Different Fiscal and Tax Years to Maintain Employees

Your business fiscal year is almost always your tax year, but it doesn’t have to be, and there are many benefits in the construction industry to having them end in different quarters. This is particularly true with respect to hiring and maintaining employees. What is the difference between these two?

Every business has a fiscal year (its financial year), which is any 12-month period that the company uses for accounting purposes. The fiscal year is expressed by stating the year-end date, and it is usually the end of any quarter, such as March 31, June 30, September 30, or December 31. Many business owners in the construction industry have same fiscal year measurement as the “tax year” measurement, despite the benefit of having two calculations per year.

The IRS defines a “tax year” as an annual accounting period for keeping records and reporting income and expenses. An annual accounting period does not include a short tax year. The tax years you can use are as follows:

  • Calendar year – 12 consecutive months beginning January 1 and ending December 31.

  • Fiscal year – 12 consecutive months ending on the last day of any month except December. A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month.

Examining your financials as a whole more than once a year has several advantages with respect to hiring and maintaining employees, amongst which being better planning and allocation of time and finances, and enhanced development of your most valuable asset, “Human Capital”.

The fourth quarter in construction (and in most any businesses), goes at the speed of light. 

This is partially because it is naturally associated with the end of a calendar year, holidays, family celebrations and yes, often gifts and bonus time.  Emotions are running high and expectations run witlessly.  Oftentimes we maintain our employees in the same way with respect to raises, bonus and time off, instead of creating a level playing field backed by measurement, and aligned and met expectations.

A true fiscal year-end measuring the same things as at a tax year-end (Net incomes, Projected Cash Flow, Bonding and Borrowing Capacity, etc.), earlier in the year gives you factual measurements to discuss with your existing and future team members that will help align goals and expectations, and control emotions from false pretenses.  This is particularly important when rewarding employees with bonus and incentive programs as they should be measurable. Talk is cheap, and building trust within your organization starts with working as a team through the good and not-so-good times. Executives and business owners that guess at the numbers get exposed when those that know the numbers talk or no matter what they led someone to believe, the company is unable to pay-out, implement etc. because financially, it is just not possible.

Many construction companies are doing away with year-end bonuses and switching to equal holiday gifts across the board, such one week’s pay or a set amount that is irrespective of the level of employee.  Why?

They can budget for this with each new hire and it shows the value of the team as a whole, rather than how well someone performed over another. This keeps the holiday time as a time for celebration and eliminates added anxiety of what is expected to be received verses what is actually given.  Too many employees in our industry spend in anticipation of a bonus amount they think they will receive rather than the bonus amount they receive.  Removing any false expectation or reactionary giving to bonus amounts helps maintain your team.  Despite employers thinking people keep confidential the amount they received, employees talk and compare especially in an industry where egos and competitive spirits reside.

A fiscal year end in the second or third quarter also helps you measure cash flow to invest in the training and development of your employees, new technology and other things that may be important to maintain employees throughout the year, including something as simple as a corporate office refresher or better jobsite amenities.

There are so many benefits to holding a fiscal review more than once a year, including building credibility with your bonding company, lending institution and sub-contractors which in turn helps you maintain your employees.  Fiscally-sound companies can offer sustainable growth for not only the owners, but the people they employ.

Allan Schweyer, Human Capital SME and Strategist states, “Human Capital is a core corporate asset just like financial and physical assets. This requires thinking strategically about how to invest in human capital, how to optimize and measure its return.”

You are more likely to be able to think strategically about investing in human capital if you take time to better understand your financial and physical assets, and measure them more than merely during the most wonderfully busy time of the year gives more options.

Ask your CPA to help you with better planning and measurement tools earlier in the year.  Eliminate false expectations for you and your team for the best year end celebrations ever.


Suzanne Breistol

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