Handling Impaired Employees

September 1st, 2015


© Zimmytws | Dreamstime.com - Employee Handbook PhotoWhat do you do when a worker shows up drunk or stoned? The possibility of this happening at your company is nothing new (alcohol intoxication didn’t even diminish during Prohibition), but with the growing number of states permitting marijuana use for medical or recreational purposes, the possibility is even greater now. You want a safe workplace, you want the work to get done right, but you have to be concerned about an intoxicated employee and the legal ramifications.

Crisis management

Faced with an impaired worker, what do you do? It’s advisable to establish business practices to follow before anything happens:

  • Decide on your company’s drug policy. Does state law permit you to adopt a zero tolerance standard (most do)? (Do you want such a standard; some businesses don’t.) If you don’t have a zero policy, who determines impairment (e.g., a manager’s observation)? Will you test for alcohol and drugs?
  • Determine whether termination is warranted. Firing a worker for pot use may be discriminatory (see below). It may be preferable instead to talk with a worker about the impairment or send a worker home. However, you can discipline a worker for poor job performance, even if this is the result of an impairment.
  • Consider offering drug counseling options where appropriate. Does your insurance cover this? Can you make referrals to drug counselors and rehabilitation centers?
  • Check your insurance policy. Make sure that your proposed business practices do not run counter to insurance coverage (you don’t want to tolerate certain drug usage if accidents by impaired workers won’t be covered). No workers’ compensation benefits will be paid if intoxication (by alcohol or drugs) is the proximate cause of injury or death.

Know the law

States with medical marijuana laws may also prohibit discrimination in the workplace based on marijuana use. If you terminate an employee for this reason only, you likely face a lawsuit based on discrimination. However, state law may restrict use, even for medical purposes, in certain types of jobs (e.g., health care, transportation), so you’d be within your rights in these situations to terminate an employee for marijuana use.

Note: Marijuana continues to be a controlled substance under federal law, so federal employment law protections do not come into play even for use that’s legal under state law. However, federal employment law protections apply with respect to alcohol.

The Department of Labor’s Drug-Free Workplace Advisor can help you understand the law and how to create and administer a permissible drug policy.

Consider reasonable accommodations

The Americans with Disabilities Act requires employers to make reasonable accommodations for a worker’s disability. Whether you must permit pot use by a worker who suffers from a medical disability again depends on state law. Most do not require an accommodation; some (e.g., AZ, NV, and NY) do. Of course, even if you’re not required to make an accommodation, you may choose to do so for a particular employee. Just be aware that you’re creating a precedent in your workplace.

Conclusion

Discuss your situation with an employment law attorney so you know whether your business practices are permissible. Also, stay abreast of continued legal actions regarding workplace pot use so you can adapt where necessary.



Protecting Your Brand

August 27th, 2015


© Corund | Dreamstime.com - Brand Under Umbrella (clipping Path Included) PhotoMichael Jordan sued a grocery store that used his image in a promotion without his permission. As a billionaire, he obviously didn’t need the money from the lawsuit (he announced he would donate any recovery to charity); he was making a point. He has a personal brand—his persona—and he has to protect it.

Michael Jordan’s brand is worth millions (it’s been reported that it earned him $100 million in 2014). But every company has a brand, which is defined as the company’s identity encompassing what it does and what it stands for.

Every business works hard to create a brand. Every business should work equally hard to protect its brand.

Government registration

If you have a trade name, logo, or other indicia of your company for which you want exclusive use, you probably can trademark it. Registering your mark with the U.S. Patent and Trademark Office gives you optimum legal protection. They offer a 42-minute video covering the basics of trademark protection for small businesses. Once your mark has been registered, you can bring legal action against violators.

Registering your trademark in only the beginning. Once you’ve done this, you must follow up:

  • Make sure to do needed additional filings at certain intervals.
  • Protect your mark to prevent its generic use. You’ll surely recognize the following trademarks that lost protection because of generic use: aspirin, bubble wrap, escalator, kerosene, linoleum, popsicle, trampoline, and zipper (find more in a Business Insider article).

If you manufacture goods, be sure to watch for knockoffs that dilute your brand. You can find business tools to help you at the Federal Trade Commission’s StopFakes.gov.

Other actions

Legal action such as the one taken by Michael Jordan may be necessary in the right circumstances. Consult with an attorney versed in intellectual property to determine whether you have a cause of action that should be pursued in order to protect your brand.

Resources

Companies such as BrandProtect and BrandShield offer brand monitoring services. These services include monitoring for trademark infringement, counterfeit sales, and other actions that can hurt your brand.



