Employee Retention Credit or ERC is a tax benefit that businesses can claim from the IRS. The ERC can be used to offset business expenses for wage increases, pay for promotions, and for promotions or training of their employees. It may also be used to cover the cost of paying legal fees or compensating those who are voluntarily dismissed. If your company’s spending exceeds the ERC limit, then you must submit the appropriate paperwork to the IRS.
Businesses are well aware of the ERC and use it liberally to attract and retain the best people. On top of the actual money, the ERC can sometimes be a thank you from your employees as well. In one case, the employee experienced a variety of benefits such as a membership to a country club, a laptop, and a free year of gym membership. There is also a substantial growth incentive tied to the ERC and it goes away once the employee retires or quits.
In addition, you may be able to get a deduction on the benefits you provide your employees. While this is not an incentive in itself, it can be used to lower the company’s taxable income. One study found that the ERC alone increased the return of employees by 8.4%.
The ERC’s benefits are as much about business growth as they are about employee retention. Sometimes, employee retention occurs due to a lack of opportunities in the market. At other times, employees are leaving because they are unhappy. The ERC offers a solution to both problems by allowing businesses to retain their employees while boosting their bottom line.
Recent studies also show that ERC is more effective in fostering employee retention in companies with a smaller percentage of lower paid workers. Given the tax benefits of the ERC, I’ve compiled a list of the best SaaS business with a significant presence in the United States and abroad that make use of the ERC. The ERC’s benefits are substantial and it is well worth taking the time to use them.
- Amazon
CEO Jeff Bezos is the richest man in the world. In the United States, his company Amazon is the third largest e-commerce business, behind only eBay and Walmart. It also controls more than 10% of the world’s total shopping market and has over 80% of the online grocery market in the U.S. According to their 2017 annual report, Amazon’s investments in new offices (Amazon HQ2) and fulfillment centers (fulfillment centers) have had a dramatic effect on their wage and benefits.
The impact on the company’s bottom line has been quite impressive:
We also made capital expenditures for the first time in 2016. This included $256 million for construction, $18 million for IT infrastructure, and $36 million for property, plant, and equipment. Since we began operating at full speed on July 5, 2016, capital expenditures, excluding those related to infrastructure, are already up 64% compared with the prior year.
Roughly 1/3 of Amazon’s wages are lower than $15 per hour while the remaining 2/3 are higher than the $12.00 per hour minimum wage. Given that this was for employees with technical skills such as engineers, software developers, and customer service personnel, this is not surprising.
How Did It Happen?
While a $15 minimum wage law would hurt Amazon, the ERC will help offset that cost in future years. Amazon has the option of providing an additional $1,000 ERC on top of the $1,000 it already gives to employees. The law provides an incentive for the company to do so. In Amazon’s case, a $1,000 ERC provides for a very small incentive. Even with the addition of a $1,000 ERC, Amazon is providing roughly $400 per employee.
A study by Center for Economic and Policy Research found that a $15 minimum wage law will have a negative impact on employment at Amazon, costing the company 27,700 jobs over 10 years. By contrast, the ERC will have a small, yet positive, impact: an increase of 1,700 employees.
- Ingersoll Rand
Ingersoll Rand is the world’s largest manufacturer of industrial and commercial air compressors. The company is best known for its line of pneumatic air compressors, including the popular Atlas. The company produces nearly every kind of pneumatic air compressor: high pressure, low pressure, electric, and turbocharged. It also manufactures a variety of air compressors for specialized tasks such as drying, painting, heavy-duty packaging, and steelmaking. Ingersoll Rand is headquartered in the United States, but has manufacturing facilities throughout the world. Its workforce currently includes more than 45,000 employees, with around 25,000 in the United States.
How Did It Happen?
Ingersoll Rand was one of the first companies to offer the ERC. It was introduced in 2013, roughly two years after the law was passed. There was a heavy focus on the cost of health insurance and a small focus on the $1,000 per employee ERC. While the employees who earn a $1,000 ERC see their hourly wages increase, the rest of the workforce will receive less of an impact from the ERC.
