As a small business employer, signifying your commitment to employees’ long-term financial goals by offering a tax-favored retirement benefit is a solid way to draw in and retain valuable employees. Retirement plans may seem complex and costly, but there are straightforward and easily-enacted options available that are more affordable than you might think.
The Savings Incentive Match Plan for Employees (SIMPLE) is a tax-favored retirement plan in which both employees and employers contribute to traditional IRAs. As long as an employer has no other retirement plan in place and doesn’t employ more than 100 workers, they are eligible to institute a SIMPLE IRA. Essential aspects of this plan include:
- Tax credits: Employers may be eligible for tax credits of $500 for the first three years of the SIMPLE IRA plan in order to counterbalance the costs of providing and managing the plan.
- Contributions: Employers are required to either make a matching contribution of one to three percent, depending on circumstances, to participating employees, or contribute two percent of each participating employee’s compensation.
- Tax deductions: In most cases employer contributions are tax deductible to the employer.
A 401(k) is a defined contribution plan in which an employer contributes a certain amount of employee’s pay (as chosen by the employee) to the plan. Essential aspects of this plan include:
- Contributions: Unlike SIMPLE IRAs, employers are not required to match contributions. An employee’s contributions to a traditional 401(k) are typically made on a pre-tax basis, with taxes on contributions and earnings deferred until they are distributed, usually upon retirement. 401(k) plans tend to be more appealing to employers than IRA-based plans because the maximum contributions are generally higher.
- Roth 401(k): This is an option in which an employee contributes to the plan on an after-tax basis. Distributions and earnings may be made tax-free in retirement after meeting certain conditions.
- Administrative costs: Because 401(k) plans are more complicated to maintain than SIMPLE IRAs, the administrative costs tend to be higher.
- Non-discrimination testing: 401(k) plans are subject to testing requirements designed to ensure that contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees (in 2020, this is someone who earned more than $130,000 the previous year). Those who fall into the “highly compensated” group can establish a Safe Harbor 401(k) plan in order to avoid nondiscrimination testing.
With a Simplified Employee Pension (SEP) plan, employees receive IRAs that are funded entirely through company contributions. Essential aspects of this plan include:
- Eligibility: SEP plans are more popular among smaller businesses with fewer employees, but employers of any size are eligible.
- Contributions: Employers who institute a SEP plan determine an amount to contribute each year, with a limit set by the IRS.
- Tax credits: Qualified employers may qualify for a tax credit of $500 per year for the first three years of the plan, and employer contributions are tax deductible on the employer’s tax return.
This Roth IRA plan invests in a U.S. Treasury retirement savings bond. Essential aspects of the plan include:
- Contributions: Employees contribute to their account on an after-tax basis through payroll deductions, a checking or savings account, or income tax refunds. Earnings and distributions are generally tax-free.
- Cost: Because employers don’t administer or make contributions to these accounts, the employer only needs to share the information about a myRA option with employees and set up payroll deductions when applicable.
Much like boredom breeds creativity, challenging times breed innovation. Though we will eventually return to normal, it will be a new normal—one where veterinarians have learned to adapt, survive, and even thrive during a global health crisis and economic downturn. Vet practices, which traditionally have been brick-and-mortar businesses, were forced almost overnight to implement online consultations, digital diagnoses, and curbside visits. These changes, it turns out, may be beneficial for business not just in the face of a pandemic, but permanently.
A critical concern for businesses during the pandemic has been maintaining incoming cash flow, and though veterinary practices have had to adapt quickly, telemedicine—including remote consultations, diagnoses, and prescriptions—has provided an avenue for concerned pet owners to continue accessing affordable, professional vet care while helping to keep vet practices profitable. Along with aiding in restoring work/life balance among staff, offering telemedicine services, including curbside visits, is especially beneficial for immunocompromised and differently abled clients.
