Month: November 2018

Preface: “Keep God first, chase your dreams, and everything will pay off.” Quote from Jacob Latimore

Implementing a Bonus Plan in Your Business (Segment II)

Credit: Jacob M. Dietz, CPA

Practical Steps

Now that their accountant Jonas understands what they wish to accomplish, he begins drafting a bonus plan with them.

Here are some questions they go over:

• Who is eligible for the variable pay program?
• How frequently should the bonus be paid?
• What triggers the bonus?
• How much should the bonus be?

They discuss who should be eligible for the plan. They decide that all full-time (40 hours or more per week) employees will be eligible for the plan. In the specific situation of Ironville Car Washing, LLC, the part-time employees spend vary little time that is non-billable. Reuben and Justin will just make sure they pay a fair and competitive wage to the part-timers, and they will avoid the hassle of including them in the bonus program.

Next, they discuss how frequently the bonus should be paid. Immediately they agree that once or twice a year is not frequent enough for their company. Too much time would pass from when the employees do the work until they get the bonus. They agree that such an infrequent bonus would do little to incentivize the employees.

They agree that a monthly bonus would likely be effective for their employees, but they are not sure how much work it will be to calculate it. They think that a quarterly bonus would still incentivize the employees, although not quite as much. A quarterly bonus would be less of an administrative burden since they could calculate it less frequently than monthly. They therefore decide to implement a quarterly bonus.

Next, they discuss what should trigger the bonus. They realize that a 90% billable rate is good, and that 95% is ideal. They also recognize that their workforce is only at 80% billable, currently. To avoid demoralizing and failing to incentivize the workforce with an unattainable goal, they decide the trigger should be set at 85%. If an employee is 85% billable, then they receive a bonus. The bonus increases with the billable percentage, up to 95% billable. If the employee exceeds 95% billable, no increase above the 95% billable increase is given because the company believes above 95% billable is not helpful to the company in the long run.

Next comes the work of deciding how much the bonus should be. This process takes some judgment. If the bonus is too low, it might fail to incentivize the employees to perform. On the other hand, they do not want it to be so high that the employees rely on the bonus for living expenses.

After the meeting is over, Jonas sits down with the Eagle Business Software file that Ironville Car Washing, LLC uses to record their financial transactions. Jonas considers the working capital of the company, their profit margins on jobs, their labor rate, their labor percentage, benchmark labor percentage data, and comes up with some options for Reuben and Justin to use to calculate the bonus. Jonas recommends that they use from 3% to 5% of the quarter’s base wages as the bonus. Reuben and Justin discuss the numbers and agree with using 3% to 5%.

The brief silence following the agreement is interrupted by the office phone. Reuben and Justin are urgently needed at a job site to help soothe a customer upset by a flooded lawn, so Jonas agrees to write up the bonus plan for them.

In the bonus plan document, he explains that the full-time employees will be eligible for a bonus after the quarter is over. If an employee is 85-89% billable, then they get a bonus equal to 3% of their regular and overtime pay in the last quarter. If an employee is 90-94% billable, then they get a bonus equal to 4% of their regular and overtime pay in the last quarter. If an employee is 95% billable, then they get a bonus equal to 5% of their regular and overtime pay in the last quarter.

Bonus Percentages

• 85-89% Billable = 3% bonus
• 90-94% Billable = 4% bonus
• 95% Billable     = 5% bonus

After reviewing and approving the bonus document, Reuben and Justin send it to their attorney at Jonas’ advice to make sure it does not violate any labor laws.

Segment II

Preface: How do leaders serve their people? They may pay good wages and treat employees with respect. Quote from: John C. Maxwell

Implementing a Bonus Plan in Your Business

Credit: Jacob M. Dietz, CPA

Purpose

Does your company have a variable pay program in place? If not, consider putting one in place to motivate the team to work towards the vision of ownership.

An owner may have goals and a vision, but perhaps employees do not share that vision. A variable pay program that complements the base wage or salary can help align the goals of the team with the owner’s vision. For example, an employee may have various important projects to do, as well as some less important projects to do. Since the employee has limited time, certain work might get neglected. A properly structured plan can motivate employees to do the work that aligns with the owner’s vision.