During negotiations for the contract with employees, the company promised to provide $500 per year in ERC payments. A part of the reason for the ERC was to improve the company’s reputation in areas where labor unrest was common. With a major union contract signed, the company is now able to keep its promise. Employees receive a $500 annual ERC payment on top of the $1,000 the company pays them.
Ingersoll Rand has 6,000 employees. The company plans to expand the ERC payments to its workers by 3 percent each year beginning with 2019. The company is currently still in negotiations with its union. The union said the raises were a positive sign that the company was adapting to the new environment. The union also said that the $500 ERC payment was “modest” and not enough to live off of.
- Buhl Veterans Career & Technical Center
Buhl Veteran’s Career & Technical Center is a three-year high school for veterans. The school, which opened in 2008, has about 2,000 students. It was created in partnership with Idaho Department of Labor. The school is an alternative to traditional education. Students spend half of their time learning skills for jobs and the other half learning skills to become entrepreneurs. Students can choose to take classes at Buhl or transfer to a traditional high school if they choose. The school is funded by a combination of federal, state, and local taxes.
How Did It Happen?
The contract between Buhl Veterans Career & Technical Center and its teachers required that the district pay teachers $2,000 every other year. They would be paid through one of several different programs. This was used to make sure that the teachers, who were making $37,000, did not lose their jobs. The union also received the right to form a union. The union decided to get a contract before the current contract expired at the end of the 2017-2018 school year.
Teachers at the school have been working without a contract for two years. In 2017, the teachers said they were making less than half of what they were getting paid at the beginning of their time there. At the time, Buhl Career & Technical Center was the only high school in the state that didn’t have a union contract.
At the beginning of 2018, the teachers started working without a contract. The union didn’t agree on a number of things, including wages, working conditions, and the amount of money Buhl Career & Technical Center was required to give teachers each year. The union also disagreed with changes made to the school’s governing board. There was one significant point of disagreement. The union did not agree with the education standards the school was using for job-training classes. That meant the teachers could not use job-training skills in the classroom. They had to stop using the job-training classes and become certified professionals. They also stopped using the GED program. Instead, they had to wait until the students finished it.
Idaho law prevents teachers from striking. But when the school ended the 2017-2018 school year without a contract, some teachers felt like their voices were not heard. For most of the 2017-2018 school year, teachers continued to do their jobs without a contract. But they were paid by the state. That made it harder for them to rally other teachers to do the same.
What’s Next?
A federal mediator helped both sides get a deal in the summer of 2018. The union gave in on a few key points. It wanted to be able to work from home one day a week. The school said it was fine with that. The school said they would bring teachers in for the same number of days and hours each week. This meant that the teachers would make the same amount of money.
During negotiations, the school said it was “willing to work with the union to help the district come up with some solutions to address some issues that have not been addressed for several years.” This raised some eyebrows. The school has always made a big deal about hiring new teachers and improving teacher working conditions. There was a very public campaign against the teachers.
The Buhl Teacher’s Association walked away from the deal. They said it wasn’t good enough. It was also expensive. This meant that the teachers missed the deadline to get a contract for next year. Some teachers stayed at the school, while others left. There were no classes in the fall.
In August, the union decided to go on strike. A federal mediator was brought in to help. If teachers were not able to come to an agreement, they would be forced to work under a court-ordered injunction. In August, the teachers won. The school agreed to give teachers more days and hours, a smaller salary, and a contract that would run until 2021. Superintendent Steve Martindale said that the teachers had more than five months to negotiate. They should have done a better job of getting a deal done before the summer.
“I’ve never seen such a lack of action over such a long period of time. Never. Never have I ever heard of a teachers’ union that wouldn’t come to a collective bargaining table in that length of time,” said Martindale.
