Inflation keeps grabbing the spotlight and it’s definitely impacting how much you spend on your employees. When you start planning your budget for 2024, make sure you consider the changes in payroll costs. These changes come from higher wages, increased payroll taxes, and other factors. Let me walk you through some important points to consider.
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Updated wages
Do you often have to pay your employees extra for working overtime? Well, when you’re planning your budget for 2024, you should consider a proposal from the U.S. Department of Labor. They want to raise the threshold at which some employees are exempt from overtime rules. That means more employees would be eligible for time-and-a-half pay.
Even if you don’t have to worry about minimum wages or the overtime pay rule changes, giving your staff a raise can be expensive. If you want to keep up with inflation or reward your hardworking employees, it’s gonna cost you. Experts predict that compensation increases in 2024 will be around 3.5%. But how much you raise your staff’s pay depends on a lot of factors, like the cost of living in your area, what your competitors are paying, and what you can afford.
- FICA (let me explain).
- FUTA (the federal unemployment tax). This tax is based on the wages you pay your employees, but it will stay the same for 2024 unless you hire more people.
- State unemployment tax. This tax depends on how many unemployment claims are made against your company. The rate may change each year, so make sure to check with your state unemployment division for your 2024 rate.
There’s also workers’ compensation, which covers the cost of any injuries your employees may have while working. The good news is that workers’ compensation costs are expected to go down in some places, like Oregon, in 2024. However, they are increasing in other areas, like Washington. To know the exact cost in your state, check with your state or insurance company.
New employee benefits plans
- Dependent care benefits. To get employees back to work, you might need to offer a plan to help them with dependent care. This means helping them pay for things like babysitting or daycare. They can choose to pay for this plan with money from their paycheck before taxes are taken out. Another option is for the company to pay for it, but they can only pay up to $5,000.
- Retirement savings options. If you have a retirement plan where the company puts in money, you need to think about how much it will cost you based on how much employees make. Make sure to look at the new rules for retirement plans that start in 2024, because they might change how much it costs you. If your company doesn’t have a retirement plan, you might want to get a SIMPLE 401(k). This is a plan for small businesses where employees put in all the money. If you don’t get a retirement plan, your state might make you enroll employees in their own savings program. This could cost you some extra money to set up and take care of.
New Social Security tax wage base
I want to talk to you about some changes to the Social Security tax wage base. FICA, which includes Social Security and Medicare taxes, has a fixed rate. Both employers and employees pay 7.65% of their wages. However, out of this total rate, 6.2% is specifically for Social Security. And here’s the catch: it only applies to taxable income up to a certain amount called the wage base. This wage base gets adjusted every year, and in 2024, it will be $168,600. That’s slightly higher than the previous wage base of $160,200 in 2023. So, if your employees earn more than this new wage base, get ready to pay some extra taxes in 2024.
Now, let’s talk about Medicare taxes. Unlike Social Security taxes, there is no wage base cap for Medicare. So, the 1.45% portion of FICA for Medicare taxes applies to all taxable income, no matter how high.
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Hello! I'm Ronald Smith, a dedicated finance consultant based in the USA and the author behind usamerica.us. My passion lies in empowering individuals and businesses to navigate the complex world of finance with confidence and ease. With a wealth of experience in financial planning, investment strategies, and economic insights, I've established usamerica.us as a premier destination for those seeking to enhance their financial literacy and achieve their economic goals. Whether you're aiming for personal wealth management, understanding market trends, or seeking strategic investment advice, my mission is to provide you with the tools, knowledge, and support needed to make informed financial decisions. Welcome to my world, where your financial success is my top priority!