If vet practices were doing telemedicine prior to the pandemic, it’s likely that they weren’t charging for the service, but Covid-19 has given the green light to let clients know that payment for such time and expertise will be normal practice going forward. After all, services like curbside visits are so far proving to increase duration of appointments, as new intake processes need to be developed and back-and-forth communication with clients can take time.
A strong line of communication with clients during and after the pandemic is imperative, and this is a time when veterinary practices can really boost and nurture existing client relationships as well as establish new ones. One can look to the company Chewy, which has experienced a momentum in revenue, due in large part to customer service and a new customer acquisition rate that is significantly higher than pre-pandemic. The company experienced an influx of active customers greater in the first half of 2020 than in all of 2019.
“We built Chewy by putting the customer at the center of everything that we do. In a world of uncertainty, qualities like trust, convenience, and customer service really matter, especially when it comes to caring for family or loved ones,” said Chewy CEO Sumit Singh.
Veterinary practices can use their websites and social media platforms to engage with clients and keep them informed, now and moving forward, by relaying valuable information such as:
- Alerting clients to hours of operation, policy changes, appointment availabilities, new procedures, and telemedicine capabilities
- Updating clients of the availability, including any sales and promotions, of pet supplies and food, either through the vet’s platform or a partner where the vet practice receives a percentage of the sales
Public health recommendations and state-mandated phases are still changing regularly, so keeping track of Covid-19 safety practices is still critical in keeping business running. Improve communication between staff by updating email listservs or using Google Docs and Sheets, which support immediate collaboration and multiple editors. Programs like Google Hangouts and Slack enable client service representatives to communicate efficiently with each other and with remote staff.
While you don’t want to inundate staff with an overload of Zoom meetings and new administrative and logistical strategies, managers should be regularly conversing on areas for growth and ways to improve patient care, client experiences, and team morale. Retaining valuable staff and keeping your team as connected as possible is a sure way to keep business steady, and even growing, well beyond the pandemic.
On Aug. 28, 2020, as part of COVID-19 relief, President Trump issued a presidential memorandum allowing employers to suspend withholding and paying to the IRS eligible employees’ Social Security payroll taxes from September 1, 2020 through December 31, 2020. The IRS then issued guidance on the payroll tax deferral in Notice 2020-65, but some questions still remain, and additional guidance in anticipated. Here’s what we know now.
Notice 2020-65 Provides Basic Guidance
For those implementing the program, the Notice provides barebones components of the payroll tax deferral, which applies to the employee portion of Social Security Tax.
- For employees earning less than $4,000 in a bi-weekly pay period, employers would defer withholding/depositing employee share of social security tax on wages earned for payroll periods on or after September 1, 2020.
- For employees whose wages fluctuate, the deferral is applicable to wages paid in any bi-weekly pay period during the dates specified in which the employee earns less than $4,000, regardless of wages or compensation paid to the employee for any other pay period. Therefore, the employer may defer to collect the tax in a pay period where the employee earns less than $4,000 but be required to collect it for another pay period where the employee earns more than $4,000.
Though Treasury Secretary Mnuchin announced previously that the deferral program would be optional, the Notice does not specifically address whether it is mandatory or optional.
One main reason that employers may not be eager to offer the benefit to employees is due to the absence of guidance regarding the situation of an employee’s termination or otherwise leaving employment ahead of paying the deferred amount. The employer and employee can come up with an arrangement (i.e. deducting the amount owed from the final paycheck), but should an employer fail to collect from the employee, the IRS could go after the employer.
To Defer or Not to Defer?
Given that the motive behind the tax deferral program is to get more money into the pockets of employees now in order to make ends meet due to reduced wages and/or hours, employers may think it worthwhile to extend this option to their employees. An average worker who completely defers Social Security taxes until December 31, 2020 would save just under $800, or about $60 per week. Employees must keep in mind that it is a temporary relief in the form of a deferral, not a tax forgiveness, though the President’s Executive Order does encourage Treasury to look into possible avenues for forgiveness. At best the tax deferral is an opportunity for workers to funnel those funds into an emergency savings account, ensuring that the savings will be on hand should Treasury fail to put forth a path for forgiveness and the taxes are consequently deducted from paychecks next year.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act changed the rules for employers on retirement plans, making it easier for employers to offer 401(k) plans and for employees to take part in them. Here’s how.
