gap is the difference between your retirement income target—which encompasses necessary living costs as well as extras, like travel expenses and other bucket list items—and the total guaranteed lifetime earnings you’ve acquired over the course of your employment, such as Social Security, pension benefits, and any deferred compensation. For example, someone who wants $160,000 per year in retirement to maintain their lifestyle but receives $60,000 per year from guaranteed lifetime earnings, would have a $100,000 total income gap.
How to Determine Your Retirement Gap
You could use a retirement income calculator, but online tools cannot take into account your personal lifestyle plans. A better option might be to add up all your potential retirement income sources, like 401(k), Social Security, Individual Retirement Account (IRA), pension, and other savings investments. Next, calculate a plausible estimate of the funds you will need for your retirement. This can be calculated as either a monthly or lump sum. Finally, subtract your essential funds from the amount you are estimated to have. Any discrepancy is your retirement gap. If you find this process overwhelming, meeting with a financial advisor could provide you with a clearer picture of your retirement finances.
How to Bridge the Retirement Gap
Once you have a better picture of your retirement savings, there are steps you can take now to bridge the gap, grow your savings, and secure financial sustainability throughout retirement. Perhaps the most obvious way is to start ramping up your saving effort. Start here:
- Examine and rework your budget.
- Tighten spending on extras like restaurant and take-out meals, vacations, and any superfluous extras.
- Transfer high-interest credit card balances to a card with a more competitive rate to pay down balances faster.
- If it’s feasible (say, with the money you are saving by cutting back on extra spending), think about maxing out catch-up contributions to your 401(k), supplemental retirement plan, or IRA.
If you are counting on Social Security benefits as a significant portion of retirement income, you may want to wait to retire until your full retirement age as benefits increase each year you delay retirement.
Another option for bridging the gap is to adjust your outlook of retirement and adopt a semi-retirement strategy where you continue to work part-time or on a project basis. You might find that your career easily segues into freelance, consulting, or independent contract work, so you can continue to earn income while spending more time with family and pursuing hobbies. Or perhaps a hobby has the potential to grow into a side or part-time gig.
Finally, reevaluate your investment game plan. In lieu of shifting all your funds to more conservative investment options as you age, work with a financial professional to assist in procuring a combination of investments that have the potential to grow your retirement funds in a shorter period.
Implementing several small steps such as the ones above will help you cover a retirement savings shortfall.
by Daniel Kittell | Accounting News, Industry - Construction, News
Payroll is often one of the most complex administrative tasks for a construction firm. At any given time, you may have employees at differing pay rates working across a range of job sites. By streamlining your payroll process, you will save time and ensure that employees are getting paid accurately and on time.
Implement Digital Time Tracking
Payroll processes done by hand, such as moving data from timecards to payroll software, are time consuming and allow for error. Try implementing digital time tracking in place of handwritten timecards and spreadsheets. This will help to slash time, cut down on manual error, and eliminate the task of interpreting handwriting. Catching and fixing errors, like missing hours or break time, is also easier with digital time tracking.
Many time systems have progressed in modern offerings such as geofencing, which improves labor cost data and employee accountability. Construction firms that do government work can log work classifications, verify wage decisions, and manage reporting more efficiently.
Establish a Reliable Payroll Checklist
Make a step-by-step checklist that includes each task in the payroll process. These tasks typically cover:
- compiling hours
- double-checking data
- pay and withholdings
- distributing funds.
Firms that do prevailing wage work must also manage:
- verifying wage agreements
- work classifications
- handling fringe benefits.
Cross off each task as it is completed and make a note of any problems that cropped up, then you can review your process and make changes for improvement.
Streamline Technology
If your company uses multiple platforms for various administrative tasks, you are likely creating more work and more room for error. For instance, be sure you are using a digital time and attendance system that exports out to a payroll and reporting system. This eliminates the extra work it takes to transfer the data. There are also platforms designed to handle the specific tasks associated with prevailing wage work.
Limit Preventable Mistakes
With a lot of variables to keep track of in the payroll process, your goal should be to focus on limiting preventable mistakes. Try making a list of the most common payroll mistakes you’ve noticed, and double check those areas before finalizing payroll.
The payroll process is easy to overlook until something goes wrong and you waste valuable time and resources trying to correct errors. An efficient and accurate process can promote compliance, reduce risk, and lay a foundation for growth.
by Daniel Kittell | Accounting News, Budget, News, Retirement Savings
If you’re in the market for a new house, you might be wondering if you can tap into your workplace 401(k) to cover the down payment. The short answer is yes, but there are definite disadvantages in doing so. Let’s take a look at some of the pros and cons to this approach.
