As your small business grows, you begin to surround yourself with employees that you hope are just as passionate about the business as you are. Just like you, these employees are critical to the future success of the business.
Initially, salary and perhaps bonuses are all that a small business can afford. As the business is small, employees can easily see how their efforts are tied to business success and how business growth will offer the potential for more compensation. At some point, to retain these employees, non–wage benefits will have to be offered.
The financial security advisors and group brokers at Caldwell Wealth & Estate Advisory Ltd. can guide and educate you as to what programs are out there. We help you understand the cost benefit relationship and help you educate your employees that “a dollar’s worth of non–wage benefits” can be much more valuable to them than a straight salary increase that to a large extent would be personally taxed away.
Traditionally, health and dental based group insurance plans are the first consideration. At Caldwell Advisory, we are licensed to provide and service these plans for companies as small as two employees.
However, we also educate business owners that there are other retention strategies that can be applied cost effectively.
Normally, group insurance plans will include coverage for life insurance, accidental death and dismemberment, long–term disability, dental care, healthcare, prescription drugs and vision care. Premiums paid by the company are often controlled by using a combination of deductibles and co–insurance and employee cost sharing.
While implementation of these plans is critically important to retaining employees, it is also beneficial to the company if employee compensation improvements are provided in the form of non–wage benefits as opposed to salary or bonus increase. Group insurance costs paid by the company are a tax deductible business expense and the payments do not attract CPP, EI and WSIB expense as salary increases would.
At Caldwell Advisory, we guide and educate the small business owner as to what group insurance options are available. We present various plan options and help the owners understand the cost benefit relationship of each. Once a plan is selected, Caldwell Advisory follows through with the employee enrolment and plan implementation.
As opposed to other group insurance providers, we integrate these plans with the overall plan of the business as well as each individual employee. We work with the owner to help ensure employees are fully aware that the set–up of an employee health benefits plan is a significant compensation improvement.
Health and Welfare Trusts
A Health and Welfare Trust (HWT), also known as a Personal Health Spending Plan (PHSP), provides an alternative method for small business owners to provide a health care expenses benefit plan. The HWT can be implemented as an all–encompassing health care services plan, usually as a more affordable alternative to a group insurance plan, or it can be set up as a ‘top up’ plan for the owner, dependent family members and key employees, over and above an existing base group insurance plan.
Members of the HWT plan have access to a set amount of dollars each year to reimburse dental and medical expenses. The dollars set aside to cover these expenses are managed by a third party trust company in return for a nominal administration fee. The health care expenses are fully tax deductible to the company and tax free to the employee.
The HWT can be set up to cover a much broader range of health care expenses such as orthodontics and chiropractic services. Critical illness insurance and long–term care insurance can also be covered.
Health and Welfare Trusts have been described as “one of the best kept secrets in Canada”. We will show you the benefit of setting up a HWT or PHSP as opposed to paying for health care expenses with personal after tax dollars and relying on the medical expense tax credit.
Small businesses are rarely able to compete with larger companies when it comes to employee benefits. When it comes to assisting employees with their retirement savings plans, registered pension plans are out of the question for small employee groups. However, one benefit that the small business owner can employ easily is a group RRSP. Having such a plan will give employees the satisfaction that they have an opportunity to look after their future which is an area of increasing employee concern.
Setting up a group RRSP is simple. As a small business owner you are essentially providing a free employee benefit for your employees. The employees will benefit from a fixed payroll savings plan for their retirement. As well, as opposed to waiting until they file their tax return to benefit from tax refunds as they do on their personal RRSP contributions, they realize the tax benefit immediately as tax is not withheld on their payroll contributions.
Often, employers will offer a company matching program to improve the employee benefit and further entice the employee to save. For example, a company may match employee contributions up to 3% of the employee’s base salary. This makes the benefit exceedingly attractive.
