Features

Published on October 19th, 2015 | by Millennium Magazine Staff

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Setting Your Staff’s Compensation for 2016

By BarbaraWeltman

Now that we’re in the fourth quarter of the year, it’s time to plan ahead for 2016. Here are some factors to take into account when budgeting for payroll for next year.

Salary and wage increases

Pay increases for your staff depend on what you can afford. If want to keep up with pay hikes across the nation (and can afford it), expect to give raises for 2016 of about 3%*. Executive pay is expected to increase nationwide by 3.1% on average. Average pay increases vary from these percentages by industry and location. Of course, if you can afford larger increases, your staff will be appreciative.

Be sure to budget for raises you must give as a result of increases in minimum wage rates. More than half of the states now have rates higher than the basic federal minimum wage rate of $7.25 per hour, and some of these state-level rates will increase in 2016. Currently, 15 states and the District of Columbia* increase minimum wage rates automatically for cost-of-living adjustments, but because inflation has been so low, rates in all such locations will not rise in 2016. For example, it’s been determined that Ohio’s hourly rate for 2016 will stay at $8.10*. Some states have legislatively increased their rates for 2016. For example, West Virginia’s rateDownload Adobe Reader to read this link content increases July 1, 2016, to $8.75 per hour (up from $8 per hour in 2015).

If you are a federal contractor, the $10.10 per hour federal minimum wage may increase; it’s up to the Department of Labor to set the rate for 2016.

Payroll taxes

Pay increases are accompanied by additional payroll tax costs for employers. The Social Security wage base, which caps the Social Security tax portion of FICA, is expected to remain at the 2015 level of $118,000. It is not unusual for the wage base to remain unchanged; it was the same in 2009, 2010, and 2011. Expect that Social Security Administration will confirm this wage base limit of $118,000 for 2016 in the third week of this month.

Health coverage

If you are considered to be an applicable large employer because you have at least 50 full-time and/or full-time equivalent employees, you must provide affordable health coverage to your full-timers and their dependents in 2016 or pay a penalty. (Employers with 100+ employees became subject to this requirement at the start of 2015.) Now is the time to shop for coverage for 2016 or budget for your penalty cost.

If you are a smaller employer, you can choose to provide coverage to help your staff stay healthy and retain valued employees. The government’s Small Business Health Options Program (SHOP) can be used for this purpose, or you can get coverage through a private insurer. If you use the SHOP option, you may be eligible for a tax credit of 50% of your premium costs, and the cap on average wages for determining eligibility will increase to $25,900 (up from $25,800). However, if you claimed the small employer health care tax credit in 2014 and 2015, you won’t be eligible for it in 2016 even if you otherwise meet all eligibility requirements.

If your company offers employees a flexible spending account (FSA), this won’t impact your budget because contributions are made only by employees. However, it’s up to you to inform them of their contribution limits so they can commit to their contributions for 2016. The 2015 limit of $2,550 is not expected to rise in 2016.

Fringe benefits

Do you provide fringe benefits in addition to health coverage? Retirement plan contributions? Education assistance? In budgeting for 2016, factor in increases for any benefits you provide. Contribution limits for qualified retirement plans won’t be announced until later this year; due to low inflation, the limits may have little or no increase over those for 2015. If you provide free parking, the tax-free amount will increase to $255 per month (up from $250 per month in 2015).

Conclusion

Take time now to plan for 2016 compensation matters. It may be advisable to work with your CPA or other financial advisor to make sure you can afford any planned increases for the coming year and to make sure you stay in compliance with tax and labor laws.

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