Manufacturing and Distribution Group Newsletter – Fall 2021
Joyce Carlson, Kenneth Tornheim
How automation can help your labor shortage
The COVID-19 pandemic created a whirlwind of unforeseen repercussions for manufacturers, bringing uncertainty and a global labor shortage. Investing in automated equipment is a smart alternative to relying heavily on workers. This newsletter looks at how automation can reduce a company’s human resource headaches, decrease costs and provide optimal solutions for your workforce woes.
Related Read: Are You Ready for Industry 4.0?
Increasingly, leaders like Elon Musk agree that physical work “will be a choice” as automation grows. Many workers understand and also desire the benefits of having robots for mundane jobs. The main benefit being that it removes people from the hazards and physical issues associated with the labor aspect of manufacturing. As people rethink life and work, renovations to technology in factory labor becomes imminent.
Today’s tight labor market demonstrates that good help can be hard to find. According to a study by Deloitte and the Manufacturing Institute (a partner of the National Association of Manufacturers), the manufacturing skills gap in the United States could result in 2.1 million unfilled jobs by 2030. The study also found that digital transformation in the manufacturing industry will redefine work for those working in manufacturing.
As workers choose to relocate or leave the industry, manufacturers are finding that automated equipment can help ease the burden of staffing shortages. Manufacturers must meet production demands and maintain the distinct advantages provided by operating in remote areas. The challenge becomes working with limited sources and skilled workers. Surprisingly, automating your plant may be easier and less expensive than, for example, training existing workers or luring skilled workers from urban areas to work for you.
It goes without saying that robots, if properly programmed and integrated, can perform specific tasks faster with fewer errors, more safely and with less waste than humans. This allows people to perform higher-level work than previously imagined. Automated equipment is well suited for large production runs and repetitive, dangerous and labor-intensive tasks. This can range from welding parts to performing pick-and-place tasks to cleaning up chemical spills. However, small batches of custom work still run best by hand, allowing companies to maintain a human or artistic touch.
It is critically important to note that automated production lines and the use of robots can help differentiate your business from competitors. For example, press releases and social media posts about your investment in automated equipment may boost your brand’s image as an innovator and/or a high-quality producer. Any green or environmentally-friendly aspects realized by automation are well accepted by purchasers in today’s market.
Employees are seldom satisfied with doing the same mundane tasks day after day. By automating repetitive tasks, your workers are free to perform high-tech custom work. By training employees to work with robots you will motivate and encourage advancement. Assigning dangerous or strenuous work to robots can reduce work-related stress, accidents and health issues among employees. Additionally, medical leave and worker compensation costs can be avoided. If robots address shortages without attempting to replace the human interface, the benefits of updating and streamlining operations will filter through your manufacturing process. Offering more technical and efficient jobs allows workers to develop new skills, which fosters success and pride in a job well done.
Automation is not just for the manufacturing floor. Robotic process automation (RPA) can also help the administrative side of your business. RPA refers to software tools that automate repetitive, rule-based human tasks. For example, properly designed RPA solutions can compile the necessary billing data (from multiple systems, if necessary) and create accurate invoices in a matter of minutes. It can also be used to generate and analyze work-in-progress reports to ensure that jobs are progressing profitably and provide an early warning of cost overruns and other potential problems. Finally, RPA can be used to automate a variety of tasks involved in recruiting, onboarding, payroll and other labor- and document-intensive HR processes. When it comes to things like customer service, RPA tools do not replace creative thought processes that are key to successful interactions.
Related Read: Manufacturing Evolving from COVID-19
The biggest downside to automation is the initial cost. Therefore, it is critical to crunch the numbers before making the investment.
Rather than purchasing equipment outright, consider financing or leasing the equipment to spread the cash outflows over five to ten years. Keep in mind that financing costs could increase significantly if interest rates increase or lawmakers make changes to the federal tax deduction for interest expense. Your plan should allow time, if needed, to properly outfit your facility and maintain profitability.
Consider how much it will cost to train employees to operate, program and repair the equipment, along with incremental insurance, utilities and repair costs. You may even need to revise your production line to avoid unexpected bottlenecks that may occur as automation alters throughout cycle times and setup times.
Though machines do not complain or call in sick, they do break down and show wear, necessitating a formal maintenance program. If you are not disciplined enough to follow a maintenance schedule, consider leasing the equipment from a company that will also maintain it.
As with any type of technology, it is important to evaluate the cyberthreats that automation might bring. Could your robots be hacked or infected with a virus that shuts down your production line?
Related Read: Carefully Weigh the Pros and Cons of Automation
Embracing the future
Technology is the future of many manufacturing businesses. The robotic capabilities in current use are considered to be a boon to progress and will make your company innovative. Start with a few robots and take it from there. Contact your ORBA CPA to review the costs of buying, implementing and maintaining automated equipment and RPA software.
