The purpose of this article is to help you understand the purpose of Schedule C, Line 26, Wages. Whether or not you have employees, if you are a Sole Proprietor, it is critical that you properly deduct expenses related to compensation.
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The purpose of Schedule C, Line 26 is to deduct employee compensation. The IRS has labeled this line "Wages", but employee compensation includes not only wages paid to hourly employees, but also salaries, commissions and bonuses paid to employees. The key here is this: whatever you pay your employees should be reported on this line.
With that in mind, let's discuss what should not be reported on Line 26. First, never report payments to yourself, employer of record the Sole Proprietor. The owner of a Sole Proprietorship is never considered to be an employee of the business. Any payments you make to yourself out of the business (sometimes called "draw") are considered a withdrawal of profit, not employee compensation.
The other big mistake is to report independent contractor payments on Line 26. If you have people that provide services to your business as independent contractors, report those payments on Schedule C, Line 11, Contract labor. And if these people are truly independent contractors, there should be a written contract between the two of you. Furthermore, if you pay a contractor $600 or more in a calendar year, you are required to issue him/her a Form 1099-MISC to report the total annual amount of non-employee compensation.
One final comment: if you report any employee compensation on Line 26, you must file several employee-related payroll tax returns on a regular basis. The most common federal payroll tax forms include Form 941 (quarterly), Form 940 (annually) and Forms W-2 and W-3 (annually). You may also be required to file payroll tax returns at the state level for state unemployment tax and worker's compensation insurance, so be sure to check with your state for details on that.
Agent turnover has always been, and continues to be, a chronically costly problem for call centers, a problem to be tolerated rather than solved.
Average turnover in the contact center is reported at 40 to 50%. Respondents to a *FurstPerson survey reported an average monthly attrition rate of 7.18%. Annualized, a 40% annual turnover estimate becomes an actual turnover rate of 87%.
Although 90% of corporate executives say that employees are the most important variable in their companies' success, a Towers Perrin survey reported that in practice they rank people-related issues far below other business priorities. Executives agreed improving employee performance would improve business results--73% even said their most important investment was people. However, people-related issues, such as training and compensation, consistently ranked at the bottom of the list.
A profitable workforce requires well-trained, knowledgeable, conscientious, service-competent employees who enjoy their service responsibilities. Training is crucial. Recent studies in service industries link increased training to decreased employee turnover.
For instance, Ryder Truck Rental discovered that among employees who participated in training programs, the turnover rate was 19%. For employees who did not participate, the rate soared to 41%. Guest Quarters Suite Hotels report their low turnover rate is one indication of employee satisfaction. Additionally, but not surprising, there is a positive correlation between training, employee satisfaction, and guest satisfaction.
At a time when nearly all businesses, are looking for ways to cut costs and save money, reducing turnover should be a priority. Disruption of workforce stability should also be of concern to those who manage the customer care process.
FurstPerson reports the average cost of attrition at $5,466 per person. Interestingly, the cost of attrition in an internally managed contact center was reported at $7,994 per person, more than twice the cost of attrition at an outsourced center which was reported as $3,420 per person.
The disparity in cost is most likely related to the amount of time and money that is dedicated to training individuals in an internally managed contact center. And we've seen turnover in other reports at $8500 per person +++
Let's look at a typical scenario with 100 people and a 30% turnover rate.
100 people
x30% turnover
30 people are leaving annually
$7500 average (conservative) cost of new hire
$225,500+ + + = Turnover cost
Note: The pluses represent the additional cost of the learning curve. For instance, when seniors, supervisors, and/or managers need to sit with or give time to new hires takes them away from their requisite productivity.
Also, factor in consideration of the people having to take on the additional workload because of short staffing, or new hires too 'green,' and the subsequent declining morale that goes along with that. All of these impact productivity, customer (internal and external) satisfaction, and employee satisfaction.
Can you see the easy justification for investing in a training initiative of say $60,000 that could reduce turnover for almost a 4:1 return on your investment? Sounds like a slam dunk to me.
* "Call Center Recruiting and Compensation Survey" published in February 2009 by FurstPerson of Chicago, IL.