As corporations consider how government tax cuts are affecting employees and business investments, economists speculate whether the these cuts are the reason why companies are announcing bonuses and raises, NBC News reports.
The country's increasingly tight labor market may have already caused corporations to give out year-end bonuses before the lower tax rates kicked in, giving them accounting benefits, according to economy experts.
Here are five reasons companies are announcing bonuses and raises this year, according to the report.
1. Economists predict the country's unemployment rate, which is currently around four percent, will drop further this year. As a result, growing competition for workers would likely have prompted more companies to increase pay or sweeten their benefits packages anyway, said Brian Kropp, PhD, HR practice leader at Gartner, a research and advisory firm. "The vast majority are doing it to win battle for talent, not because of the tax situation," he said.
2. As companies struggle to find new employees and hold onto existing workers, they have to raise wages, said Mark Zandi, PhD, chief economist at Moody's Analytics. "Wage pressures are going to develop more fully here in 2018 — this is something that's been building," he said.
3. Additionally, a number of minimum wage increases were set to kick in at the beginning of this year to speed up pay increases. "This puts real pressure on companies like Walmart that hires a lot of people that are over minimum wage, but just above," Dr. Zandi said.
4. However, a CNBC survey of S&P 100 companies found only 10 of these firms said they intend to use the tax cut savings to pay workers more or invest more in their business operations.
5. Companies generally prefer to give employees bonuses over raises because they are one-time costs. Additionally, the fact that companies announced bonuses at the end of the year was no coincidence, said Craig Wild, a CPA and senior partner at Wild, Maney & Resnick. Companies can deduct the cost of those bonuses in 2017, reducing their taxable income at the old tax rate rather than at the new 21 percent top rate. "If they pay that same bonus a week later, then they get a substantially lower tax deduction," Mr. Wild said.