Tips for managers in addressing higher taxes

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Tips for managers in addressing higher taxes

No doubt everyone is aware of the fiscal cliff and recent deal in Washington, but not everyone is aware of the implications. If anything, many people are still holding their breath as they wait for further explanation. They are wondering exactly what changes are set to take place and how it will directly affect their finances and their jobs. Unfortunately, these people are about to learn they are taking home a smaller paycheck. It is no easy task, but by default of all this, employers have now found themselves in a position of having a difficult discussion with employees. There is no avoiding it and for certain it cannot be overlooked.

Though a discussion like this is difficult, there are things to keep in mind that will help a leader to be more successful with the topic. If you are one of many in a situation of needing to have this discussion with your employees, there are three important elements to remember and even a framework for conversation you may find helpful.

Photo Credit: Carl Dwyer

3 elements to keep in mind during discussion:

1)      Facts Facts help shift the conversation to a learning stance. It is important to approach this in the most positive light possible. Give specific information so that employees grasp the big picture.

2)      Feelings Don’t approach the conversation with the outlook that you know what your employees are thinking. Don’t automatically be defensive. In fact, by having already presented the facts leading to the predicament, you have cut out the blame factor. Keep in mind the importance of being sensitive to your employee. It is crucial to approach the conversation honestly and invite feedback.

3)      Identity Anytime individuals find themselves in situations in which they have no control, it is easy to become vulnerable and overwhelmed. Despite the bad news you are breaking to them which can be damaging to identity, you can easily counter act that by reiterating your concern for the employee. Reinforce those kinds of statements by shifting the focus to making sure they are happy with their role and inviting them to share additional skills they may want to utilize on the job.

3 step conversation sequence:

1)      Lead with a positive tone and convey that the tax cuts were put in place for the purpose of giving the economy a boost during Bush and Clinton and were a temporary measure.

2)      Next, continue with the bad news. Tell them if the cut does not expire, the reduction in payroll tax revenues could be used to make Social Security’s long-term financing shortfall look much worse than it is. Absent the payroll tax cut, the Social Security financing story is one where the average cost rate for the next 75 years is 16.7 percent and the scheduled income rate is 14.0 percent, producing a deficit of 2.7 percent. That figure means that if the payroll tax were raised immediately by 2.7 percentage points — 1.35 percent each for the employer and employee — the government would be able to pay the current package of benefits for everyone who reaches retirement age through 2086. Pause and wait for your words to “sink in.”

3)      Try to shift to shift course back to a positive mood by being mindful of feelings and identity. State what you are doing in light of these changes to ease the difficulty for employees. This is your opportunity to learn the other person’s story and invite feedback. Ask what they like about their job. Find out what skills and knowledge they would like to use more. This portion of the discussion may need to be continued at a later date in more detail, but it is good to be sure the employee is aware of your concern and planned future efforts.

Get answers from professionals to any further questions you may have at our monthly CEO luncheon scheduled for the 25th of January discussing the Fiscal Cliff.