Protecting Your Margins & Gross Profits: Being Forewarned is Being Forearmed

Protecting Your Margins & Gross Profits: Being Forewarned is Being Forearmed

 
We’re now well into 2012 — well, we’re at least past the point of accidentally writing 2011 by mistake. 2011 has come and gone, the numbers are all in, and you should now have a pretty good picture of how your staffing business weathered the year. For most staffing companies, January 2012 started off stronger than January 2011. All indicators show the staffing industry to be fairly strong for the coming year. With spring just around the corner, now is a great time to focus on a little bit of house keeping.
 
With all the tax changes that have occurred in the last few months, have you spent the time to review the profitability of each of your placements?

 
Changes to the tax code can make a big impact on your profit margins. That can cause quite an unpleasant surprise if you’re not taking the changes into account when determining your markups.
 
FUTA Credit Reduction is one area that has negatively impacted many staffing companies. In November 2011, 20 states and the Virgin Islands lost a portion of their Federal Unemployment tax credit, resulting in additional tax liabilities due January 31, 2012.
 
States that incurred FUTA Credit Reductions in 2011 were: Arkansas, California, Connecticut, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Virgin Islands, Virginia and Wisconsin. (Michigan has paid their loan in 2012 and will therefore not have a credit reduction in 2012.)
 
Were you one of the many business owners required to dig deep into your pockets to pay this liability?
 
Most staffing owners were not able to recoup this additional liability in their billings during 2011. Now is the time to make sure you’re covered for 2012.
 
Have you included this 0.3% liability in your bill rates for 2012? Unfortunately, it is anticipated that these same states will lose a portion of their FUTA tax credit for 2012, as well. It is also possible that there may be additional states added to this list for 2012.
 
One such state is Arizona. Arizona recently announced that they will not be paying off their loan this year, resulting in a FUTA tax credit loss for the current year.
 

If you outsource your payroll processing, is your current provider offering to start withholding the anticipated increased rate so you are not getting slapped at the end of the year with a large, unexpected liability? If you’re not sure, it’s definitely worth a phone call or email to find out.
 
In the meantime, to stay current on all the changes, check out Tricom’s Legislative Updates page at http://www.tricom.com/press-a-news/legislative-updates.html.
 

Workers Compensation increases already in the news include:

  • California Insurance Commissioner Dave approved a 37% increase in workers’ comp rates for 2012. The decision means California employers will pay a lot more for workers’ comp in 2012 than they did last year.
  • The Colorado Division of Insurance has ordered an average premium rate increase of 3.4% effective January 1, 2012.
  • Rates for Florida workers’ compensation increased by 8.9% on January 1, 2012.
  • Washington State proposed an increase for the Workers’ Compensation Rate, but at the last minute held rates flat for 2012. Does this mean higher rates for 2013?
 
Many other states announced increases to workers compensation rates as well, which is why it is critical to look at the profitability of each placement as it relates to these increased rates. Where do you stand with your rates? How about your experience modifier? Did that go up as well? Have you adjusted your rates to include the modifier and any other cost adjustments?
 
Both of these liabilities — employer taxes and workers compensation — can significantly impact the profitability of your business. Taking the time, at a minimum, to review the profitability of each placement can significantly impact your business.
 
Tricom has developed a Breakeven Analysis Tool to assist staffing company owners and sales executives to have a better understanding of the true costs of temporary placements and the profit associated with the assigned bill rate. Click here to a link for the Tricom Industry Insider webinar on the Breakeven Analysis Tool (first aired in May 2011).
 
Another way to protect your staffing company and your profits is to include language in your customer contracts that allows you to adjust rates due to increases in employer liabilities such as taxes and workers’ compensation costs.
 
When it comes to protecting your profit margins against unexpected tax and workers’ compensation liabilities, being forewarned means being forearmed. It’s critical to take the time sooner, rather than later, to ask questions and form a plan to protect your margins. Because when it comes to profit margins, as with many things in life, it’s always best to plan for the worst and hope for the best.
 

 

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