Hacker News Reader

Comment by flambojones | Hacker News Reader

Salaries aren't a one-time expense, so is the amortization rolling? Like, year 1, you pay me $200k and deduct $40k. In year 2, you pay me another $200k, do you get to deduct $40k for year 1's salary and $40k for year 2's salary?

I guess another way to ask is, does this mean that if you keep someone for 5 years and don't change my wages, is their yearly salary effectively fully deductible? If so, does that create incentives to try to keep employees longer-term in order to make them more cost-efficient?

View on HN

There's no difference if you fire and hire a new worker every year or you keep them long term. You carry the amortization over until its completely written off.

Ahh good call. My $200k vs. your $200k doesn't really matter with a given year.

I also have this question. If this is true, as you note, full deduction is only possible if the wage is constant. So would this also provide an incentive for employers not to give raises, as this 'resets the clock'.

The situation would be that employers want to keep employees for at least 5 years, but providing them with raises as an incentive to stay is also more expensive than it was previously.

Seems like a bit of a mess.

Short answer is yes. The finance team has to track each year’s expense as a “tax layer” and amortize it separately. By year 5, ignoring half-year or half-quarter conventions, if have a constant spend, the annual expense will be equal to fully expensing.

The short answer to some of those questions is yes.

But clearly not for the final question: “does that create incentives to try to keep employees longer-term in order to make them more cost-efficient?”

I dont think the math works out in a way such that individual employees are not interchangable. It's based on engineer labor cost as a whole; there is no difference if the 3yr year employee was Jack or Jane.

The net result here seems to be a tax-induced penalty to any (software) organization < 5 years old, as compared to a (software) organization with 5 years of employee history.

I don’t fully understand your comment but it seems that we agree that the answer to “does that create incentives to try to keep employees longer-term in order to make them more cost-efficient?” is “no”.

Yes, we agree that the answer is "no".

Reply on news.ycombinator.com