How to Manage the Effects of the Fiscal Cliff
The recent fiscal cliff deal is giving new meaning to the “post-holiday blues” for many business owners and employees. Those banking on a happy New Year and resolving to spend less and pay off debt may find that they are forced to spend less but also to pay off less due to the latest legislatives changes. The hardest part about these new changes is that they were implemented immediately, leaving now no transition period or time to adjust.
Despite the challenges presented by the latest legislation changes, there are some strategies small business owners can use to help take the edge off the fiscal cliff that so many are now feeling.
The Effects of the Fiscal Cliff
The expiration of the social security tax cut could make for a very uncomfortable and stressful work environment as employees find less take-home in their paychecks. Be aware that although two percent doesn’t seem like a substantial increase, that two percent decrease in take-home could represent a family's monthly utility bill or a week's worth of groceries. Also, take into consideration that many employees did not consider the possibility of a pay cut in 2013. This means those that were relying on their full pay to pay off holiday shopping debt may not be able to do so. What does this mean for you as the employer? Simply that your employees may seek out a raise or work elsewhere for higher pay to meet their already strained budgets.
How to Boost Morale
To maintain and even boost morale during times when you know you can’t offer higher pay, encourage and motivate your staff by offering employees non-monetary incentives to give them something to look forward to and work towards, such as an extra day off or bonus. Doing this can deliver a win-win situation for you and your employees. Employees feel rewarded and appreciated, which will result in greater productivity and overall business that can help offset any fiscal cliff financial burdens you as a business owner might be facing. You might even find that the increased productivity produces available funds that can be used toward awarding staff bonuses or raises.
Just like your employees, you too may find yourself struggling with a pay difference as a result of the increase in the payroll tax and certainly a decrease in your personal bottom line. If your business is set up where you are paid through payroll, you are likely feeling the same pinch as your employees. While this pinch might have you tempted to take more money out of the company to make up for any difference lost, it important that you resist the urge! Instead, try to restructure your budget and expenses to reduce or eliminate spending. This is particularly an important step to take at the beginning of the New Year while you patiently wait to see how the year progresses for your business and as we continue to see congressional attention shifting more to the federal government debt ceiling in the weeks ahead, which will revisit spending and taxes.
Weigh All Options before Proceeding
Note that it is predicted that the tax increase may affect business owners’ willingness to employ others. It may even cause you to consider cutting an employee or two. Make sure you weigh all options before letting go of any employees. It might be more beneficial for you and your employee to keep an employee part-time or on a reduced schedule. Consider that letting an employee go could spark stress on other staff who might end up taking over their responsibilities and that hiring a new employee is likely to require additional time and resources for training, which could end up costing more money in the long haul. Making a former employee an independent contractor may be a creative and cost effective way to keep your seasoned and talented work professionals while still being able to cut back on overall costs.
Take Advantage of Your Tax Return
Finally, make sure you get the most out of your 2012 tax return. Work closely with your trusted tax advisors to identify a complete list of possible deductions that can help maximize your 2012 tax returns. This extra money can help offset financial loss that might have occurred from the latest legislative changes. Always consult with your tax advisors on the best ways to manage tax related and income related expense.
Don’t let the new legislative changes bring you or your employees over the cliff. As challenging as it may be in having to adapt to these new changes without any adjustment period, employing some or all of these strategies can help soften the financial burn and ease the transition period so you, your business, and employees don’t end up over the edge.