Planning Compensation Costs for 2018

Planning compensation costs for 2018

The fourth quarter of the year is the time when many businesses begin planning for the coming year. With that season almost upon us, there are several factors business owners should take into account when budgeting for next year’s payroll.


Most every employee expects an annual raise and most understand there are a number of factors that play into how large – or small – those increases are. Raises depend both on employee performance and on what the business can afford.

Average wage hikes for the last several years have been around three percent while executive pay increases are expected to be slightly higher, though increases vary by industry and location. Businesses that can afford larger increases may find they improve staff morale as well as retention.

Be sure to budget for increases in minimum wage rates. At present, 29 states have rates higher than the basic federal minimum wage rate of $7.25 per hour, and some cities within those states have higher minimum wages than the state minimum. California, for example has a minimum wage of $10.50 (increasing to $11 in 2018); but some cities, like Los Angeles have a minimum wage of $12, (changing to $13.25. in July 2018). Visit for information on other cities’/states’ minimum wages.


Increases in wages mean increases in payroll tax costs for employers. In addition, the Social Security wage base, which caps the Social Security tax portion of FICA, rose to $127,200 in 2017 and some experts anticipate an increase of about three percent in 2018, to around $130,000, so employers will need to budget more for highly compensated employees.


Since 2015, large employers with at least 50 full-time equivalent (FTE) employees must provide affordable health coverage to their full-timers and their dependents or pay a penalty. Employers should shop around to see if they can obtain more favorable rates on the insurance they provide.

Smaller employers can choose to provide coverage to help staff stay healthy and retain valued employees. The government’s Small Business Health Options Program (SHOP) is available for this purpose, or coverage can be obtained through a private insurer. Tax credits may be available for those choosing the SHOP option.


Employers that provide fringe benefits in addition to health coverage, such as retirement plan contributions or education assistance, should include those benefits when budgeting for 2018.


Now is the time to plan for your 2018 compensation costs. Working with a CPA or other financial advisor can help ensure that your business can afford any planned increases, as well as remain in compliance with tax and labor laws.

For more information or help with budgeting for next year’s payroll, contact the Economic Development Collaborative-Ventura County. Conveniently located in Camarillo, California, we’re here to help.




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