Employer taxes are on the rise again — and the expected result is deeper cuts into benefits and comp budgets.

What’s happening? Due to high jobless rates, states’ unemployment funds are drying up. And to replenish the coffers, several states are raising employer taxes.

36 states will get hit

In total, businesses in 36 states are getting slapped with a higher tax bill.

The lucky ones will end up paying only a few dollars more per worker. Others will pay nearly $1,000 more.

The impact on benefits, comp

By taking more money from employers’ payroll budgets, economists predict this will spell even more trouble for employee compensation and benefit levels.

Some even fear that the hikes will contribute to further joblessness.

Where — and how much

Here’s what some states are getting hit with:

• the average tax for businesses in Pennsylvania will increase to $432 per worker (up from $384)
• Virginia employers will pay $171 per worker (up from $95), and
• employers in Hawaii face a gigantic increase to $1,070 per worker (up from $90 per worker).

More bad news: You don’t have to be in a state where the unemployment fund’s gone bankrupt to see an increase.

Even employers in states where unemployment funds are still in the black face tax hikes.

Example: Texas has increased the average tax on employers to $165 per worker (up from $89).

While there’s no doubt wellness programs have their benefits, little has been made of their drawbacks and hidden costs.

Three pitfalls to watch out for in wellness programs:

1. You get what you pay for

By and large, the cost savings from a wellness program will be driven by how much you’re willing to spend. Generally, you get what you put into them — both in time and money.

In addition, the program has to be tailored to your specific needs. What works for one company may not be right for you.

2. Tough to administer in-house

Many employers find it’s more effective to outsource wellness. Two reasons:

• Employee trust. Many employees are more cooperative with a wellness program if they don’t fear their employer is watching their every move.
• Legal protection. Outsourcing helps insulate you from later claims that the company discriminated against or fired an employee specifically because of his or her health risks.

3. Tax trouble

Some of the most popular incentives offered to employees for living healthier lifestyles (e.g., partially paid gym memberships) are taxable as compensation.

If you offer wellness participants discounts on their health premiums, the Internal Revenue Service caps the incentive at 20% of the total cost of coverage. Anything beyond that has to be considered taxable income.

So what do your employees want? Here are four resolutions that’ll keep them happy:

1. Stay on top of compensation trends

As you’re well aware, pay is going to be extremely volatile this year. Being mindful of trends and knowing what other companies in your area are paying will help the company stay competitive as well as realistic about the payroll budget.

2. Keep employees in the know

It’s better to give employees the full story. If not, you’re leaving them to their imaginations — which always run wilder than reality.

3. Reward those that matter most

It’s can’t be overstated: Things will be tight this year. So it’s more important than ever to reward the right people.

Idea: Stretch the bonus budget by giving promotions to top performers — the ones that are going to help the company get through the tough times. They’re the ones you need to hang onto now.

4. Ask workers how to improve their jobs

Let them know you care what’s on their minds. Listen to what they say and — if you can — act on it.

Here are three pitfalls to watch out for:

1. You get what you pay for

By and large, the cost savings from a wellness program will be driven by how much you’re willing to spend. Generally, you get what you put into them — both in time and money.

In addition, the program has to be tailored to your specific needs. What works at another company may be a giant flop with your workforce.

2. Tough to administer alone

Most employers find that it’s more effective to outsource wellness. Three reasons:

• Experience. Outsourced vendors have the expertise. They’ve been there, done that — and vendors that’ve been around for a while know how get results.
• Employees’ trust. Many employees are more involved in wellness programs when there’s no fear their employer is looking over their shoulders.
• Legal protection. Outsourcing helps insulate you from later claims that the company fired an employee because of his or her health risks.

3. Tax problems

Some of the most popular incentives offered to employees in wellness plans (think subsidized gym memberships) are taxable as compensation.

If you offer wellness participants discounts on their premiums, the Internal Revenue Service (IRS) caps the incentive at 20% of the total cost of coverage. Beyond that, Payroll has to withhold taxes or you could run afoul of the IRS.

Why the rush to find greener pastures?

• 66% of American workers are not satisfied with their compensation
• 68% aren’t happy with their employer’s contributions to their 401(k) plans
• 78% don’t like their company’s retention efforts, and
• 76% aren’t satisfied with career growth opportunities at their company.

Those figures come from Adecco’s new American Workplace Insights survey.

Boosting job satisfaction

Four ways companies can pump up satisfaction among workers, according to Adecco:

1. Make retention efforts more visible to workers. Companies and managers may be doing all they can to retain employees, but those efforts need to be seen by the workforce.

2. Explain salary decisions. If you suspect salaries aren’t sitting well with workers, explain the reasons behind lower pay. Help them see it’ll help the company through this economy.

3. Provide non-cash rewards. Put in extra effort where extra investment is not possible. Just recognizing good work — though e-mail, handwritten letters, etc. — can boost morale and ease compensation complaints.

4. Show employees where they can grow. When employees are given a map of what they need to do to move up in the organization they are more likely to invest their time and energy to help that business grow.

The answer is yes – so long as you meet certain requirements. According to the Department of Labor, PTO banks, paid vacation and paid sick days are fringe benefits,  which aren’t covered by FLSA.

