Many clients have asked us if they can afford to give their team raises. With the tight labor market & rising cost of living & inflation, many practice owners are considering increasing wages to retain staff. Raising wages is not a zero-sum game. There are tax & efficiency benefits that offset some of the costs.
For example, let’s assume you have a team of seven employees who work a cumulative 10,000 hours per year. If you raise wages by $1 per hour across the board, the total cost of the increase is $10,000. However, if your effective tax rate is 24%, you save $2,400 in taxes, meaning the $1 per hour raise only costs you $7,600.
Furthermore, there are economic benefits to retaining current staff rather than replacing them. It’s no secret that it is a difficult time to find talent. It costs money and time to post ads, interview & train. If you are lucky enough to find a well-qualified candidate that fits your culture & needs, it takes even more time to fully onboard them before they produce at the same level as your existing team.
Raises should not be arbitrary but rather an intentional investment focusing on an end goal in alignment with your growth plan. We are not recommending haphazard wage increases. The purpose of this article is to serve as a guide for you when contemplating & determining if minor wage adjustments overall are appropriate for your practice & tax situation. If you want to know the actual cost of raising wages in your practice and based on your specific tax situation, contact us today & we can calculate this for you.