Multiple Employer Plans
Known as MEPs, multiple employer plans permit businesses to band together to offer employees a defined contribution plan such as a 401(k) or SIMPLE IRA, effectively allowing workers access to the same low-cost plans offered by large employers. While MEPs existed before the SECURE Act, here’s how they are now easier to establish and maintain.
- The “one bad apple rule”, where one employer’s failure to comply jeopardized the entire plan, was done away with.
- The “common nexus” requirement, which restricted the MEP option to small business employers who operated either in the same industry or same geographic location, was eliminated, permitting an “open MEP” that can be administered by a pooled plan provider (typically a financial services firm).
- MEPs with fewer than 1,000 participants (and no more than 100 participants from a single employer) are excluded from a potentially expensive audit requirement.
- Small business employers are also eligible for new tax credits for offering retirement savings options to employees.
Changes to Safe Harbor Plans
A provision of the SECURE Act provides more flexibility for employers who offer safe harbor 401(k) plans, which are 401(k) plans with an employer match that allows for avoidance of most annual compliance tests. If a 401(k) includes a Safe Harbor provision, the employer makes annual contributions on behalf of employees, and those contributions are vested immediately. Flexibility offered by the SECURE Act includes:
- Increasing the automatic enrollment escalation cap under a qualified automatic contribution arrangement (QACA) 401(k) plan from 10 to 15%.
- Removing the notice requirement for nonelective contributions. (The notice requirement is still applicable, however, for plans that implement the safe harbor match.)
- Whereas pre-SECURE Act, switching to a safe harbor plan had to be done before the start of the plan year, employers are now allowed to switch to a safe harbor 401(k) plan with nonelective contributions anytime up to 31 days before the end of the plan year. Amendments after that time are approved if (1) a nonelective contribution of at least 4% of compensation is granted for all eligible employees for that year, and (2) the plan in amended by the close of the following plan year.
Automatic Enrollment Credit
The SECURE Act added an incentive for small businesses to feature automatic enrollment in their plans by allowing businesses with fewer than 100 employees to qualify for a $500 per year tax credit when they create a new plan that includes automatic enrollment. Business can also take advantage of this by converting an existing plan to one with an automatic enrollment. The tax credit is available for three years following the year the plan automatically begins enrolling participants.
Part-Time Employee Participation
Previously, employers could exclude employees who work fewer than 1,000 hours per year from defined contribution plans, including 401(k) plans. Starting in January of 2021, the SECURE Act requires employers to include employees who work at least 500 hours in three consecutive years. This means that in order to qualify under this rule, employees would need to meet the 500-hour requirement for three years starting in 2021 in order to become eligible in 2024.
Choosing the Right Plan for Your Business
- Research 401(k) plan options for your business, keeping in mind that retirement plans can be customized to meet the needs of you and your employees.
- Carefully read through costs and fees of each plan. Recordkeeping fees, transaction fees, and investment fees are some to be mindful of, and these fees might increase if you add more employees and the plan grows (i.e. low-cost plans upfront might not be the best plan for your business in the long term.)
- Look for a 401(k) plan that presents a variety of investment opportunities for employees in terms of stocks, bonds, broad-based international exposure, and emerging markets.
Work with a financial expert who can help you establish and oversee a 401(k) plan. These professionals can include third-party administrators, recordkeepers, and investment advisors and managers.
Experiencing business growth is always exciting for an entrepreneur, but periods of growth aren’t always continuous given that every business has ups and downs. Implement growth strategies with the tips below to help your business become more sustainably profitable over time.