Get Ready for Changes in Filing Deadlines and Extensions

August 25th, 2015


© Adempercem | Dreamstime.com - Road Sign Writing On Changes Ahead Photo

As a business owner, you face various tax filing requirements. Different dates apply for different tax forms. While the dates you’ve grown used to will apply for the upcoming (2016) tax season, a number of dates will change the following year.

Income tax returns

The type of entity — and the form used by it for income tax purposes — dictates the due date of the form. It also impacts the amount of additional time you have to file if you request an extension. Currently, here are the due dates of the forms and automatic extensions:

Form Due Date* Extended Due Date*
1040 (Schedule C filers) April 15 October 15
1065 (partnerships) April 15 September 15
1120S (S corporations) March 15 September 15
1120 (C corporations) March 15 September 15

*If the date falls on a Saturday, Sunday, or legal holiday, the due date becomes the next business day.

Under the Surface Transportation and Veterans Health Choice Improvement Act of 2015, some filing deadlines and extensions will change. The following changes apply for returns of tax years beginning after December 31, 2015 (e.g., 2016 income tax returns filed in 2017):

Form Due Date* Extended Due Date*
1040 (Schedule C filers) April 15 October 15
1065 (partnerships) March 15 September 15
1120S (S corporations) March 15 September 15
1120 (C corporations) April 15 October 15

*If the date falls on a Saturday, Sunday, or legal holiday, the due date becomes the next business day.

Note: For C corporations with a fiscal year ending June 30, the return will be due September 15 (3½ months after the close of the year, rather than 4½ months after the close of the year) until 2025; thereafter the 4½ month filing deadline applies.

W-2s

As an employer, you must provide Form W-2 to an employee no later than January 31 (February 1, 2016, for 2015 forms because January 31 is a Sunday). Currently you can receive an automatic 30-day extension with the IRS. Then, a second 30-day extension may be requested. This rule continues to apply.

Under newly proposed regulations, the IRS would grant a non-automatic extension only in limited cases involving extraordinary circumstances or catastrophe. In effect, the automatic extension of time to file W-2 would be eliminated. This change would apply for 2016 W-2s filed in the 2017 filing series. Employers, tax professionals, and others are invited to submit comments on these proposed changes by November 12, 2015.

Other forms

If you have an employee benefit plan (e.g., a 401(k) plan), you usually have to file an annual information return for the plan. The form is in the 5500 series, and is use due 7½ months after the close of the plan year (July 31 for a calendar year plan). This date won’t change. What is new starting in 2017 (for 2016 plan years) is the ability to obtain an automatic 3½ month filing extension (e.g., to November 30 for a calendar year plan).

If you have foreign bank accounts and are subject to FBAR reporting on the Treasury’s FinCEN Report 114, big changes will occur. Now, the form is due on June 30; no extension is permitted. Starting in 2017 for 2016, the due date becomes April 15. Also, an automatic 6-month extension can be requested. What’s more, for any taxpayer required to file this report for the first time, any penalty for failure to timely request for, or file, an extension, may be waived by the IRS.

Conclusion

If you have tax filing deadlines in your calendar, be sure to note the new dates for 2017 and beyond.



Professional Employer Organizations: New IRS Certification Program

August 20th, 2015


© Macrovector | Dreamstime.com - Distant Management Illustration PhotoSo we all know that being an employer entails many tax and legal obligations. These include figuring and paying employment taxes, complying with minimum wage and overtime rules, addressing workers’ compensation and unemployment benefit issues, and ensuring that the company and employees don’t violate federal or state labor laws. Large corporations have HR, accounting, and legal departments to make sure they are in compliance; small businesses don’t.

Professional employer organizations (PEOs) can help small businesses with employer challenges. PEOs (sometimes called employee leasing companies, or what the IRS calls third-party payer arrangements) are companies that become co-employers. If you use a PEO, you remain the common law employer, with the right to hire, fire, and supervise; the PEO shoulders the tax and legal responsibilities of an employer.

Tax responsibilities

If you engage a PEO to manage employment taxes, recognize that you remain 100% liable for these taxes. Even if the PEO absconds with your employment tax deposits and never submits them to the government, you continue to owe them.

A report last March from the Treasury Inspector General of Tax Administration discussed the need for processes to reduce the risk of fraud in employment taxes. As a result, the IRS has taken some steps:

Certification program

A little noted provision of the Tax Increase Prevention Act of 2014, which extended for 2015 the 50+ tax rules that had expired at the end of 2013, was a direction to the IRS to create a certification program for PEOs. Now the IRS has provided some details about the program, which is poised to become effective on July 1, 2016.

