More than 70 large businesses, including Starbucks, Walmart and Bank of America, have pledged in recent weeks to offer bonuses and boost wages for thousands of workers across the country, from savings anticipated from the recently passed Tax Cuts and Jobs Act. And increasingly, fast-growing businesses across the country are following suit.
While private companies naturally grab fewer headlines than their giant counterparts, an informal look at Inc.’s top 5000 fastest growing, private U.S. companies shows a smattering of businesses offering either higher wages or one-time bonuses. They’re also reinvesting in their companies to help spur future growth.
“With a bright future and more profitable growth, naturally we are hopeful that these tax changes will become permanent,” says Greg DePace, president of Emkay, a fleet management firm based in Ithaca, Illinois that provided $1,000 bonuses to its full-time employees and $500 bonuses to part-time employees (a total of 150 staffers.) “If so, we will be able to share even more of the tax cut benefits with [them],” he added.
The administration’s signature tax reform, which President Trump repeatedly touted in his State of the Union address on Tuesday evening, reduces the corporate tax rate to 21 percent from 35 percent, which has an obvious and immediate impact on the bottom lines of big companies.
The majority of small businesses will also see a benefit from the new law. However, instead of a corporate tax rate cut, they can now deduct up to 20 percent of their business income until 2025 when the provision sunsets. Unlike C-corporations, most small businesses, which are pass-through entities like LLCs and S Corps, are taxed according to the owner’s personal rate.
Breckenridge Landscape LLC, a landscaper based in New Berlin, Wisconsin, anticipates saving around $75,000 this year, or 15 percent of its annual revenue. In addition to investing in a larger office space and equipment, the company, which landed atop the Inc. 5000 list at No. 1895 in 2017, plans to boost pay for its 35 workers by around $3 an hour. “We are bullish on the new tax reforms,” says Eric Weishaar, President of Breckenridge, though he acknowledges that the retained revenue number could depend on seasonal factors.
Similarly Jayson Rapaport, co-founder of the Austin, Texas-based Birds Barbershop, said he may raise wages down the road, however he wants to see how the new tax law will shake out first. “I would jump at the chance to pass some of the benefit onto my employees… The reality is that I still don’t know what that means for me,” explains Rapaport. The barbershop and arcade, which generated $6.8 million in 2016 revenue, landed the Inc. 5000 at No. 4746 last year.
Rapaport is among the dozens of small businesses that are considering restructuring as full-blown C-corporations, in order to access the lower corporate tax rate of 21 percent. “We may consider a reorganization if it works out better for us,” says Rapaport, noting that there are potential drawbacks to the move–such as the possibility of being taxed twice. “Since most small business fall into my category [pass-throughs], I would imagine many are feeling the same way,” he adds.
And some entrepreneurs, like Renato Agrella of Seattle, are choosing to simply retain any gains received from the tax law, noting that he doesn’t anticipate saving enough to impact worker compensation. “Right now, we don’t necessarily see a bigger increase on the margins that we’re going to be making, that’s the truth,” says Agrella, the co-founder of a brand strategy consulting firm, 2A Consulting. He adds that as a consultancy, any retained revenue will likely be funneled back into making the company more profitable.
Even for giant companies, the benefits to employees may be limited. After all, one-time bonuses only really matter once. Plus, at some companies the news of a windfall came on the heels of layoffs. When AT&T announced that it would be offering $1,000 bonuses to more than 200,000 employees, it also quietly laid off thousands that same month. Similarly, soon after Wal-Mart said it would raise the minimum wage to $11 for all associates, it announced layoffs and shuttered 10 percent of all Sam’s Club stores.
To avoid similarly giving employees something with one hand and taking it away with the other, Agrella adds: “We stay neutral.”