Strategies for Attracting and Retaining Skilled Employees

THOMAS PIERCE, CPA

Manufacturers, like many businesses today, continue to face a shortage of skilled labor. This shortage can have debilitating effects on a manufacturing business, including reduced productivity, increased labor costs, stifled innovation and heightened safety risks. Here are some ideas to consider.

Value work culture

Compensation — including salary, benefits and bonuses — is and always will be critical to employees’ decisions about where to work. However, do not underestimate the importance of company culture. According to The Manufacturing Experience: The Role of Culture and Employee Engagement in Workforce Attraction and Retention, a survey by the Center for Manufacturing Research, 100% of respondents said compensation (salary, benefits and bonuses) is the top reason they stay at their current companies. That response is followed by colleagues (96.8%) and company culture (60.3%).

According to the authors, the survey “reiterates the conventional wisdom that people are more willing to stay if they like and respect their supervisor.” It is also important to hire and promote people who value a culture of care. Companies that prioritize kindness, fairness and respect bolster retention by creating a workplace where employees can connect with colleagues.

Recognize employees’ accomplishments

Employee recognition is a surprisingly powerful tool for retaining workers while also improving the bottom line. A report by Gallup and Workhuman, an employee recognition program provider, found that recognition not only reduced employee turnover, but it also improved productivity by 9%, decreased safety incidents by 22% and decreased absenteeism by 22%.

There are many ways to recognize employee performance, including:

• Cash rewards;
• Gift cards;
• Paid time off;
• Charitable donations;
• A new or additional title; or
• A nicer office.

Whichever recognition tools you use, Gallup and Workhuman recommend your program be fulfilling, authentic, personalized, equitable and embedded in the organization’s values and practices.

Think outside the box

Other ways to attract and retain skilled workers include:

Using Digital Recruiting Tools
Today, many potential employees — especially younger ones — conduct their job searches online, so traditional recruiting techniques may not work. Consider adding social media, online recruitment platforms and other digital tools to your recruiting arsenal. Online recruiting allows you to expand your search to other geographical markets, potentially connecting you with skilled workers who are willing to relocate for the right opportunity.

Offering Nontraditional Benefits
Benefits other than salary and traditional perks can be just as important to current and prospective workers. Examples include flexible work hours, flexible work arrangements (remote or hybrid), opportunities for training and career advancement, access to cutting-edge technology, child- and elder-care support and generous family leave policies.

Compensating Employees for Commuting
Paying employees for the time they spend commuting to the workplace can be an attractive benefit. Generally, wage and hour laws and regulations do not require employers to compensate employees for their commute time, but doing so voluntarily can differentiate your business from the competition. It can also help you attract employees from a larger geographical area.

Many experts believe that compensating employees for commuting increases job satisfaction and productivity. If you are considering this strategy, be sure to consult your advisors to evaluate its impact on your overtime obligations and other wage and hour requirements.

Be creative

These are just some examples of the strategies you can use to combat the labor shortage. Other approaches include creating internship or apprenticeship programs, upskilling or reskilling current employees, and using automation or robotics to reduce your dependence on manual labor. The key is to explore innovative techniques for enhancing job satisfaction, increasing productivity and setting your company apart from the competition.

Sidebar: Should you consider an EWA program?

In the last several years, earned wage access (EWA) has emerged as an innovative compensation tool. To offer this benefit, employers typically partner with an EWA vendor. EWA programs allow employees to tap part of their paychecks (for example, up to 50% of daily net earnings) before payday, providing them with some flexibility to deal with unexpected expenses.

Terms vary, but generally EWA programs permit employees to request an advance (often through an app), which is deposited to a bank account or prepaid debit card. Fees generally range from nothing to a few dollars, depending on the requested disbursement speed. At the end of the pay period, any amounts received early are deducted from the employee’s paycheck.

By providing employees with faster access to cash, an EWA program can be an attractive, low-cost benefit. However, keep in mind that EWA advances are designed to be used for emergencies. Overuse can lead to budgeting issues, financial mismanagement and other negative consequences for employees.

For more information, contact Tom Pierce at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Manufacturing and Distribution Group.

Estate Planning for Manufacturers: Do You Have an Exit Plan?

ANDY DOMBRO, CPA

If you are thinking of retiring in the next few years, you will need to carefully consider when and how to transfer your estate — including your manufacturing business. Whether you leave the business to your family or transfer it to an unrelated third party, it is a good time to make long-term estate and succession planning decisions. That is because the federal gift and estate tax exemption is set to be cut at the end of 2025. However, it could happen sooner if congressional proposals become law.

All in the family

If you plan to transfer your manufacturing business to your children or other family members, consider gifting business interests to them as soon as possible. For 2024, the federal gift and estate tax exemption allows you to transfer up to $13.61 million tax-free ($27.22 million for married couples). However, this generous exemption is set to expire at the end of 2025 and return to its previous level of $5 million. Note that this amount will be adjusted for inflation and as of this writing is expected to be approximately $7 million.

It may be reduced even more, and sooner, under certain proposals in Congress. One proposal, for example, would lower the estate tax exemption to $3.5 million. It would also increase the current 40% estate and gift tax rate to 45% on amounts over the exemption limit. Plus, there has been a proposal to eliminate valuation discounts for lack of marketability and control for transfers of business interests between family members who control the business.

It is likely that these changes will apply prospectively, so there may still be time to transfer substantial amounts of wealth on a tax-advantaged basis under the current rules. Regulations issued in 2019 confirmed that the IRS would not attempt to “claw back” a portion of gifts made before January 1, 2026, and subject those amounts to estate taxes after the current exemption amount sunsets. It is generally believed that a similar rule would apply in the event the exemption is reduced earlier.

Eliminating stepped-up basis

Another reason to act quickly is that recent proposals would eliminate an income tax incentive to hold business interests for life. Under current rules, a person who inherits appreciated property receives a “stepped-up” basis equal to the property’s fair market value on the date of death, allowing all appreciation to that point to escape capital gains tax.

In contrast, assets transferred by gift retain the donor’s basis. There are proposals to eliminate the stepped-up basis for assets transferred at death and, for both gifts and bequests, to provide for immediate taxation of the unrealized gain (subject to a $1 million lifetime exclusion and an exception for certain family-owned-and-operated businesses).

Other options

There are many ways to exit a business. In addition to transferring your interest to family members (either by sale or by gift or bequest), other methods include:

• Selling the business to a third party;
• Selling the business to your management team;
• Selling your interest to your co-owners; or
• Conducting an initial public offering.

If you are not interested in selling the business or transferring it to your family, another option to consider is an employee stock ownership plan (ESOP). ESOPs are qualified retirement plans that invest in the company’s stock.

Although ESOPs can be somewhat complex to set up and administer, they offer substantial benefits. They allow business owners to create liquidity by selling some or all of their stock to the plan, while retaining control and sharing equity with employees. They also generate various income tax benefits for the company, as well as for owners and employees.

Each option presents different tax and financial implications. Identify your preferred approach as early as possible so you can begin to formulate a strategy.

Act now

A lot can happen between now and the beginning of 2026. Currently, it may be difficult for either of the two political parties to support a significant reduction in the exemption amount. More likely, Congress may choose to extend or modify the existing exemption to provide a more generous exemption than the exemption scheduled to return after 2025.

For more information, contact Andy Dombro at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Manufacturing and Distribution Group.