United States: Compensation Packages: Finding The Right Fit

Last Updated: January 3 2017
Article by Adam Guldan

The third quarter 2016 Manufacturer's Outlook Survey published by the National Association of Manufacturers cited health care costs, worker retention and government compliance as primary concerns. To manage these issues, manufactures need to take an active approach in review of their compensation packages and make decisions mutually beneficial to the company as well as the employees. The following discusses some of the human resource challenges impacting manufacturers.

Trends in Health Care Benefits

The Employee Benefit Research Institute (EBRI) recently compared health insurance benefits before and after the shared-responsibility provisions of the ACA (Affordable Care Act) went into effect.

The study revealed that larger employers continue to offer health insurance benefits to their workers. In fact, about 99% of employers with 1,000 or more employees provide health insurance benefits. The coverage rate among employers with 100 to 999 employees ranges between 93% and 95%.

However, coverage among smaller employers has fallen dramatically since 2009. The coverage rate for employers with 25 to 99 employees fell from 81% in 2008 to 74% in 2015. For employers with 10 to 24 employees, the rate went from 66% in 2008 to 49% in 2015. And, the coverage rate for employers with fewer than 10 employees decreased from 36% in 2008 to only 23% in 2015.

Reasons to Provide Coverage

There are many compelling reasons to offer health care benefits.  Foremost, employers should care about their workers and families and want them to be healthy. Additionally, health insurance coverage could offer a competitive advantage for attracting and retaining employees.

Failure to comply with the shared-responsibility provisions of the ACA can lead to steep penalties. In 2016, "large" employers that do not offer affordable coverage or offer coverage that does not provide minimum value face a penalty equal to the lesser of:

  1. $3,240 per full-time employee who receives a premium tax credit; or
  2. $2,160 per full-time employee in excess of 30.

In 2016, the full-time-employee (or equivalent) threshold for large employers is 50. Previously, the threshold was 100 full-time employees (or the equivalent).

Alternative Cutbacks

To help pay for medical care benefits, which are valued by most employees, there may be other offerings that you can eliminate or scale back. One suggestions is to compile a list of your current benefits, such as retirement savings plans, dependent-care and educational assistance, life and disability insurance and health club memberships. Then, ask employees to rate their favorites.

Small changes, based on the needs and preferences of your workers, can save money without lowering morale. For example, a plastics manufacturer reduced benefit costs by 20% with three simple changes: It increased health insurance policy deductibles, decreased the number of retirement plan options and eliminated company-provided disability insurance coverage.

You can also substitute less conventional offerings if you need to eliminate a popular item from your benefits package. One idea is employee stock options, which preserve cash flow while giving employees the opportunity to purchase shares of the company's stock at a predetermined exercise price.

Make an Informed Decision

Many small businesses have avoided the ACA since it passed in 2010. However, doing so can lower morale, make it harder to attract and retain skilled workers and lead to steep penalties. Before taking such a radical step, consider alternatives that can save money while continuing to offer health insurance coverage to employees.

Sidebar: Help Wanted? Consider Hiring a Veteran

Small-business owners often struggle to find qualified workers. Some manufacturers are finding a good fit with veterans, who generally possess technical skills, a strong work ethic and resilience. Veterans also may have strong team-building and problem-solving abilities, because the military provides contingency and scenario-based training.

As an added bonus, hiring a vet may qualify your company for the Work Opportunity Credit (WOC). The maximum wage that can be used to calculate the credit for hiring a qualifying veteran generally is $6,000. However, it can be as high as $12,000, $14,000 or $24,000, depending on whether the veteran is disabled, whether he or she has been unemployed, and the length of time he or she has been unemployed relative to the credit-eligible hiring date.

However the WOC doesn't just apply to veterans, hiring other employees from a targeted group could qualify for the credit. This includes qualified long-term unemployment recipients hired after December 31, 2015 who have been designated by a local agency as being unemployed for at least 27 weeks. Employers would be eligible for a maximum $2,400 credit for such hires.

The WOC was scheduled to expire after December 31, 2014, however the PATH Act extends WOC for five years. The credit is available through tax years beginning on or before December 31, 2019.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Adam Guldan
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