PART 2: HOW TO DEVELOP A BUSINESS INCENTIVE PROGRAM?
The first segment, “Why develop a Business Incentive Program?”, summarized reasons why organizations create business incentive plans and an overview of various phases of the cycle.
Economical efficiencies are often gained by leveraging the programs issued by federal, state, and local governments. Methods for locating applicable programs, guidance on performing the initial vetting of them and forming connections with the groups that administer incentive programs were all reviewed. By meeting the compliance requirements and terms these governing agencies set forth, businesses could earn lucrative tax credits, rebates, zero to no interest financing, training for employees or other concessions that decrease their overall operating costs.
In this part, the decisions and steps surrounding the implementation of an organization wide strategy will be discussed, including the following:
- personnel and resources necessary to steer progress,
- a comparison of insourcing efforts verses outsourcing, and
- leveraging technology to manage and organize volumes of information.
Who and what are needed?
Regardless of whether organizations elect to internally manage the incentive process or outsource most of its tasks to consultants, certain personnel and resources are essential to benefit harvesting. Many incentive programs offer withholding tax exemptions, credits, or refunds. The documentation typically necessary to claim funds involves supplying employee wages and timecard data from the qualified periods to the managing agency. Appointing a representative from human resources to acquire, collect and submit this information will streamline and increase the likelihood of a successful initiative.
States’ Department of Revenue will audit the payroll data and will typically require clarification when interpreting it. Responding to taxing agency requests and promptly meeting data submission deadlines are essential to this success. Consistency and prompt reporting are typically gained by appointing or at least including a HR staff member to the payroll portion of the project.
Equally necessary to the initiative, is a knowledgeable member of the accounting department. A qualified member of the accounting department will likely already have access to the general ledger data that records these expenditures and will have the means to promptly submit necessary documentation.
After appointing human resources and accounting staff to the initiative, locating a method to track benefits and store data is necessary. The most simplistic means is by spreadsheet. This method will record the various filing, due dates, and cutoffs; but lacks a complete transparency into the overall project. A database system is an inexpensive alternative to a spreadsheet. It provides the additional functionality to query data and simplify calculations. Lastly, an integrated software can present both the calculation and documentation together without trying to cross systems or data streams. Consider appointing a staff member familiar with database suites to administer the information retention and modification portion of the task.
Administer alone or acquire assistance?
Insourcing the entirety of the incentive harvesting process verses outsourcing a portion or the totality of the project are decisions the tax department must make early in the undertaking. Already discussed, were the baseline staff needs to launch an initiative.
Traveling down the insourcing path, additional personnel may be necessary. Namely the appointment of, well organized, senior level leader with knowledge of the firm’s activities and organizational contacts. This person will be tasked with organizing, guiding, and meeting the various filing deadlines associated with capturing tax credits and incentives. This individual will direct the overall efforts and those of the staff accountant and HR representative previously discussed.
The final member of this team is a research analyst. This individual will evaluate, comprehend, and disseminate information pertaining to the programs with which the firm intends to participate. Analysts are pivotal to the campaign, as they will be the party most fully aware of incentive programs requirements, any exceptions, and standard protocols.
Recruiting, hiring, and training specialized associates to oversee incentive gathering may not be viable to an organization. After evaluating additions to staff or infrastructure costs associated with forming a team, firms typically will outsource the initiative and partner with third party consultants instead. The two most impactful benefits of an outsourcing strategy are cost reductions and subject matter expertise.
Utilizing consultants will prevent overextending internal resources. Corporate tax departments are often staffed “at need”. The “day‐to‐day” activities of these areas involve appropriations and mapping expenses to return categories, not the location of incentives and acquisition of tax credits. This translates into a lack of bandwidth, or worse a void of staff, necessary to administer the effort. Retaining a consultant will increase the “return on investment” of the initiative due to eliminating the cost of specialty personnel.
Acquiring a research analyst and a business leader may increase employment costs while repurposing (or adding the incentive harvesting tasks to) existing associates may result with those individuals’ primary functions suffering. Third party consultants eliminate this human capital dilemma, and their compensation is based upon the benefits to be earned. Expenses typically fall between 5‐20% of the overall incentive package. This makes consulting firms a cost advantaged and staffing efficient option to acquire uncaptured incentives, credits, and resources.
In conjunction with the cost savings gained, consultants add tenured expertise to the equation. Their knowledge is focused solely on incentive acquisition and the methods needed for companies to realize benefits. Specialized techniques, unique technology solutions, and dedicated personnel are all leveraged by these experts to acquire incentives for their clients. Consultants actively recruit personnel from the same agencies that administer the incentive programs. States’ Department of Revenue, Workforce/Economic Development, and the Chambers of Commerce comprise the talent pools where third‐party firms locate and recruit professionals. Newer trends show consulting firms widening their scope and onboarding database administrators and programmers. These staff members are being engaged to devise and operate standalone applications focused on incentive compliance.
CFO Services is one such firm focusing on technology to streamline the incentive harvesting process. The firm’s investment in technological resources and specialized personnel has yielded a proprietary application for its client’s use. The BIPS (Business Incentive Portal) is a technology platform that merges database functionality alongside scheduling tools to record pertinent details, deliverables, and data regarding a company’s incentive initiative. The launch of the software package has gained their client improved compliance and a decrease in the complexity of managing multiple programs. This exclusive product displays agency deliverables and upcoming filings to the user in a concise, convenient, and secure environment. Irrelevant of the sophistication of a technology solution, systems positively impact and increase organization aspects of the overall initiative.
Whether firms commit vast or minimal resources to the effort, the development of an incentive initiative grants quantifiable results to any organization. Tax credits and other benefits offered by governing agencies have the potential to greatly impact the overall financial results of an organization that is expanding its operation. Strongly consider the best path for the organization. Most mature organizations will often build an in‐house team to lead the endeavor while growing firms typically leverage consultants or elect a hybrid insource/outsource strategy. Regardless of the path selected, assistance can always be gained by use of technology. For questions or assistance developing a business harvesting program, please contact a representative from CFO Services.
IRS Circular 230 Required Notice‐‐IRS regulations require that we inform you that to the extent this communication contains any statement regarding federal taxes, that statement was not written or intended to be used, and it cannot be used, by any person (i) for the purpose of avoiding federal tax penalties that may be imposed on that person, or (ii) to promote, market or recommend to another party any transaction or matter addressed herein