Pro Tip: R&D tax credits create opportunities for bakeries to thrive through smarter investments and engaged, productive employees.

In the fast-paced world of commercial baking, maintaining productivity and efficiency is crucial for profitability. Disengaged employees, however, can significantly undermine these goals. According to Forbes, disengaged employees can cost a medium-sized company between $228 million and $355 million annually. Gallup found that disengaged employees are 18% less productive, costing US companies up to $550 billion yearly.

However, there is good news for commercial bakers. The current federal Research and Development (R&D) tax law offers a strategic opportunity to mitigate these losses. This law provides tax credits for expenses related to research and development activities, which can include process improvements, new product development and technological advancements in manufacturing. 

The R&D Tax Credit (26 US Code §41) is a federal benefit that provides companies with dollar-for-dollar cash savings for activities related to the development, design or improvement of products, processes, formulas or software. Enacted in 1981 to stimulate innovation in the United States, this credit provides much-needed cash to hire additional employees, increase R&D and expand facilities. Today, many states have also passed the R&D Tax Credit, making this benefit available across a wide variety of industries.

By leveraging these tax credits, commercial bakers can offset productivity losses caused by disengaged employees. Here’s how:

1. Investment in automation and technology: Imagine a bakery where high-tech ovens and automated packaging systems streamline operations. By investing in such automation and advanced technology, companies can reduce dependency on human labor, thereby minimizing the impact of disengaged employees. The costs associated with these investments can often qualify for R&D tax credits, making it a financially savvy move.
2. Process improvement initiatives: Consider adopting continuous improvement initiatives, such as lean manufacturing principles or Six Sigma methodologies. These can lead to more efficient operations and higher-quality outputs. Activities aimed at refining these processes typically qualify for R&D tax credits, allowing you to reinvest the savings into further enhancements.
3. Employee training and development: Investing in training and development can re-engage employees and boost their productivity. While training costs themselves might not be directly eligible for R&D tax credits, developing new training programs or methods that improve manufacturing processes could qualify. Think about creating a new training module that integrates the latest baking techniques or safety protocols; these innovations can be both engaging for staff and beneficial for your tax strategy.
4. New product development: Innovation in product offerings can rejuvenate your workforce by providing new challenges and goals, potentially increasing engagement. The costs of developing new products, including prototyping and testing, can be claimed under the R&D Tax Credit. Imagine introducing a new line of gluten-free pastries or a revolutionary bread recipe. Not only could this excite your team but the associated R&D expenses could also yield significant tax benefits.
5. Sustainability projects: Implementing sustainable practices not only improves your company’s image but can also engage employees who value environmental responsibility. Developing new sustainable processes or products can be included in R&D Tax Credit claims. For instance, creating a zero-waste initiative in your bakery or developing eco-friendly packaging solutions can qualify, turning your green efforts into green savings.

As a bakery consultant with more than 36 years of experience working in R&D for consumer goods companies, I am often surprised by how little manufacturers know about this valuable opportunity. Understanding and leveraging the R&D Tax Credit can make a significant difference in addressing the financial impact of employee disengagement.

I highly recommend consulting with a tax professional to fully explore how your specific activities may qualify for these credits and to ensure you maximize the potential benefits for your business. By strategically utilizing the R&D Tax Credit, commercial baking manufacturers can recapture productivity losses from disengaged employees. This not only improves the bottom line but also fosters a culture of innovation and continuous improvement, making it a win-win situation for the company and its workforce.

Start exploring these opportunities today, and watch your bakery thrive through smarter investments and engaged, productive employees.

Richard Charpentier is a classically trained French baker, CMB, holds a degree in baking science from Kansas State University, and is owner and chief executive officer of Baking Innovation. Connect with him on LinkedIn.