Define the Purpose of Your Business
A clear purpose propels growth, profit, and sustainable success, but business owners must regularly review their objectives to be sure that they’re still serving the company in an authentic way. Does your purpose still prompt strong engagement within the company as well as with clients? Does it still lend itself to focus, drive, and innovation? A genuine and straightforward vision helps both entrepreneurs and team members to create valuable and original products and services.
Maximize Operational Efficiency
Delegate, delegate, delegate. Transferring tasks and projects to qualified employees saves you time by removing the burden of smaller duties from your proverbial plate, which allows you to focus on larger aspects of running a business. Relinquishing some of this control also allows you to move into a business leadership and visionary position at a macro level rather than spinning your wheels at the micro level just to keep the business afloat.
Build Your Brand
Your business can grow by leaps and bounds when you develop a reputable and reliable brand. A well-considered brand will help you stand out among competitors and stay fresh in the minds of both new and potential customers. However much of your budget you can allot to marketing, make sure you pin point your target audience, connect with your audience in an authentic way, and keep your messaging concise, simple, and inspiring.
Cultivate Customer Loyalty
A vital factor of business growth and sustainability is your company’s ability to keep repeat customers. Not only does establishing client loyalty help to bolster sales, it also spurs word-of-mouth testimonies that will bring in more business. Be sure to implement expectations within your hiring, training, and review processes that will strengthen your company’s relationship with customers. Keeping in touch with clients and asking their opinions will also help to ensure repeat business.
Be Attentive to Budgeting
Maintaining a budget keeps unnecessary expenses at bay and necessary expenses within financial means. Additionally, acute awareness of your company’s funds means that you know how much can be spent on marketing, technology, new product, new hires, etc. in any quarter or season. Let your budget slip and you risk delving into debt, which will only slow the long-term growth of your business.
Businesses can grow under the guidance of flexible and adaptive leaders who are willing to embrace new methods and processes, new technology, new industry standards, etc. All businesses unavoidably experience seasons of growing pains, but how you as an entrepreneur approach those seasons makes all the difference. You can continue to do the things the way you’ve always done them and risk a stagnant business, or you can embrace change and move your business forward.
Failure is a very real possibility for small businesses. It’s a reality that will test your resolve as a business owner as well as the durability of your business strategy. When giving up feels like the only option, here are some tips to turn a sinking ship around.
Connect with other business owners, influential people in your industry, and even professional business consultants. The chances are highly likely that you’re not the first business owner to be going through this phase. Be willing to ask questions and be open to new ideas.
Execute A Strategy
Do you have a clear vision of your overall strategy and the bigger picture for your business? If not, consider working with a professional marketing agency or consultant to help develop an effective plan to nurture client relationships and keep customers engaged in the long game, which will translate to consistent sales.
Invest in Employee Trust and Motivation
You wouldn’t have made it this far without significant contribution from your team, but be sure all employees are on the same page. Do they understand your business model and long-term goals? Are their contributions and talents valued? A dedicated and active team will build company morale and translate to better sales, better products, and better output.
Know Your Client Base
Business survival is dependent upon fulfilling customer needs and expectations, so it’s important to always be in tune to the pulse of industry current events, news, products, advertising trends, and overall awareness. Likewise, it’s crucial to keep your ears open to customer engagement, feedback, and satisfaction. Partake in market surveys, meet the customers you’re serving, have one-on-one meetings with clients, and invest in low-cost advertising methods.
Realize the Potential of Your Assets
If you find your business in dire circumstances, relief may come in the form of your company’s assets, which are meant to supply capital for your business. Trading assets might just prove to be the lifeline you need to keep from going under. For example, you can lease out buildings, office space, or machinery for a generous stipend. If at all possible, negotiate a rental or leasing arrangement rather than sell completely. However, if you’re convinced that selling is the right move for you, strive to maintain some proprietary rights in the property.
Go Back to the Drawing Board
Try to determine where things went awry in your business. If you collect data and monitor negative feedback, the trends will give you a clue. Start asking difficult questions about salaries, the amount of staff you’re employing, and compensation packages. What additional cost-cutting actions can you take?