Mercer: Inconsistent US marriage laws costs 1.3 billion

26 November 2014

Inconsistent laws surrounding same-sex marriages are costing private US employers and employees up to $1.3 billion per year. For employers the largest burden comes from administration and compliance, for employees the largest burden is higher tax rates and limitation on benefits in states enjoyed by their married opposite sex citizens.

In the report titled (‘The Cost of Inconsistency’) Mercer, in collaboration with Freedom to Marry and Out & Equal, assesses the economic impact of inconsistent marriage laws in the United States. The authors find that for American businesses, unaligned laws impose a significant economic burden — specifically a $1.3 billion annual cost. The burden is based on two key factors.

Administrative and compliance requirements
Firstly, because marriage confers a host of legal and social privileges, the irregular landscape across 50 states creates a “bevy of administrative and compliance requirements for employers”, and as a result employers need to establish and maintain multiple benefits policies and HR-systems that apply to same-sex couples who live under the patchwork quilt. The consultants analysed the burden per state, and conclude that the cost to businesses in administrating the equality laws and bringing their businesses up to compliance, can be onerous.

Costs associated with managing inconsistent marriage laws

In Florida for instance, on average a business of 2,500 employees pays $96,000 in compliance and equalising benefits to that of opposite sex couples, is enough to employ two average FTE. The total cost for all companies in Florida for administration and compliance in 2014 is $59.9 million. Even in states that permit same sex marriage, costs can still be prohibitive, California will need to pay $69.8 million in 2014, and from 2014-2018 it will pose a $396.5 million dollar burden.

A second element of the burden is taxation. When benefits are offered to same-sex couples who live in states without freedom to marry, the value of these benefits generates a tax penalty for employers and employees. In essence, the value of the additional benefits is treated as ordinary income, triggering added payroll and income taxes*. According to the advisors, the national tax burden amounts to $27.5 million 2014, down from a peak $93 million in 2012, reflecting the impact of the Windsor decision**. The largest portion of the tax cost is generated by employment in mid-sized companies, and employees bear more than two-thirds of the overall burden.

National Tax Burden by employer type

Adding both elements provides a gloomy picture on the costs of inconsistent marriage laws. Last year the total cost of administration and tax was $1.3 billion, and in the period 2014-2018, the total for all states will be a staggering $6.6 billion.

The National Burden of Inconsistent Marriage Laws Over Time

Due to the large differences between states, the total burden differs per region. California, New York and Texas – states with a freedom to marry – face the highest total cost, while 16 states are estimated to carry a burden of less than $15 million. In general, the tax burden to employers and employees is disproportionately concentrated in non-freedom to marry states, and the administrative and compliance burden more evenly distributed and highest in freedom to marry states.

Total 2015 Economic Burden of Inconsistent Marriage Laws by State

Alignment required
Based on the analysis Mercer, Freedom to Marry and Out & Equal have a clear message: alignment is required. “The economic analysis is compelling. Inconsistent national policy penalizes the private sector, especially mid-sized and large businesses. The message we draw from this analysis is that national freedom to marry will save the private sector billions in unnecessary costs and taxes. And with 59% of Americans standing behind the right for same-sex couples to marry, the social case is too is compelling.”

* This taxation applies both to couples who were married in another state (who must pay a state tax penalty) and to those couples that are not able to travel elsewhere to exercise the right of marriage (who pay both a state and federal penalty).

** With the June 2013 ruling in the United States vs. Windsor, the US Supreme Court struck down Section 3 of the Defence of Marriage Act, which had legislated discriminatory treatment of married same-sex couples by the federal government. The Windsor ruling dramatically reduced this burden, as the federal government no longer taxes benefit costs for same-sex employees. However, in states without the freedom to marry, the value of those benefits is still treated as incremental income for state tax purposes.



Late payment culture cripples productivity of SMEs

29 March 2019

UK SMEs are seeing their efforts to grow stifled by late payments, causing thousands to enter insolvency proceedings each year. According to experts from Duff & Phelps, this also has a major impact on the UK’s economy, meaning late payment culture must be tackled if the country is to dodge yet more economic stagnation in the shadow of Brexit.

Small and mid-sized enterprises in the UK face a myriad of pressures at present. Brexit anxieties are keenly felt by SMEs, with more than nine in 10 suggesting recently that economic conditions have worsened in the last 12 months. 66% of SME leaders also expect conditions to further worsen in the coming year.

At the same time, firms are keen to see value for money from investing in external expertise. Consulting fees which weight much more heavily on smaller firms, who spend £60 billion per year on professional services, but feel that more than £12 billion of that figure is wasted on unnecessary or bad advice.

Late payment culture cripples productivity of SMEs

Above all, however, SMEs are extremely vulnerable to late payments, and, according to a new study, the situation is only getting worse at present. According to corporate rescue consultancy Duff & Phelps, small businesses in the UK are facing a collective bill of £6.7 billion per annum due to late payments by other companies, while the average value of each late payment now stands at £6,142. This has risen from £2.6 billion in 2017, illustrating the plight of SMEs, particularly with uncertain economic times ahead.

Indeed, the spike in late payments has already caused significant productivity issues for SMEs, which in turn compromises their financial stability. With staff wasting hours chasing down late payments and businesses becoming preoccupied with short-term cash flow problems, they are less able to concentrate on creating new value for the firm, which in many cases gradually slides toward insolvency.

Small businesses across the UK are facing major cash flow pressure, leading to increased financial instability as a direct result of a late payments culture. This is likely a big driver of the UK’s 20% boom in insolvencies over the last three years, especially as it has a knock-on effect on other SMEs within the supply chain of those struggling firms. Approximately 50,000 small businesses fail each year because of late payments, amounting to a shortfall of more than £2.5 billion for the UK economy. 

Commenting on the findings, Paul Williams, Managing Director, Duff & Phelps, said, “In this modern era of technology, which is designed to enable business agility, late payments are particularly galling as there are no excuses. The day of the ‘cheque is in the post’ is long over!... More can be done to avoid businesses reaching this situation in the first place. SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments.”

The UK Government currently promotes its voluntary Prompt Payment Code to encourage good practice, but late payments by larger companies remain a common pain point for many SMEs. There may be hope for an end to late payments, however, following an announcement in the Spring Statement from Chancellor Philip Hammond. The Government aims to crack down on the practice, with Hammond stating big companies should hire a Non-Executive Director to be responsible for reducing late payments to small suppliers. The statement also advises that organizations publish payment practices in their annual reports.