1. Decide on wage increases
If you can afford to give raises, you probably want to keep up with what your competitors may be offering. According to one survey, most companies are giving raises of 3%. Raises are running higher for technology jobs.
2. Set retirement plans in motion
To enable employees to make salary elective deferrals to 401(k) and other similar plans throughout the year, be sure to implement the plan now and let employees set their deferrals for 2012. The contribution limit for 2012 is $17,000 ($22,500 for employees who will be more than 50 years old by the end of 2012).
3. Plan for fringe benefits
What types of benefits does your company provide to employees, besides retirement plan savings? Here are some things that could influence your decision:
- Health coverage. If you pay more than half of your employees’ premiums, you may be eligible for a federal tax credit. The credit is restricted to small employers. The credit is not new, but the Treasury Inspector General for Tax Administration says many small employers continue to be unaware of its availability.
- Transportation fringe benefits. If you give free parking or pay for monthly transit passes for your staff, the numbers change in 2012. The limit on the value of monthly free parking is $240 (up from $230 in 2011). The limit on monthly transit passes is $125 (down from $230 in 2011). Bicycling assistance stays at $20 per month.
4. Budget for payroll tax increases
Do you have many employees making over $100,000 a year? It may cost you more for employment taxes in 2012. The wage base for the Social Security portion of FICA increases to $110,100 (up from $106,800 in 2011). This means an increase of about $200 per employee whose earnings are at the new wage base. All earnings, without limit, continue to be subject to the Medicare portion of FICA.
If you do in-house payroll, now is the time to adjust your systems for 2012.
- Adjust withholding to account for the new amounts needed to be withheld from employee wages.
- Change the withholding rate. In 2011, the employee share of Social Security portion of FICA is 4.2%; in 2012, it is set to rise to the level of 6.2% that had applied before 2011. Congress is currently debating whether to retain the lower rate for another year, so keep watch for any development.
Note: If you are self-employed, you’ll pay self-employment tax on the higher wage base. As long as your net earnings from self-employment in 2012 are at least $110,100, you’ll pay about $400 more than in 2011; half the payments are deductible.
5. Plan for new income tax withholding
As an employer, you are required to withhold federal income taxes. You may also be required to withhold state income taxes. Again, if you handle payroll in-house, look for new federal withholding tables in IRS Publication 15, Circular E (the 2012 tables are not yet out, but should be available shortly using the same link). Also check with your state; Maryland and Oklahoma have already announced that their withholding tables will change for 2012.
Factor in any pay raises, new fringe benefit costs, and increased employment taxes into your 2012 budget. If you need assistance with your payroll processing, we offer an affordable full service payroll package. Contact us for details.