As a result, you’re allowed to make deductions for absent employees who have already used up their PTO.  Three conditions:

• Your organization must have a “bona fide” PTO (or separate vacation and sick day) benefits plan.
• Deductions for a salaried employee’s unexcused absences come in full-day increments, and
• Your state and/or local labor laws don’t prohibit deductions.

What’s meant by bona fide?

In order to be considered a bona fide benefits plan, your paid time off policy (including the potential for deductions resulting from accidentally overused PTO) must be communicated in writing to employees.

This requirement is partially met by including a section on PTO in your benefits handbooks.The other part: administering PTO policies exactly as they’re described.

Important: Under FLSA, if you don’t have a bona fide PTO plan, it’s illegal to make deductions.

Even if your PTO plan allows salaried employees to take partial days off, you should only make deductions on a full-day basis. Reason: Under FLSA’s arcane formula for determining if an employee is exempt or non-exempt from overtime, partial-day deductions may compromise an exempt employee’s overtime status.

Under FLSA, the amount of salaried compensation includes only only base pay – not fringe benefits. Therefore, while you can measure benefits in partial-day increments, corresponding pay for exempts must be measured in full-day increments.

Note: Partial-day deductions won’t automatically make exempt employees non-exempt in every case. But to be sure, you’d have to first perform the wage tests  required by the feds.

New York City funeral director Peter Dohanich recently put an ad on Craigslist looking for a contractor to perform repairs and add a sitting room to his apartment.

One catch: Dohanich is a little short on cash. In exchange for the additions, he’ll provide a full funeral for the lucky contractor, including burial or cremation, embalming, a casket, viewing and church services, and transportation for both the deceased and his or her loved ones.

So far, no one’s bit on the offer. The funeral director admits some people have said his ad was morbid, but Dohanich claims “it’s savvy, not spooky.”

Here’s a strategy that many employers overlook: Many TPAs offer direct deposit as an FSA reimbursement option, rather than sending checks to participating employees. The choice is up to the participant. 

One of our readers from New Berlin, NY reports that simply adding this option for employees increased workers’ satisfaction with the turn-around of reimbursements, and offset a common reason some employees gave for not participating in the benefit. 

Several employees who hadn’t enrolled in past years because FSA contributions are deducted from their regular  paychecks were convinced to enroll because reimbursements went straight to their bank accounts, regardless of the amount deducted to date during the plan year.

Typically, TPAs require employees to submit a voided check if the employee wants the money direct deposited to a checking account. If the employee prefers the money go into a savings account, the employee typically has to submit a direct depost form from his or her financial institution.

Two common errors to watch out for:  Some employees make the mistake of submitting a deposit slip rather than a voided check. Administrators typically reject this form of enrollment, thereby delaying enrollment.  In addition, it’s up to the employee to notify the administrator promptly of any account changes or closings.

The plans that would be affected would be those that exceed the value of the standard plan offered to federal employees (currently about $13,000 a year for a family of four). An employer-provided plan worth less than that level would remain tax-free,  while any benefit exceeding the cap would be taxed as part of an employee’s compensation.

Such a tax, if adopted, would likely be phased in over the course of several years.  A higher tax threshold and exemptions for unions would make the tax more politically viable but would diminish the amount of  revenue it would raise to provide coverage for the uninsured.

Last month, a congressional committee discussed repealing the tax deduction allowed for certain large medical expenses or creating a tax on flexible savings accounts and health reimbursement accounts . A more dramatic proposal — taxing half of all employer-provided health premiums -was also discussed but is unlikely to get out of committee.

Meanwhile, President Obama  has suggested a limit on the value of itemized tax deductions for families earning more than $250,000 a year.

Democrats in both the House and Senate have pushed for government-sponsored insurance for people who have trouble finding coverage through an employer or individually. The idea is adamantly opposed by most Republican legislators.

The statements can easily backfire – or contain inaccuracies. Here’s how to find and fix two common trouble spots:

1. Avoiding incorrect info

Accidental math errors are the most common – and damaging – problem with total comp statements.
They’re also the toughest for you to spot and correct before the firm sends out the statements, since you aren’t the one who crunches the numbers.

But there are two ways to minimize the risk:

• Make a list of the data sources you use, such as Payroll, your 401(k) provider and health plan carrier, and
• Ask each source to pull and review a few random samples. If they’re OK, chances are the rest will also be fine. But if they contain errors, you can be pretty sure others will have mistakes.

A related problem: Some statements are arranged as a single list of costs, one line after another. To cut the risk of putting something on the wrong line, break the statement down into small sections (e.g., salary, healthcare and retirement). Bonus: This helps make statements easier for employees to follow.

2. ‘Just increase my salary’ syndrome

Sometimes, total compensation statements can actually decrease salary satisfaction, rather than boost morale. A handful of employees may gripe, “Why can’t you just increase my salary instead?” That’s especially true for legally required benefits (like workers’ compensation) and low-profile benefits such as term life insurance. Two fixes that work:

• List “government-required benefits” as a section of the statement. Avoid the term “mandated,” since many employees are unfamiliar with it, and
• Consider adding a section that shows employees how much it’d cost them to line up their own coverage instead.