For more information, contact Joyce Carlson at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Manufacturing & Distribution Group.
On the Road Again — It Is Time To Review Expense Deduction Rules
KENNETH TORNHEIM, CPA, CFE
The COVID-19 pandemic is not over, but business travel is starting back up. So, it is a good time to revisit the tax rules for deducting business travel expenses. This newsletter reviews the deductibility of domestic travel expenses. Special rules that apply to foreign travel are not covered in this newsletter.
An employer may deduct an employee’s ordinary and necessary expenses for travel away from home on business. While self-employed individuals may also deduct these expenses, employees are not currently permitted to deduct unreimbursed travel or other business expenses. (See Sidebar: Do You Have an Accountable Plan?)
Travel expenses are “ordinary and necessary” if they are business-related, reasonable under the circumstances and not lavish or extravagant. Unfortunately, there is no bright-line definition of “lavish or extravagant.”
Generally, travel is considered “away from home” if:
- It requires an employee to be away from the general area of his or her tax home for substantially longer than an ordinary day’s work; and
- The employee cannot reasonably be expected to meet the demands of the work without sleep or rest.
Typically, one’s tax home is the general vicinity (city and surrounding suburbs) of his or her regular place of business. Special rules apply for employees who work in several places, do not have a fixed place of business (for example, because they are on the road most of the time) or are on temporary assignment away from their regular place of business.
Traveling away from home does not necessarily require an overnight stay. Let’s say that you drive to a city four hours away, meet with clients and prospects all day and then catch a few hours of sleep at a hotel before driving back at 10 p.m. Because it would be unreasonable to expect you make the round trip in one day without rest, you are considered to be traveling away from home for tax purposes.
What can employers deduct? Deductible travel expenses include, but are not limited to:
- Transportation expenses, such as air, rail or bus fares, or the costs of operating and maintaining a car;
- Taxi fares or other local transportation expenses;
- Baggage charges;
- Hotel or other lodging expenses;
- Meal expenses (subject to the rules discussed below);
- Dry cleaning and laundry expenses; and
- Telephone or computer rental expenses.
To substantiate these expenses, employees must keep credit card receipts, canceled checks, bills or other adequate records for all lodging, as well as other travel expenses greater than $75 (although some employers require documentation of all expenses). These records should show the amount, date, place and essential character of the expense.
Ordinarily, business meals (including those consumed while traveling) are 50% deductible. However, under the Consolidated Appropriations Act of 2020, otherwise eligible business meals provided by a restaurant (including carryout) are 100% deductible for 2021 and 2022.
Employers can deduct the cost of meals employees eat alone when traveling. You are also permitted to take a deduction for meals if: 1) A business owner or employee is present; 2) The meal is provided to a business contact (such as a customer, prospect, consultant or vendor); 3) The meal serves an ordinary and necessary business purpose; and 4) The meal is not lavish or extravagant.
Entertainment expenses are not deductible. But employers may deduct the cost of food or beverages provided during an entertainment activity if they are purchased separately or stated separately on a receipt or invoice.
Related Read: What Is the Latest on Business Meal and Entertainment Expenses?
Allocation of business and pleasure expenses
If you have employees who travel in the United States primarily for business, but also spend some time on personal activities, you can deduct the full cost of their airfare or other transportation to and from the destination. However, lodging, meal and other qualified business expenses are deductible only for the business portion of the trip.
Typically, a trip is considered primarily for business if the employee spends more time on business activities than on personal activities — for example, if he or she spends five days at business meetings followed by a weekend at the beach. If a trip is primarily for pleasure, travel expenses are not deductible, although employers may still write off otherwise deductible expenses for business activities during the stay.
Revisit your expense policies
The rules for deducting travel and other business expenses are complex. Instead of deducting actual travel expenses, some businesses simplify the process by providing employees with allowances for lodging, meal and incidental expenses based on federal per-diem rates. If you or your employees have business trips planned soon, review your travel expense policies and consider updating them to maximize your tax benefits and minimize the administrative hassles.
Sidebar: Do you have an accountable plan?
The Tax Cuts and Jobs Act eliminated most miscellaneous itemized deductions, including unreimbursed employee business expenses, through 2025. The best way for employers to ease this burden on employees is to reimburse their business expenses. The employer deducts the expense and the employee is not taxed if the reimbursement is made pursuant to an “accountable plan.”
A plan is accountable if it requires:
- Reimbursed expenses to have a business purpose; and
- Employees to meet certain requirements for substantiating expenses and pay back any excess reimbursements within a reasonable time.
Absent an accountable plan, reimbursements received by employees for business expenses are treated as wages subject to income and payroll taxes.
For more information, contact Ken Tornheim at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Manufacturing and Distribution Group.
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