What tax reform means for staffing reimbursement policies

The first major federal tax overhaul in decades is now in effect – and there are already a few notable impacts for staffing agencies, particularly when it comes to per diem reimbursement policies.

The old tax code allowed for “travelers,” or employees who accept assignments far from home, to deduct meal, lodging and car expenses greater than the reimbursements provided as an employee business expense on their personal tax returns, according to a Staffing Streamarticle by Joseph Smith, founder and president of TravelTaxand TravelTax Canada. That write-off was attractive to job seekers – and it expanded agencies’ ability to recruit and place talent across a wide geographic area.

None of these expenses is deductible under 2018 tax reform, which eliminate deductions for all employee business expenses (minus a few special provisions). Gone are deductions for the following reimbursements:

  • Lodging and transportation
  • Meals
  • Educational costs (including licenses, uniforms or continuing education)
  • Contract cancellation (If a contract is canceled, travel expenses and car shipping expenses incurred are no longer deductible.)
  • Mileage.

What does this mean for staffing agencies?

Despite growth in the temporary jobs market,1nearly 6 million jobsare still going unfilled every month, according to consulting firm G. Palmer & Associates. Contracting skilled individuals to fill health care, information technology and trades positions – especially those requiring high degrees of math and science skills – is an ongoing challenge. Now, new tax rules may stack the deck a little higher.

With no way to deduct various expenses, travelers may start to question whether certain staffing assignments are worth the personal cost (TravelTax). Temporary employees in hard-to-fill niches (particularly industrial and health care) will likely compare job opportunities differently, taking a harder look at the costs they now must bear and which expenses staffing agencies will cover.

To recruit the best talent, staffing agencies must become increasingly savvy about marketing and managing both the perceived and absolute value of staffing assignments. More agencies may opt to rework their reimbursement strategies – which are often focused on housing and meals – to address a wider range of expenses for travelers and other temporary workers.

There is a silver lining in 2018 tax reform legislation: a significant corporate tax cut and allowances for pass-through entities, two changes expected to spur business optimism and growth. For staffing agencies looking to increase reimbursements, Smith notes, the reduced corporate tax rate may allow them to offset the increases without affecting overall profits.

 

  1. The U.S. Department of Labor forecasts a 3 percent increasein the demand for temporary workers in 2018. According to the Bureau of Labor Statistics, the country added 136,000 temp jobs in 2017 (an average of 11,300 per month) versus 32,000 temp jobs in 2016 (an average of 2,600 per month).