Tax Hiring Outlook 2022
Tony Santiago is the founder and president of TaxSearch Inc.
In this inaugural installment of Tax Pulse, Santiago reviews five key factors that influence the hiring and retention of U.S. tax professionals. This is the first of a five-part monthly series.
After the challenges of the 2020 COVID-19 pandemic, 2021 was a year of unexpectedly robust recovery. While we had anticipated that the lingering negative effects of 2020 would be minor, last year’s rebound surprised everyone.
That recovery — coupled with the white-hot market — is still at play and is likely to significantly affect your ability to both retain tax talent and recruit new employees. Thus, tax leaders must be prepared for both planned and unexpected turnover, and this series of articles aims to help you do just that.
This is the first installment in a five-part monthly series on the hiring and retention of U.S. tax professionals in this dynamic market. Here, we focus on laying the groundwork that tax leaders will need to educate senior human resources and financial leadership, increasing one’s support for the solutions needed to mitigate these trends.
Before addressing the potential solutions later in the series, we will focus on how we got here. A number of factors contribute to this dynamic tax market: Some that have been building over time, while others that are more recent developments. Regardless of the cause, here are the five major influences you need to understand:
1. Limited Labor Pool and Decreasing Supply of U.S. Tax Professionals
This is the number one area requiring education for financial and HR leadership. Please do not assume they understand the unique position we are in regarding the supply implications we are facing with U.S. tax professionals.
The tax profession is unlike any other finance function in that knowledge and experience do not easily transfer across borders. As a result, U.S.-focused tax expertise can only be described as a captive labor pool. U.S. tax laws and regulations are so unique that we are unable to import tax resources or recruit tax professionals from other countries without significant training. Because of the uniqueness and complexity of the U.S. tax code, outsourcing to foreign tax service providers poses similar challenges.
While some work has been shipped overseas, the tasks sent offshore are far less complex than anything that must be performed by U.S. tax professionals. This bottleneck notably affects supply and demand, and there are no easy solutions to the problem.
If that’s not enough, the U.S. tax labor pool is shrinking as baby boomers retire. In fact, we predict that up to 50 percent of the combined years of experience across corporate in-house tax departments will exit the workforce within the next five to six years. Some of these departures were anticipated, but COVID-19 has further accelerated these retirement dates as part of the Great Resignation.
Case in point: Our study of roughly 1,500 corporate in-house tax departments found that 20 percent of U.S. heads of tax retired during the two years spanning 2019 through the end of 2021. During the same period, 25 percent of those who were second in command and reported to those tax executives also retired.
To further compound the impact of this significant talent drain, we found that of those still employed in key tax leadership roles:
48 percent of current heads of tax are baby boomers; and
40 percent of those who are second in command are age 57 or older.
Combined with the unique nature of U.S. tax law, this reality puts a tremendous strain on the already captive labor pool and the diminishing level of expertise available within it — something we will discuss further in upcoming articles.
2. Increasing Demand for U.S. Tax Talent
In tandem with the limited supply, there is also increasing demand for U.S. tax talent because of:
special purpose acquisition company (SPAC) transactions, initial public offerings (IPOs), and spinoffs;
repercussions from perpetual tax code “tweaks,” both at home and abroad; and
impacts from fluid statutory and regulatory tax proposals.
In recent years, there has been a record number of IPOs, SPACs, and spinoffs — resulting in the creation of new tax functions. What’s more, as these new organizations are publicly traded, those roles demand expertise that can only be found in highly trained experts.
While some openings in these new tax departments could be filled by talent transferred from the previous tax function, most are still in search of additional external hires, placing greater strain on an already overburdened market.
Also, there’s no indication that 2022 will see any reduction in these activities or the number of job openings created by them. In fact, we expect these tax hiring challenges to become exponentially more difficult because of:
announcements from companies such as General Electric Co., Johnson & Johnson, GlaxoSmithKline PLC, Pfizer, Merck & Co. Inc., and others that they have or are planning to spin off pieces of their business;
a record number of new IPOs — the highest numbers we have seen since 1997; and
the continuation of SPAC transactions, which were relatively nonexistent five years ago.
If that’s not enough, new and proposed U.S. and global regulatory and statutory requirements, along with regulatory pressure by nongovernmental organizations and increased audit enforcement, have resulted in a widespread increase in workloads. These pressures include:
aggressive changes by newly appointed SEC officials increasing the number of resources required for compliance;
U.S. and global pressure to raise revenue as a result of government proposals for new corporate tax revenue and related staffing demands; and
the inevitable increase in audit activity across the globe.
While many of these changes are still being developed, they all increase demand for U.S. tax professionals.
3. Heightened Pressure on Racially Diverse Hiring
Environmental, social, and government (ESG) guidelines continue to place demands on tax functions. ESG standards — specifically, the social element concerning racially diverse hiring practices — are expected to notably affect departments from the retention, staffing, and development perspective.
Along with ethical challenges related to recruiting, the current talent supply constraints on diversity cannot be underestimated. While women are well represented among U.S. tax professionals, other minorities are not.
Efforts to meet these race-based diversity requirements are also likely to result in augmented titles and salary inflation in order to attract or retain racially diverse talent in this already tight market. On the flip side, those with racially diverse talent on their tax teams should prepare for unexpected turnover because of increased recruiting efforts targeting those individuals.
We’ll examine race-related challenges within the captive labor pool in future articles.
4. Remote/Hybrid/In-Office Work Policy and Vaccine-Related Influences
Since the pandemic shifted workers across the world to remote work, 2021 found candidates placing a premium on flexible work environments. Because it’s unknown what the future of work will look like, the conversation around flexibility when we return to the office comes up in almost every recruiting call we have, and we don’t expect these discussions to subside.
Tax functions offering flexibility with their in-office and vaccine policies will have an advantage in the market over those that do not. At the same time, as more companies take a firm stance on vaccine mandates, we anticipate some turnover.
Although companies offering flexible or hybrid work options will have an obvious recruitment and retention advantage over other regional employers, their top talent will be targeted for poaching by other remote corporations. We also anticipate significant challenges with developing future leaders in remote roles — a topic we will explore further in forthcoming articles.
5. Salary and Title Inflation
Because of these many supply and demand issues, the U.S. tax market is in the throes of salary and title inflation. This has various causes, among them the captive labor pool, the wave of boomer retirements, and an overall shortage of seasoned tax professionals.
The pitfalls of salary and title inflation are many. Along with creating confusion in the greater organization, these measures can result in unrealistic expectations about the cadence of career progression. Many tax functions may also find they are eventually too top-heavy or experience salary compressions in their internal tax departments or salary disconnects with other functions. Perhaps most significant are the inherent risks of moving individuals into positions for which they lack experience or are otherwise unprepared.
As with the other influential factors noted earlier, we will look further into this trend and explore possible solutions in future articles.
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As noted, this is the first of a five-part series of monthly articles focused on the major factors affecting the hiring and retention of tax professionals over the next year.
Future articles will take a deeper look at strategies to mitigate:
changes to the workforce, particularly the widespread retirement of baby boomers;
hiring for diversity and compliance with ESG guidelines;
navigating the future of remote and hybrid work; and
salary and title inflation.
While 2022 is likely to bring unexpected challenges, these guides will help you prepare for the known issues ahead.