The inclusion of a $15 per hour minimum wage in the American Rescue Plan (ARC) of 2021 did not become a reality. However, the fact that it was proposed, illustrates an increasing trend of increased labor costs faced by many snow and ice removal contractors and businesses, even in these trying economic times.
The federal government has employed a number of tactics to help struggling businesses cope with the pandemic, including payroll tax deferrals, forgivable loans and refundable tax credits, to help employers cope with labor costs. But what happens as these incentives expire and the $15 per hour minimum wage becomes the norm?
On the legislative front, both last December’s COVID Relief Act of 2020, and this year’s ARC, contained a number of tax benefits aimed at small businesses including:
The Employee Retention Tax Credit. Extended through December 31, 2021, allows snow removal businesses with fewer than 500 employees (it was previously 100) that suspended operations or suffered a 20% dip in revenue can claim a tax credit equal to 70% of each employee’s wages, up to $14,000 per worker ($7,000 per quarter per employee).The credit is used to cut the employer’s portion of Social Security taxes (FICA) and, best of all, the credit is “refundable,” which means if the credit larger than the snow removal operation’s tax bill, the difference is a cash refund.
The Families First Virus Tax Credit. Although employers are no longer required to pay employees forced to miss work due to COVID-19, the credit has been extended – until the end of 2021. The tax credit is now for employers that voluntarily choose to continue paying employees including those staying at home with children while schools or daycare are closed.
Deferring Employer’s Social Security. This withholding was also extended by last December’s stimulus bill but, once again, only until March 31. This is not a tax credit or forgiveness, only a deferral of an employer’s Social Security (FICA) taxes for the first quarter of the year with one-half due by the end of 2021 and the balance by the end of 2022. In effect, an interest-free loan.
The Work Opportunity Tax Credit (WOTC). This tax credit is not a deduction but, rather a direct reduction of the operation’s tax bill. It is available to employers hiring individuals from targeted groups who have faced significant barriers in employment. The credit amount for the WOTC can be up to $9,600 for each qualified new hire, depending on the targeted group the new hire is drawn from. The WOTC has been extended through 2025.
SALARY AND BENEFIT COSTS
Salary cuts among the rank-and-file workers are rare because of the potential impact on productivity or customer service. However, some snow and ice removal business owners believe salary cuts, despite the potentially expensive severance costs, are a way to spread the pain of reducing salary costs across a broad spectrum of workers.
Unfortunately, whether temporary or permanent, a major consequence with salary cuts is that the snow removal and ice management operation’s best people, the ones with the most work options, may choose to leave. Instead of salary cuts, many business owners are striving to maintain a healthy balance of full-time employees and less costly part-time workers.
Cross-training is another effective measure for snow contractors to combat layoffs. Yet another way to achieve greater productivity is to upgrade, renovate and purchase labor-saving equipment. Other, potentially expensive options include:
Furloughs. A furlough is a mandated leave of absence, where workers usually keep their benefits, such as health insurance, while remaining eligible to file for unemployment and search for another job.
Layoffs. Every employer contemplating laying off workers should take care to follow all legal requirements, especially those created to combat the hardship of workers during the coronavirus pandemic.
Reportedly, a number of employers have begun evaluating salary reductions for employees who opt to move to smaller towns indexed with a lower cost-of-living. While, perhaps, not so good news for workers who have moved to less expensive locales, those businesses were working remotely for some or all employees is an option may want to consider pay reductions.
Not too surprisingly, remote worker can be both troublesome and expensive. Consider a few potential trouble spots:
- Significant liability can be a factor, particularly since there is less control and/or monitoring of remote worker hours. Don’t forget, some jurisdictions have strict rules for when employers must provide meals and rest breaks to workers, including remote workers.
- Certain states and cities have wage-and-hour laws that can apply to an employee working remotely in their jurisdiction, including higher minimum wage rates, daily overtime limits and laws that prohibit last-minute schedule changes or require mandatory rest days.
- An increasing number of jurisdictions have regulations requiring employers to reimburse employees for workplace expenses, frequently including phone and internet connections for remote workers.
- Many taxing jurisdictions have specific requirements for the information that needs to be included on employee wage statements or pay stubs -– and substantial penalties for failing to provide this information.
There is not one formula that fits all snow removal and ice management businesses that can be used for combatting higher labor costs. There is, however, a methodology that can help those business owners attempting to cope with the all-too-real threat of a $15 per hour minimum wage or escalating labor cost in general.
- The Workforce. Now might be a good time to re-evaluate staffing levels.
- The Wage Increase: What effect will the wage increase, or already rising labor costs have on the entire operation?
- Pricing. Is now the time to raise prices?
- Reality. Only by actually doing the math will it be possible to fully assess the impact of either those steadily increasing labor costs or a higher minimum wage.
Typically, the higher the average wage paid by a snow and ice removal business, the less effect a minimum wage increase should have. Furthermore, even if the minimum wage increases from the current $7.25 per hour to the proposed $15 per hour doesn’t mean every worker gets a $7.75 per hour increase. The higher the wage, the smaller the increase with no increase at the maximum break point.
SURVIVAL THROUGH INNOVATION
How will your snow and ice removal operation or business respond to real or planned mandatory $15 per hour minimum wages or the skyrocketing cost of workers? Will the business operate at a lower income level? Shut down? Most will respond by innovating.
They will find a way to perform less expensively and more profitably. They will do it with technology that already exists and that will come down in price as demand skyrockets. Will your snow removal and ice management operation be among those that succeed in battling those inevitable higher worker costs?