Workplace Issues

Firm Offsets Tax Hike with Raises for All

With the temporary 2% FICA tax cut now expired, a company gives its employees a same-size pay increase. Is it generosity — or just a publicity stunt?
David McCannMarch 6, 2013

When companies lay off workers, regardless of whether the executives who made the decision are gut-wrenched or unmoved, it is easily justified as the responsible thing to do for the business. Ironically, if no company laid off workers, the resulting minuscule unemployment rate would almost surely produce a very healthy economy, to the point where most companies would probably be better off than they would with layoffs. (Of course, there are economists who say that full employment can lead to stultifying inflation.)

What if, to take this reasoning one step further, instead of paring their workforce, employers saw to it that everyone not only kept his job but got raises? If every company nationwide gave all employees a pay hike, even one as small as, say, 2%, imagine how the economy would hum.

Every journey begins with a step. In February Alliance Benefit Group-Illinois, a provider of record-keeping, administrative, and investment-consulting services for retirement plans, gave all of its 73 employees a 2% pay boost. That level was selected, the firm says, because paychecks went down 2% in January, when the federal government’s temporary cut in Federal Insurance Contributions Act (FICA) taxes expired.

The company’s CEO, John Blossom, says he started thinking about the move in December. When he saw employees’ reactions upon receiving their first paychecks of the year, he made up his mind. The lost income was merely a product of the government restoring FICA taxes to their historical level, but that didn’t make any difference to Blossom.

The employees “had less money to spend in January than they had in December,” he says, simply. “That’s never a good thing. We just thought this was the right thing to do.”

But how did Blossom justify the hit to the firm’s bottom line from the raises? “Since we are a professional-services provider, and we don’t make or build products to sell, our people are our only resources,” he says. “Their happiness, satisfaction, and ability to cope with everything that goes on in their lives is very important to us. Gas prices were going up at the same time, so they had a real problem. And when our people have a problem, as far as I’m concerned, we have a problem.”

One may wonder: are these salary increases akin to department-store “sales,” where the sale price is a “discount” from a supposed list price that was never intended to be the actual price? In other words, might the 2% increase not really be a response to the higher FICA taxes, but rather a replacement for merit pay hikes the employees otherwise might have gotten? Might this be, in fact, a publicity stunt? After all, the company used a public-relations firm to spread the word.

For his part, Blossom says no. The 2% increase is separate from merit raises, and it is a permanent adjustment to the employees’ base compensation, he says. At the same time, Blossom further casts the company in the role of do-gooder by mentioning he got “30 different e-mail thank-you notes” from the staff, as well as one from a staffer’s mother who wrote, “What a great place to work!” He adds, “Nothing we’ve ever done has gotten this kind of acceptance and enthusiasm.”

Which, to be fair, isn’t hard to believe. Unfortunately, because of rising health-care costs, most of us who earn paychecks have become accustomed to seeing them dwindle as a new year comes around, setting aside any merit increases earned.

Blossom says spending on health care is at least a quid pro quo: you’re getting something for your money. Here, by contrast, “the government all of a sudden reduced people’s take-home pay.”

I might respond that at least theoretically, you get something for your FICA taxes, too: social-security income and Medicare, later on in life. But many of us aren’t exactly counting on those social programs still being around by the time we need them.

So, in the end, why not give some applause to Alliance Benefit Group-Illinois. If every company were to follow suit, maybe we could all get back to the American way of indiscriminate spending.