Tag Archives: Benefits

How Do You Hire Your First Employee? Seven Suggestions

Situation:  The CEO of an early stage company has identified a person to help her as an assistant. This will be her first real employee. Prior hires have been contractors who have been paid on revenue generated. This individual’s salary will be an expense without clear association to revenue. What guidelines do you suggest as she makes this hire? How do you hire your first employee?

Advice from the CEOs:

  • Create a cash flow projection to make sure that you have the cash to afford an employee.
  • If you consistently expect 40+ hours of work from this individual, consider a salaried position which will give both of you more flexibility.
  • Paychex currently handles your payroll and benefits. Work with them to make sure that all labor law compliance issues are covered. Also, consider hiring a labor law consultant to help you avoid minefields.
  • Do a background check even if you have known this individual for a long time.
  • Consider working with a professional employment organization that can provide back-office HR support for you.
  • An employee handbook is unnecessary at this point. However, think through how you will want to handle issues that may come up including vacation, benefits and paid/unpaid leave like bereavement leave. Document these for inclusion in a future employee handbook.
  • Under the current health care law employers with less than fifty employees are not required to provide health benefits without paying a penalty. This may change as the law continues to evolve.

What Changes in Benefits Do You See for 2015? Five Points

Situation: A CEO is doing benefit planning for next year. The company is small, with just under 100 full-time employees. They are growing, and anticipate reaching over 100 FTEs in the next 12 months, unless they consider either contract or less-than-full-time employees. The CEO is curious about what other companies are planning for employee benefits. What changes in benefits do you see for 2015?

Advice from the CEOs:

  • Including employer-paid social security and Medicare matches, CEOs in the group are seeing a range of from 12.5% to 30% in benefits. This does not include 401K matches or bonuses.
  • Over the last five years, there has been a big shift in benefits, in particular a move from traditional health coverage to high deductible HSA plans.
  • ACA requirements for businesses kick in during 2015/2016. In 2015 employers with more than 100 FTEs will need to provide coverage to at least 70% of full-time employees. Starting in 2016 employers with 50 or more FTEs will need to provide coverage to 95% of their full-time workforce.
  • Much depends upon your annual cost per employee is for health coverage as well as your philosophy on employee benefits.
    • Starting in 2015, if a business is supposed to insure its full-time workers but does not, they will have to make a $2,000 per uninsured employee payment on their year-end federal income taxes.
    • The fee is $3,000 if the employee gets health insurance subsidies through the Health Insurance Marketplace.
    • Some companies who currently pay more than this in annual premiums per-employee are considering boosting employee pay and having their employees self-insure through the Marketplace, or by purchasing the same policies available in the Marketplace directly from health insurers. The policy cost is no different, assuming that the employees will not qualify for subsidies, but policies purchased directly from insurers may provide a better network of physician providers.
  • Before you make any decisions, it is best to consult an outside HR professional who is knowledgeable in both health care alternatives and the ACA.

Where Do You Currently Stand on Benefits? Three Comments

Situation: A small company (fewer than 50 employees) is reviewing their employee benefit package and wants to get a sense of what others are currently covering in their benefit packages. Where does your company currently stand on employee benefits, and what does your company cover in its benefit package?

Advice from the CEOs:

  • A recent small (unscientific) poll of entrepreneurial Silicon Valley SMB Companies on benefits offered found:
    • Health: 100%, Dental: 83%, Vision: 67%, Disability: 17%
    • 401K: 100%, 401K Match: 33% (most companies eliminated the match to reduce costs)
    • Reduced benefits in the last 6 months: 67%
    • Employee complaints or recruiting challenges following cuts: 0%
  • One company commented that when a key customer cut their payments they had to cut benefits. They reduced the company payment from 100% to 50% of benefit cost. Their employees make choices among options available, with a company dollar payment cap. Management explained the situation when they made the cuts, and there were no objections.
  • Several companies have shifted to consumer directed health care options.
  • A comment of caution was offered by one CEO – employees are unlikely to object to their company needing to reduce benefits to get through a difficult market. However, as conditions improve, employees are likely to expect some level of return to prior benefit levels. If not, the company at risk of increased turnover. It is best to stay ahead of the curve to assure that your benefits packages are competitive.

Which is Preferable C or S-Corp Status? Six Suggestions

Situation: A company’s accountant advises them to transition from a C Corporation to an S Corporation. Remaining a C Corp would force them into accrual accounting with significant tax consequences. The accountant also advises that it is easier to sell an S Corp to a buyer, and S Corp status would relieve problems with retained earnings. Which do you think is preferable, C or S Corp status?

Advice from the CEOs:

  • Accountants disagree. Get a second opinion. Also consult a tax or corporate lawyer who will provide another perspective.
  • Another company looked at S vs. C status and found two key factors:
    • S Corp status is great if you expect to lose money for a few years because of the benefit that it can offer to personal taxes. Over the long-term you should look at the difference between personal and corporate tax rates and set your strategy so that it makes the most sense.
    • An S Corp cannot have non-U.S. shareholders.
  • There is more flexibility with C Corp status in your ability to grant options, sell shares, etc. For a suitor, purchase of C Corp shares prior to a full acquisition is like a date before deciding on marriage.
  • C Corp status is good if you are building an empire. S Corp status is better if want to have employee ownership under an ESOP as an option for exit.
  • Since taxes are a significant part of this decision, think carefully before you shift from cash accounting.
    • Once you commit to accrual accounting you can’t go back to cash basis.
    • To the extent have an accrued tax liability you can extend payment of this liability over multiple years.
  • You also may want to consider a hybrid accounting method:
    • Accrual for sales
    • Cash for service
    • Look at whether there are tax advantages to a hybrid model.