Benefits of Borrowing from a 401(k) to Make a Down Payment on a House
- You’re borrowing from yourself rather than another lender, which means you might not be losing as much money on interest payments as you would if you acquire the funds through other means, like taking out a larger home loan to cover your down payment costs.
- The loan approval is typically hassle-free. Provided your workplace plan allows for loans, and you do indeed have sufficient funds in your 401(k), your credit score and other financial credentials shouldn’t impact your ability to borrow against it.
- The process is typically quick. Every plan is different and works on its own timeframe, but once you’ve decided to borrow from your 401(k), it’s usually just a matter of filling out a few forms to gain quick access to the funds.
- More money for a down payment may equal more options. Borrowing against your 401(k) plan will allow for a larger down payment, which will allow for wider options when it comes to mortgage lenders. It could also help you qualify for a better interest rate as well as help you dodge Private Mortgage Insurance (PMI).
A Note on PMI
PMI is customarily required when you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price. The most common way to pay for PMI is a monthly premium that is added to your mortgage payment. Because it protects the lender and not the borrower, many home owners want to avoid this added expense, but some choose to see it as just another expense of owning a home.
Disadvantages of Borrowing from a 401(k)
- You are diminishing your retirement savings, both in its immediate drop in balance and its future growth potential. Most likely, the return on investment (ROI) you would gain by keeping your money invested would be greater than the ROI from the interest you pay yourself (or the appreciation on your house).
- Your budget will take a hit. You are required to repay the 401(k) loan, which means that a portion of your future paychecks will go toward repayment. That means less money at your disposal for other expenses, such as homeownership costs.
- You will be on a repayment deadline. Borrowers typically get five years to repay a 401(k) loan. Depending on the size of your loan, you could potentially face large monthly payments in order to meet the repayment deadline.
- Inability to repay the loan will result in penalties. Your loan will be treated as a withdrawal if you are unable to pay it back in full by the deadline, which means that you will owe income taxes on it. You will also be subject to a 10% penalty associated with early withdrawals unless you were older than 59 ½ when you took the money out.
- Beware of the cost of leaving your job before the loan is paid. If you quit your job or experience a layoff, the entire loan amount will need to be paid by the due date for filing taxes that year. This could result in a need to repay the loan quickly in order to avoid penalties.
by Daniel Kittell | Accounting News, News, Stimulus, Tax, Tax Planning - Individual
President Biden’s “Build Back Better” policy initiative, which targets economic recovery, includes a $1.8 trillion American Families Plan (AFP) and a $2.3 trillion American Jobs Plan. The administration plans to fund both initiatives through a Made in America Tax Plan. Below is an overview of what’s included in this far-reaching tax overhaul.
American Jobs Plan
Estimated to cost around $2.3 trillion over the next eight years, this part of Biden’s “Build Back Better” initiative would consist of clean energy projects; affordable housing; the reconstruction or repair of 20,000 miles of road and 10,000 bridges; as well as funding for those who provide care for the elderly and disabled, and direct investment in rural and tribal areas by equipping them with 100% broadband coverage.
American Families Plan
Estimated to cost over $1.8 trillion over the next ten years, the American Families Plan would include universal preschool; two years of free community college; paid family and medical leave; extensions of the Child Tax Credit, the Earned Income Credit, and the Child and Dependent Care Credit. It would also extend certain provisions set forth in the Biden administration’s economic stimulus bill, the American Rescue Plan.
Funding for the American Families Plan would come through a series of tax increases on high-income Americans, including: increasing the top individual income tax rate from 37% to 39.6%; taxing unrealized capital gains above $1 million at death; and adjusting the threshold for the 3.8% Medicare tax to all income above $400,000.
Made in America Tax Plan
The administration plans to pay for these initiatives with a “Made in America Tax Plan” over the next 15 years. It is estimated that the tax reform plan will raise over $2 trillion over the next decade and a half by increasing various taxes on American corporations, including:
- Raising the corporate tax rate from 21% to 28%
- Increasing the global minimum tax that multinational corporations must pay to 21%. This is much higher than the 12.5% minimum rate recently discussed by the Organization for Economic Cooperation and Development (OECD).
- Intensifying tax enforcement of U.S. corporations that invert (relocate operations overseas) or claim tax havens
- Imposing a 15% minimum tax on book income reported to investors.
Individual Tax Rates
The Biden administration’s proposals on individual taxation are intended to avoid increasing taxpayers with annual incomes less than $400,000. The plan aims to increase the tax rate for the top income bracket from the current 37% to 39.6%. The top rate on capital gains would nearly double, increasing from 20% to 39.6%. Further, the current net investment income surtax of 3.8% levied on high-income taxpayers presumably would still apply. This means that the new top federal tax rate on capital gains would total 43.4%, nearly double the current law top combined rate of 23.8%.
