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Tax Reform Is Driving Changes in Compensation, Benefits Programs

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When the new tax-reform law passed late last year, much of the talk was about higher wages. In reality, the law is fueling changes in employee benefits as much as (if not more than) it’s affecting wages.

And the full effect of the law will be seen through 2018 and beyond, according to HR consultancies Willis Towers Watson and Mercer.

Nearly half (49%) of respondents to a Willis Towers Watson survey of 333 large and midsize employers reported considering making a change to at least one of their employee benefits, compensation, total rewards and executive pay programs either this year or next.

And, despite recent announcements by some large, well-known organizations delivering one-time bonuses and increases to minimum-wage rates, those practices may not continue in the long run. Mercer’s “Impact of U.S. Corporate Tax Reform on Employee Rewards” poll found that the recent cuts in corporate taxes are triggering some employers to use tax savings for a broader range of employee investments. For example, nearly one-third (32%) of responding employers said they expect to redirect some portion of corporate income tax savings into their employee rewards programs.

“The tax reform law is creating economic opportunity to invest in their people programs,” said John Bremen, managing director, human capital and benefits at 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.”

Willis Towers Watson also reported that 66% of those surveyed are planning or considering making changes to their benefits program or have already taken action. The most common changes organizations have made or are planning or considering include:

  • Expanding personal financial planning (34%)
  • Increasing 401(k) contributions (26%)
  • Increasing or accelerating pension plan contributions (19%).

Other potential changes include increasing the employer health-care subsidy, reducing or holding flat the employee payroll deduction, or 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 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, 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.”

The top three actions that surfaced in Mercer’s poll of 241 employers ranging in size from less than $500 million to more than $25 billion were:

  • Investing in employee training and development programs (11.2%)
  • Increasing minimum wage (10.7%) and defined contribution retirement plan contributions (10.1%)
  • Providing a one-time employee bonus to nonexecutives (9%).

“Using redirected tax savings for employee training and development signals that many companies are looking for a longer-term investment in their human capital,” said Mary Ann Sardone, partner and Mercer’s North America workforce rewards practice leader. “While tax reform is still new, many companies are considering a wide range of potential employee investments as they evaluate their approach. As with any strategic human capital investment, alignment with overall business and people strategy is critical to having a lasting impact.”

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