In summary, a group RRSP rates high in terms of benefits that employees are looking for. We recommend them to our small business clients regularly. Caldwell Advisory is authorized to set up your group RRSP and look after the administrative enrolment and employee education details.
Retirement Compensation Arrangement
A Retirement Compensation Arrangement (RCA) allows a company to make tax deductible contributions on behalf of owners and key employees for the purposes of supplemental retirement income. An RCA is ideally suited for high income earners who wish to sustain their standard of living into retirement. It is ideal for business owners, executives and professionals with professional corporations.
The RCA provides an avenue for retaining key employees…in this case executives. The company can build in vesting provisions. If the executive leaves the company before vesting occurs, his or her benefits would either be allocated to the remaining members of the plan or paid back to the company.
In the case of a family owned business, the RCA provides another means for wealth transfer to the children. In this case, the parent owners set up an RCA and add the children in as members once they begin to work for the business. When the parents retire they access the RCA to provide for themselves. Upon the death of both parents the remaining assets will pass to the children completely tax–free.
An RCA can also facilitate an extended buyout of the family business by the children by arranging for the RCA to be funded post–retirement from the pre–tax operating income of the company. This is a far better arrangement than children borrowing funds from a bank on an after–tax basis to fund the buyout.
Caldwell Advisory provides guidance as to when a RCA is appropriate and coordinates the set–up. We are aligned with an established actuarial and financial consultancy firm that specializes in the provision of tailored RCA programs that meet all of the Canada Revenue Agency guidelines.
Individual Pension Plan
An IPP (Individual Pension Plan) is a personal defined benefit pension plan. Think of an IPP as a “supercharged RRSP”. Contributions to an IPP can be up to 65% greater than an RRSP thereby creating a much more powerful tax deferred savings plan for retirement. Funding the plan is fully tax deductible to the business. Funding will include actuarially determined annual contributions and in most cases a substantial contribution for past service. An IPP is ideally suited for high income earners who wish to sustain their standard of living into retirement. It is ideal for incorporated business owners, key executives and professionals with professional corporations.
An IPP provides another opportunity for compensating key executives. These employees are likely key to the company’s success and the implementation of an IPP can reward these employees while simultaneously providing an incentive for them to stay.
An IPP for a family business can be an effective way of transferring registered assets to the children on a tax–deferred basis. On retirement of the parent business owners, the children taking over the business are added as members of the existing IPP plan. The parents will use the IPP to fund their retirement and any residual amount left in the IPP, at the time of the passing of the second parent, will transfer to the next generation tax free.
Caldwell Advisory provides guidance as to when an IPP is appropriate and coordinates the set–up. We are aligned with an established actuarial and financial consultancy firm that specializes in the provision of tailored IPP programs that meet all of the Canada Revenue Agency guidelines.
Workshops & Seminars
Demonstrating that owners care for their employees—their welfare and their concerns—repeatedly ranks higher than compensation when it comes to employee retention. Genuine interest in employee well–being goes a long way.
The small business owner has the advantage over larger firms when it comes to developing this culture. There are fewer people, they are wearing ‘more hats’ and they generally have closer ties to the business goals and strategies. Typically, you have the opportunity to gain a deeper understanding of your employees’ personal lives and their relationship with the company.
Providing employees with life–long learning opportunities, beyond the workplace, builds this culture. Studies indicate that providing education on personal health protection and family financial security are common subjects that are extremely attractive to employees.
Caldwell Advisory can help you develop this culture. We provide seminars, workshops and ‘lunch and learn’ sessions for our business clients. We provide your employees with knowledge on personal financial security subjects. These sessions are always well received. Talks on family budgeting, cash management, savings plans, RRSPs, RESPs, TFSAs, tax subjects, retirement planning, wills and powers of attorney, insurance, elder care and many other topics allow you to give back to your employees in a way that shows you care deeply about their personal well–being.
The sessions can generally be tailored to any subject matter that meets your employee group needs. The fees for providing this service are modest. The goodwill achieved is priceless.