Tax Law Is Prompting Enhanced Benefits and Pay, Companies Say

Employers are considering more-generous bonuses, wages, 401(k) matches and paid leave

Stephen Miller, CEBS By Stephen Miller, CEBS January 29, 2018
Tax Law Is Prompting Enhanced Benefits and Pay, Companies Say

Workers' benefits and pay packages are getting a boost from the lower corporate tax rate that took effect this year, many U.S. companies say.

The tax act enacted at the end of December, informally known as the Tax Cuts and Jobs Act, lowered the corporate tax rate to 21 percent from 35 percent. It also removed incentives for companies that earn money outside of the U.S. to keep those earnings offshore. Several multinational corporations have announced they are bringing this money back to the U.S., where it can be spent to fund new investments and to enhance employee rewards.

The tax overhaul has been cited by companies that have increased employee salaries, granted "tax cut bonuses," raised their 401(k) matching contributions and expanded paid leave programs, among other actions.

Walmart, the largest private employer in the U.S., announced Jan. 11 that it will raise the minimum wage it pays employees to $11 an hour, up from the current $9, and give hourly employees bonuses ranging from $200 to $1,000, based on seniority, while announcing staffing cutbacks as well. A host of other corporations said they will pass along tax savings to their workers.

"More than 120 major employers have announced significant tax-cut-induced wage increases and employee bonuses," Andy Puzder, former CEO of CKE Restaurants, wrote in a Wall Street Journal op-ed column. "Small businesses rarely make such announcements, but rest assured many are following suit as they compete for employees."

According to findings released Jan. 25 from the 2018 Willis Towers Watson Survey on the Impact of Tax Reform, 31 percent of large and midsize U.S. employers have taken at least one action regarding their benefit programs, and 19 percent have done so regarding broad-based employee compensation, in response to the Tax Cuts and Jobs Act. Many more are planning, or at least considering, to do so.

The enriched compensation is in addition to the increase in take-home pay most employees are seeing as a result of lower individual income-tax withholding rates.

"The tax reform law is creating economic opportunity to invest in people programs," said John Bremen, managing director, human capital and benefits, at consultancy Willis Towers Watson. "While a significant number have already announced changes to some of their programs, the majority of employers are proceeding to determine which changes will have the highest impact and generate the greatest value."

The corporate tax cut isn't the only reason pay and benefits are being enhanced, however. "Record low unemployment levels and a growing skills gap are driving employers to focus on improving their overall workplace experience so they can retain top employees and attract potential talent," said Rebecca Henderson, CEO of talent recruitment firm Randstad Sourceright.

FedEx Commits More Than $1 Billion to Wage Increases, Bonuses, Pension Funding

FedEx Corp. announced Jan. 26 that, in light of the corporate tax overhaul, it was taking the following steps to enrich workers' pay and benefits:

  • Increasing compensation by more than $200 million, about two-thirds of which will go to hourly employees, by advancing 2018 annual pay increases by six months to April 1 from the normal October date. The remainder will fund increases in performance-based incentive plans for salaried personnel.
  • Making a voluntary contribution of $1.5 billion to the FedEx pension plan during fiscal 2018 "to ensure it remains one of the best funded retirement programs in the country."

Benefit Programs

Sixty-six percent of the 333 companies Willis Towers Watson surveyed from Jan. 10-17 have made or are considering making changes to their benefit programs. The most common changes are:

  • Expanding personal financial planning benefits (34 percent).
  • Increasing 401(k) contributions (26 percent).
  • Increasing or accelerating defined benefit pension plan contributions (19 percent).

Other potential changes include increasing the employer-paid share of health care premiums and adding a new paid-family-leave program in accordance with the Family and Medical Leave Act's tax credit available for paid leave for certain employees, the survey showed.

Bigger 401(k) Matches

As a result of the tax act, supplemental insurance firm Aflac said that it will increase its 401(k) employer match from 50 percent to 100 percent on the first 4 percent of employee contribution while making a one-time contribution of $500 to every employee's 401(k) plan. Aflac will also offer certain hospital and accident insurance products to all employees free of charge.

"We are pleased that these tax reforms provide Aflac with an opportunity to increase our investments in initiatives that reflect our company values," Aflac chairman and CEO Dan Amos said in a statement. "We will use these funds to help secure healthy retirements, develop employee skills in an evolving global business climate, and provide additional protections for our workers and their families."

Nationwide Insurance also is raising its contributions to employees' 401(k) savings plans as a result of the tax law, as is credit card provider Visa, among other firms.