Goals

Before implementing a variable pay program, consider what you want to accomplish with variable pay. Let’s give the imaginary example of Ironville Car Washing, LLC. Reuben and Justin own the business, and they have two employees. Their business is to go to customers’ homes with a water truck and wash their cars in the driveway. Ironville Car Washing charges per hour for their services. Therefore, if the employees are car washing (billable work), then sales revenue is coming in to Ironville Car Washing, LLC. If the employees are at the shop repairing the water truck (nonbillable work,) then sales revenue is not increasing.

Reuben and Justin realize that to increase their sales, and therefore their profitability, it would be beneficial for their employees to spend more time car washing and less time repairing the truck, getting gas, mending hoses, etc. Reuben and Justin also realize, however, that if nobody gets gas, mends the hoses, or repairs the truck then they would soon go out of business.

Reuben and Justin therefore called a meeting with their accountant to explain the situation. Their accountant, Jonas, ran a calculation of the total hours worked by the employees, and the total billable hours worked by those employees. He calculated their billable percentage to be 80%. Jonas then asked them what the ideal billable percentage would be. After thinking about the details of their business, Reuben and Justin conclude that 90% billable would be acceptable, and that 95% billable would be ideal. Anything above 95% likely would be too high, because that would mean the employees are likely avoiding necessary non-billable work, such as routine maintenance of the equipment.

Next, Jonas asks them what they want to accomplish with a variable pay program. Reuben and Justin explain that they want to incentivize their employees to reach optimal billable percentages, not too high and not too low.

Segment I.

Preface: There are some questions that are asked frequently by clients. If our clients are asking them, it means that others are likely wondering the same thing. Here are the three most common questions asked on a daily basis.

Questions Financial Advisors Hear the Most

How much should I be saving?

This is the number one universal question. No matter age, income, or financial stability, everyone who steps into the office asks this question. To answer this, we like to suggest the 50/30/20 budgeting rule. What this means is to simply divide your take-home pay into three categories to provide a framework for how that money should be allocated. With this model, half of your money goes toward “needs,” for example rent, utilities or insurance. Thirty percent is allocated toward discretionary spending such as vacation or going out to eat. The final 20 percent is what you should be saving.

Read entire article here

Jordan Sowhangar | CFP®, wealth advisor, Univest Investments, Inc. 

Preface: The rules governing the substantiation requirements for claiming a charitable deduction are complicated and require patience to analyze exactly which rule applies for the type and value of property contributed.

Recordkeeping for Donations to Charity

One of the requirements for claiming a tax deduction for a contribution to a charitable organization is that you have to be able to prove it.  The rationale is clear, but the rules for compliance are very detailed and the cost of running afoul of them can be substantial.  For example, in a case from 2017, the Tax Court disallowed a $33 million deduction when the donor neglected to include the necessary records with the donor’s tax return.  In a case from 2016, the Tax Court disallowed a $65 million deduction because the donor failed to obtain an acknowledgment of the gift from the charity.

To a large degree, the burden of complying with the rules lies with the donor, and it is certainly the donor who bears the most risk if the substantiation requirements are not met. However, an organization that receives charitable contributions has its own set of requirements and can be subject to significant penalties if those requirements are not met.

As a starting point, a donor who intends to claim a tax deduction for a charitable contribution must first make sure that the organization is eligible to receive charitable contributions. Most eligible organizations are listed in the Tax Exempt Organization Search, available at www.irs.gov…….

Read Entire Article Here: Record Keeping for Donations to Charity

 

Credit: Douglas A. Smith | Tax Attorney. 

Doug is a tax attorney who represents individuals and small business owners in the Lancaster area in IRS audits, appeals, and deficiency proceedings.  He frequently secures favorable collection alternatives for clients that involve installment agreements or offers in compromise.  He has experience dealing with liens and levies, penalty abatement, innocent spouse relief, substantiating business expenses, foreign bank account reporting, trust fund recovery penalty, identity theft, and many other tax matters.