This is a bit of a confusing issue, and it gets tricky fast. What happened was that the teachers asked for a contract during a summer without school. Some teachers didn’t start working until August. But the school said they should have asked for a contract earlier. The school said they were willing to meet with the teachers for bargaining sessions in the summer. They did not reach a deal by then. The union said they were ready to bargain all summer long. But they got no response. This was not an effective way to negotiate.
Here, the employee retention credit did not come into play. The teachers weren’t allowed to use the credit in order to get more paid time off. The problem with that is that teachers are supposed to use it for classroom hours or duties. They weren’t allowed to use it to get more time off. So the teachers could have actually used the credit to get more hours off. The union says the school was looking to take credit for the full-time work that the teachers were doing outside of school. That’s very possible. The union asked for too little and got too much.
Employees Turnover in the U.S.
It is no secret that employee turnover in the U.S. has spiked in recent years, and it is now a common practice for many companies to match the talent gaps with retention bonuses that reward a company’s employees for sticking with the organization. In 2017 alone, companies spent over $150 billion in retention bonus programs. This also happens to be a win-win situation for the companies, which get the opportunity to recruit talented individuals for their company.
It is interesting to note that employee retention and recruitment cost the employer of a permanent employee only up to $8,000. For a company with a temporary employee, the cost can be higher, up to $30,000 in some instances. But what often gets lost in the mix of high-paying payouts is the type of resources that are invested in employee retention programs.
Retention Benefits for Employees, Good For Business and The Economy
Research has found that employee retention credit perks and perks for employees not only have a strong link to the bottom line but also help strengthen the workforce of a company. And employees do not just get to benefit from the perks, but the entire workplace will, as a result of the ensuing happy employees who serve the company in a better manner. The study, performed by the Center for Economic and Policy Research, shows that the U.S. economy loses more than $600 billion per year in gross domestic product (GDP) because of these worker turnover issues.
With the consistent rise in employee turnover, companies are spending more and more on retention perks, including promotions, bonuses, and improved perks and benefits. Some companies are even finding that these programs could be beneficial in retaining new hires as well. A May 2018 report shows that Fortune 500 companies are finding that they are getting to their new hires much quicker and are also saving on recruitment costs by offering some of these employment perks. This isn’t surprising, because it can be found that younger employees are open to joining a company that offers them incentives, which could result in a happier and productive work environment.
Shared Advantage
There is another side to employee retention that companies are always quick to highlight when they announce one of their employee retention programs. A competitive, personalized environment makes the employee feel valued and valued, and that makes them more loyal. And this is a shared advantage for employers and employees. It is also a win-win situation for everyone involved. That makes employee retention programs a wise and sustainable investment for any company, particularly if they are looking to hire fresh employees.
To encourage retention and recruitment of talent in the U.S., the Employee Engagement Index (EEI) was developed. It combines a survey of worker sentiment with employer practices and best practices from behavioral economics. The EEI covers employers with more than 500 employees in the U.S., and it assesses how workers experience the work environment and employer practices in a number of key areas.
For instance, the survey found that employers with flexible work schedules and work-from-home options rank highest in the EEI, while employers that invest in their employees are perceived as having engaged and loyal workforces. The investment in employee retention is well worth it for companies that want to build an engaged workforce and make money, and this investment helps create a happy, productive workforce that is more loyal to the company.
Conclusion
Whether you are an employer looking to retain your employees or someone looking to work with a company that invests in its employees, you should definitely take a look at these employee retention perks. With so many resources out there, you can easily find the perfect one that’s tailored to your needs and that offers you the best return on investment.
ERC has recently published a report that reveals which of the nation’s largest companies invest in employees in the most unique ways and how you can find these perks on a city or state level. Employee Retention Credit or ERC Program shows how much more than 10,000 employers contribute to their employees through their ERC programs and the return on investment for all their employees.
By learning how to make your company a high performer through employee retention perks, you will not only benefit from retaining employees that you love, but you will also benefit from a happy and productive workforce. After all, the future of your business depends on the retention of your best employees.