Compensation Programs

Sixty-four percent of employers surveyed by Willis Towers Watson have taken or are considering taking action on their broad-based compensation programs, the survey found. The most common changes are:

  • Conducting a review of their compensation philosophy (43 percent).
  • Addressing pay-gap issues, such as disparities based on gender (36 percent).
  • Introducing a profit-sharing or one-time bonus payout to all employees (21 percent).

Consultancy PwC's Q4 2017 Trendsetter Barometer report, published on Jan. 9, indicated that private U.S. companies may give employees substantially larger salary increases in 2018 than their employees received last year. The report draws on interviews with 300 private company CEOs or CFOs during the fourth quarter of 2017, at companies with an average of 934 employees. 

Company leaders said they intended to raise wages by 4.27 percent on average over the next 12 months, a jump from the 3.39 percent expectation leaders gave when polled by PwC in the third quarter of last year, and significantly higher than the 2 percent increase they had planned for the following year at the end of 2016. The last time PwC private company respondents projected wages would rise above 4 percent on average was in the second quarter of 2007.

"We conducted the interviews from October to December 2017," a time when "many survey participants were hopeful that the House or Senate tax bill would become law," noted report leader Ken Esch, a partner in PwC's private company services.

Plans by small U.S. businesses to increase compensation have reached the highest level since 1989, according to a January 2018 report by the National Federation of Independent Business (NFIB). "Since 2013, taxes and regulations have been the top two issues for small business, and Washington delivered relief from regulations and taxes in 2017," NFIB president and CEO Juanita Duggan said in a news release.

"Small business owners are very optimistic and ready to hire new employees and raise wages, but finding qualified workers is an increasing challenge, rising to the top of their concerns,” she noted.

Executive Pay Programs

The tax act made significant changes to the taxation of executive compensation arrangements for both publicly held corporations and tax-exempt organizations. About 4 in 10 companies (41 percent) have made or are considering changes to their executive pay programs, the Willis Towers Watson survey showed. The most common change is reviewing and possibly revising this year's incentive-plan targets (33 percent).

Addressing Employee Expectations

"The results of our survey, coupled with the actions taken by some large employers over the past few weeks, suggest that investing in their people remains a top priority," said Kathy Walgamuth, director, communication and change management, at Willis Towers Watson. "We fully expect most organizations will take the time to thoughtfully evaluate the impact of the tax law on their organization and then make changes that support their specific business strategy."

Given that the tax law and subsequent company announcements have made headlines, "employees may already have established their own set of expectations" for enhanced pay and benefits, she added. "Wherever an organization lands, even if the decision is made to not take any direct action for employees, it's essential for them to consider the need to communicate and address employee questions."

"For employers who haven't granted wage increases or bonuses, you should seriously consider doing so," Puzder advised. "Otherwise, your employees will wonder where your increased profits are going." 

Starbucks Expands Paid Leave and Raises Pay

"Due to the recent changes in U.S. tax law, we are able to accelerate some significant [employee] investments to continue our leadership as the retail industry leader in total compensation and benefits," Kevin Johnson, president and CEO of coffee chain Starbucks, said in a statement on Jan 24. The firm announced that as of April it will put in place these pay and benefit enhancements.

  • All eligible U.S. hourly and salaried employees will receive a second wage increase in addition to the annual increases that they have already received this fiscal year. This will amount to an investment of approximately $120 million in wage increases that will be allocated based on regional cost of living and other factors.
  • An additional 2018 stock grant for all eligible full-time, part-time, hourly and salaried U.S. employees across stores, plants and support centers, who have been active as of Jan. 1, 2018. All Starbucks retail employees will receive at least a $500 grant, store managers will receive a $2,000 grant, and plant and support center employees (nonretail) will receive grants that vary depending on their annualized salary or their job level.
  • A new employee and family sick time benefit will be available to all eligible U.S. employees, which will allow them to accrue paid sick time based on hours worked and then use the time if they or a relative needs care. When this benefit goes into effect this year, sick time will accrue at a rate of one hour for every 30 hours worked, so that an employee working 23 hours a week can expect to accrue approximately five days of sick leave during a year.

For retail store workers, Starbucks has also expanded their parental leave policy to include all parents who are adopting, with up to six weeks of paid leave when welcoming a new child.

Related SHRM Articles:

Taking Advantage of the New Paid-Leave Tax Credit, SHRM Online Benefits, January 2018

Private Companies Expect Pay Raises to Top 4% in 2018, SHRM Online Compensation, January 2018

Walmart Attributes Higher Starting Wage, Expanded Benefits to Tax Reform, SHRM Online Compensation, January 2018

Employers Giving Out Tax Cut Bonuses—or Is It Posturing?, SHRM Online Compensation, January 2018

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