Posted on 10 May 2016
You might remember from a previous blog post we analyzed the financial ramifications of a daily Red Bull habit, and the even more monetarily crippling practice of using handwritten time cards to track the time of remote employees. In that post we made an assumption that your 15 employees are twice as honest as the national average and you lose only $2600 a year in inaccurate time card reporting. With tax season still lingering on our minds let’s evaluate the potential tax ramifications with that situation.
Today we want to use the previous post as a basis to explore the difference in a tax expense and a tax deduction. In that example, the $2600 that you spent in unearned wages also comes with payroll tax expenses. According to this MIT article, you must add to the $2600 payroll expenses for Social Security/FICA (currently 6.2% on the first $90,000 of salary), Unemployment/FUTA (6.2% on $7,000 of salary) and Medicare (1.45% with no salary cap). Workers compensation for the service industry could be an extra 5-8%. So, the real total number is more like $3000. These are unearned, undeserved, wasted dollars. There’s a plethora of other consequences of time theft: poor work quality, a culture of dishonesty, low company moral, etc. But we are just focusing on the dollars today. Wouldn’t it be more fun to pop the top off a convertible, hit a long country road, load up Dire Straits “Money for Nothing”, and toss $100 bills into the wind? At least you’re choosing to blow the money.
But in a sense you are inadvertently choosing to blow money too if you’re still using handwritten time cards.
Now let’s look at the tax deduction side of this. Invest in our telephone and app-based timekeeping solution to get accurate, automated time cards that will eliminate the $3000 waste. In our previous post we estimated the cost for your 15 employees on our system to be $2100 annually. That’s $900 back in your pocket. But it’s really more, because of the business tax deduction you are allowed for the expense. This puts another $500 back on your side of the ledger which brings the real cost of our system to approximately $1600 annually.
Invest $1600, save $3000.
It is like you just got paid to use our system! You’re up $1400 in tax-free money. That’s an 87.5% return on your investment. Much better than your CD.
Now you can reinvest this $1400 in another tax deduction, maybe Red Bulls for your employees in the break room. Using an automated timekeeping system makes great business sense, and investing in your employees is always a fantastic idea too. Tax season can be better for everyone!