Month: August 2019

Employees: The (Often) Forgotten Foundation of Business

Guest blogger – Hilary Corna

 

When we think of the face of a company, we think about founders and CEOs. Although they are the few who receive recognition, all the employees who keep the companies running are the ones who make the difference. These employees are easily forgotten, and that is due to the dehumanizing processes that affect business today.

One of these processes is the “customers come first” model. This industrial age–idea remains a major problem in businesses today. To continue improving the quality of business and creating an incentive for employees to invest themselves in the company, high-level executives need to adopt an “employees come first” mindset. 

External success for a business starts with internal success for its employees, and Betsy Raskin Gullickson, editor of the Best Practices section of Strategic Finance magazine, provides insight on this idea through her 2008 article titled “A Corporate Virus?” Although “bringing the human dimension into business isn’t easy,” according to Gullickson, she qualifies that investment in the people who run the business will pay off in the long run (14). She states that “the problem is institutional, but the solution is personal,” which is exactly what the Human Processes Continuum hopes to do for businesses: find a contemporary solution for industrial age–problems. 

Today, we live in a different business environment than that of the industrial era, one that is continuing to evolve, and old world management principles are no longer working. John Marshall, Senior Partner and Global Director of Strategy at Lippincott, and Graham Ritchie, EVP and Chief Strategy Officer at Hill Holiday, co-authored a piece titled “Welcome to the Humans Era” that discusses how brands need to initiate change to appeal not only to the customers, but to the employees as well. 

Now more than ever, customers want to invest in the companies they purchase products from, and this is why we see so many startups sharing their brand mission and story with the world. If customers see that companies support a cause or that its employees are proud to associate themselves with that company, they are more likely to pay attention to that business.

Another contributor to putting employees first is being proactive by starting with a long-term mindset. Essentially, humanizing your business is being proactive. As the business world leaps from the information age to the human age, the way a company will stand out is by displaying that it cares about its employees and customers. 

Pointed short-term goals and victories will culminate into long-term benefits that will create an effective and healthy culture. This all starts from the inside of a business⁠—with its employees⁠—and the reason companies need to reflect on whether they utilize humanizing processes is to keep up with the times and not fall behind

We are in the midst of the next great evolutionary leap in business, from process-centric to human-centric, and HPC’s primary goal is to prioritize humans at the center of business processes. Companies can use HPC tools to find which parts of their businesses aren’t as “human” as they should be and develop a solution that is suitable for them rather than seeking out the next silver bullet. As HPC stimulates humanizing business, each company will develop its own unique approach to identifying and finding solutions for its own set of problems.

Everybody enjoys the feeling of being remembered, cherished, and appreciated, and that includes employees. To build a company from the inside out, ensuring that all employees feel like they are valued and that their perspectives are acknowledged makes a notable difference in their quality of life and, consequently, the quality of the business they represent. 

Feedback is very important to me, and I’d appreciate hearing your thoughts and insight. What do you think companies can do to recognize their employees more? What effects do you think humanizing business will have for employees?

Please connect with me on my social accounts @HilaryCorna, contact me on my website, and follow me on LinkedIn (even if we’re already connected). Thank you!

Should you elect S corporation status?

Operating a business as an S corporation may provide many advantages, including limited liability for owners and no double taxation (at least at the federal level). Self-employed people may also be able to lower their exposure to Social Security and Medicare taxes if they structure their businesses as S corps for federal tax purposes. But not all businesses are eligible — and with changes under the Tax Cuts and Jobs Act, S corps may not be as appealing as they once were.

Compare and contrast

The main reason why businesses elect S corp status is to obtain the limited liability of a corporation and the ability to pass corporate income, losses, deductions and credits through to shareholders. In other words, S corps generally avoid double taxation of corporate income — once at the corporate level and again when it’s distributed to shareholders. Instead, tax items pass through to the shareholders’ personal returns, and they pay tax at their individual income tax rates.

But double taxation may be less of a concern today due to the 21% flat income tax rate that now applies to C corporations. Meanwhile, the top individual income tax rate is 37%. S corp owners may be able to take advantage of the qualified business income (QBI) deduction, which can be equal to as much as 20% of QBI.

In order to assess S corp status, you have to run the numbers with your tax advisor, and factor in state taxes to determine which structure will be the most beneficial for you and your business.

S corp qualifications

If you decide to go the S corp route, make sure you qualify and will stay qualified. To be eligible to elect to be an S corp or to convert, your business must:

  • Be a domestic corporation,
  • Have only one class of stock,
  • Have no more than 100 shareholders, and
  • Have only “allowable” shareholders, including individuals, certain trusts and estates. Shareholders can’t include partnerships, corporations and nonresident alien shareholders.

In addition, certain businesses are ineligible, such as financial institutions and insurance companies.

Base compensation on what’s reasonable

Another important consideration when electing S status is shareholder compensation. One strategy for paying less in Social Security and Medicare employment taxes is to pay modest salaries to yourself and any other S corp shareholder-employees. Then, pay out the remaining corporate cash flow (after you’ve retained enough in the company’s accounts to sustain normal business operations) as federal-employment-tax-free cash distributions.

However, the IRS is on the lookout for S corps that pay shareholder-employees unreasonably low salaries to avoid paying employment taxes and then make distributions that aren’t subject to those taxes.

Paying yourself a modest salary will work if you can prove that your salary is reasonable based on market levels for similar jobs. Otherwise, you run the risk of the IRS auditing your business and imposing back employment taxes, interest and penalties. We can help you decide on a salary and gather proof that it’s reasonable.

Consider all angles

Contact us if you think being an S corporation might help reduce your tax bill while still providing liability protection. We can help with the mechanics of making an election or making a conversion, under applicable state law, and then handling the post-conversion tax issues.

© 2019