The big news in the United States this month has surrounded the issue of the fiscal cliff. Many American workers and businesses are stressed over the issue, but there is a segment of the population that doesn’t really know what it’s about. Part of the issue deals with the two percent payroll tax cut that workers have been enjoying for more than two years. While the changes to come will impact a lot of workers, professional staff and support workers will also be largely impacted. Many lawmakers and businesses are confident that a solution will be reached by the end of the month, but no one is sure what that answer will be. Analysts believe the payroll tax break won’t be extended into the new year. If not, it will mean several changes for human resources professionals, including a necessary adjustment to payroll.
What is it?
First, you need to understand what the payroll tax cut entails. This tax break was created in the latter part of 2010 and involves the taxes workers pay into Social Security benefits. It essentially reduces taxes paid by workers from 6.2 percent to 4.2 percent. If Congress allows this tax cut to expire on December 31, the tax rate will go back up. Workers will again pay 6.2 percent on the first $113,700 of their earnings each year. Anything over the $113,700 mark is not taxed under either plan.
What impact will this have on the nation?
Many analysts believe the country will fall into a deeper recession as a result of the payroll tax returning to the normal rate. Workers will be making less money and have less to spend as a result. Consumer spending and sales for businesses will slow down drastically. This will hurt small- to medium-sized businesses especially.
What does this mean for human resources professionals?
Human resources professionals will likely be impacted in two ways. First, you have to change your accounting procedures. You will have to go in and adjust the tax rate for all employees from the lowered to the standard rate. This change must take effect on January 1, so depending upon your software, you may have to do this retroactively. This can be tedious and time-consuming for you and your staff. Second, you may have to field inquiries and complaints about the payroll tax increase from workers. Some workers may not pay attention to economic issues and political news and will be shocked when their pay is less than normal. You will need to understand the changes in the tax rate so you can explain this to them. It may be helpful to post information on a company bulletin board, send a company-wide email or include a brief one-page letter or handout with the first payroll in January to explain the tax increase. This will answer many questions before they come to you. As many workers may be angry when they hear of the tax rate returning to normal, you may also wish to include contact information for local lawmakers so your employees will have a place to direct their complaints.
The ending of the payroll tax cut will have an impact on all workers and cause more work for human resources professionals. Be prepared to make adjustments to your payroll methods and do what you can to help the workers at your company understand the changes as they happen.