What Will Happen to HSA Accounts Under the Affordable Care Act?

Situation:  To maintain expense control as the Affordable Care Act is implemented, a company is looking at HSA options to replace their past insurance coverage. What do you think is the future of HSA policies and accounts as the ACA is implemented?

Advice from the CEOs:

  • HSA Accounts are expected to survive implementation of the ACA, at least for now, and may even thrive (Forbes Magazine analysis, 3/27/13).
  • The HSA Model combines a relatively inexpensive high deductible health insurance policy (minimum deductibles in 2013 at least $1,250 for individual and $2,500 for family coverage) with an HSA Account. Employer or employee contributions go into the account pre-tax. Most insurers offer a high deductible policy and many companies have adopted this option because it helps to control the growth in health care costs.
  • Annual HSA contributions are limited to the amount of the deductible, currently up to $3,250 for individual and $6,450 for family coverage, though these amounts are increased by $1,000 of the employee is 55 or older. Contributions are held in a bank account and can be withdrawn by the employee to cover most out of pocket health expenses. This is under an honor system, subject to possible audit by the IRS.
  • The key component that differentiates HSA Accounts from older health reserve accounts is that if the funds deposited annually are all not used to pay for health costs, the employee gets to keep the excess funds in the account. If the employee builds up excess funds in HSA Account, these can be transferred into an IRA. Check with your HSA bank for rules as to transfer of IRA funds back into the HSA Account if needed to cover out of pocket health care costs.
  • The down-side of the HSA Account is that if the employee encounters a significant health cost, above the amount in their HSA Account, they will have to cover this out of pocket. However, they have the option to reimburse themselves from future HSA contributions as these accrue.
  • If you are considering this for your company, it is advisable to hire a consultant to help you tailor the plan to the specific needs of your company.

How Do You Communicate Benefits Changes Following an Acquisition? Four Thoughts

Situation:  A company was recently acquired. The acquirer wants to merge benefit structures between the two entities. Both contribute a similar amount toward benefits; however the distribution of benefits between retirement and health plans, and other benefits varies considerably. How do you approach the staff to communicate changes in benefits following an acquisition?

Advice from the CEOs:

  • Ideally, you want to gather employee input on what benefits are important to them before the overall package is finalized. This will help you to negotiate in your employees’ interest.
  • Make sure that the acquiring entity is aware of state regulatory requirements that may force them to retain state-specific benefits.
  • National companies often employ a cafeteria benefit strategy that allows the employees to make choices among benefit options, and fund these choices either at a company-paid base level or allow employees to supplement their choices through pre- or post-tax payroll deductions. There are numerous providers who offer cafeteria plans.
  • What’s the best way to have a conversation with employees once the new benefit package has been finalized?
    • Emphasize that the company is offering and funding this benefit and specify the amount that the company is funding as a percent of salary.
    • Create a grid mapping the full program:
      • Amount of company contribution
      • Old Program and benefits
      • New Program and benefits
      • Changes in allocation and changes in the total value of benefits offered.
    • If you have access to industry or regional comparisons for like-sized companies, and those comparisons put your company in a favorable light, share these as part of the communications package.
    • If you know that a highly valued benefit is being reduced, consider a short-term subsidy to ease the shift.
    • Be sure that you are clear and concise in your communications of the new plan and changes to the employees. You may want to have an outside consultant on hand to cover specific questions.
    • Be sure that any decisions your employees must make in the new program are fully and clearly explained.

Can You Metric Company Culture? Two Suggestions

Situation: A company has done a number of things to build company morale. Participation is variable depending on the activity. The CEO wants to build a system to measure employee morale. What metrics do you use to measure changes in your culture over time?

Advice from the CEOs:

  • The Gallup Organization has focused on this issue perhaps more than any other organization in the world. They find that regularly conducting surveys allows you to measure and improve your culture over time. Their surveys focus on 12 questions that they have found most critical to employee morale within a company.
  1. Do I know what is expected of me at work?
  2. Do I have the materials and equipment I need to do my work right?
  3. At work, do I have the opportunity to do what I do best every day?
  4. In the last seven days, have I received recognition or praise for doing good work?
  5. Does my supervisor, or someone at work, seem to care about me as a person?
  6. Is there someone at work who is interested in and encourages my development?
  7. At work, do my opinions seem to count?
  8. Does the mission/purpose of my company inspire me make me feel that my job is important?
  9. Are my co-workers committed to doing quality work?
  10. Do I have a best friend or mentor at work?
  11. In the last six months, has anyone at work given me a review or talked to me about my performance/progress?
  12. This last year, have I had opportunities at work to learn and grow?
  • Notice that not one of these has to do with compensation or benefits. Rather they focus on employee perception of how they are managed, whether they have to do the tools to do their job, and feeling that others at work care about them.
  • Another measure to watch is employee retention – particularly of your best employees.