The law says the IRS must:

  • Complete background, credit and tax compliance checks of PEOs;
  • Verify the PEO has an active and approved surety bond;
  • Verify the PEO satisfies the service agreement and financial review requirements;
  • Collect a user fee ($1,000) from the PEO; and
  • Provide public disclosure of certified PEOs and any whose certification has been suspended or revoked.

Should you use a PEO?

Using a PEO relieves you of some time-consuming and confusing employer obligations (e.g., it can help with a variety of employee benefit plans). It can provide a partner in case of liability. It can save you enough money to pay the cost of the PEO (e.g., contesting bogus workers’ comp claims). And it lets you focus on your business activities.

According to a 2013 white paper, businesses that use PEOs have a 10% higher growth rate. The IRS’ certification program will provide some level of confidence when choosing a PEO if you decide to use one.

There are about 3,500 PEOs in the U.S . Some examples of PEOs:

Learn more about PEOs from the National Association of Professional Employer Organizations (NAPEO).



Tax Deduction with No Cash Outlay?

August 18th, 2015


That’s right! Usually you get a tax deduction only if you spend money on something for your business. But under a special rule called domestic production activities deduction (DPAD), you can deduct 9% of your qualified domestic production activities income (after taking into account certain allocable costs. (Technically the 9% applies to adjusted gross income without the DPAD if this result is smaller.)

This write-off is also called the Sec. 199 deduction and it’s on top of deductions you’ve already taken to generate the income. In effect, you get to double dip in tax breaks.

© Newphoto123 | Dreamstime.com - Accounting PhotoWhat activities qualify

A little background here may be helpful to understand what the deduction is all about. More than a decade ago, Congress wanted to create a special tax break to induce companies to make things within the U.S. You may recall that there was a lot of manufacturers moving offshore, and taking jobs with them. But the Sec. 199 deduction applies to many more businesses than just manufacturers.

It covers the following types of activities:

  • Manufacturing, producing, growing, or extracting things significantly in the U.S.
  • Producing films in the U.S.
  • Constructing realty in the U.S.
  • Providing engineering and architectural services for real property projects in the U.S.

Starbucks is a good example of a company that qualifies for the deduction for some of its activities. No deduction is allowed for the coffee and food served on the premises. However, Starbucks coffee produced and sold in your local supermarket qualifies for the deduction.

What activities don’t qualify

The IRS has provided some guidance on retail activities that do not meet the definition of manufactured, produced, grown, or extracted, and thus do not give rise to the deduction. These include:

  • Cutting blank keys to a customer’s specification;
  • Mixing base paint and a paint coloring agent;
  • Applying garnishments to cake that is not baked where sold;
  • Applying gas to agricultural products to slow or expedite fruit ripening;
  • Storing agricultural products in a controlled environment to extend shelf life; and
  • Maintaining plants and seedlings.

The IRS also ruled that a free app giving customers access to paid services does not qualify.

Other thoughts

This deduction can provide significant tax savings, effectively reducing the overall tax rate on profits. Unfortunately, because of a W-2 limitation, self-employed individuals who don’t have employees can’t use the deduction.

Best strategy: Because the deduction is complicated to figure, with many factors coming into play, work with your CPA. You may be able to maximize the deduction where you have room to maneuver.

Resources to learn more:

Treasury regulations 
Instructions to Form 8903



How to Get Entrepreneurship Moving

August 13th, 2015


© Trueffelpix | Dreamstime.com - Entrepreneur PhotoThe economy may be good for some sectors (the government reported that GDP increased an annual rate of 2.3 percent in the second quarter of 2015), but the overall state of entrepreneurship isn’t good.

According to the U.S. Census Bureau, the number of startups has been weak, and fewer than the number of closings (the reasons for these closures aren’t part of the statistics). (The stats are only through 2012; there are no current statistics available. Anecdotally, I haven’t seen improvement.)

At the end of July, the Ewing Marion Kauffman Foundation presented some suggestions to Congress for “making entrepreneurship growth vibrant again.” These include:

  • Restructure the Tax Code. Current existing incentives for small businesses don’t necessarily work. The law shouldn’t limit the ability to deduct startup losses, and not all businesses benefit from breaks such as the Sec. 179 first-year expensing deduction. The biggest gripe: the tax rules are too complex, especially for first-time business owners.
  • Welcome immigrants. These individuals are more than two times as likely as native-born Americans to start businesses. There should be a special visa created for immigrant entrepreneurs.
  • Embrace regulatory evolution. The layering of regulation over regulation over time creates rigidity that burdens new businesses. Regulations should keep up with changing times (e.g., new technologies) by adapting and responding to innovations and changing business models.
  • Enable innovation. Intellectual property law (e.g., patents) should be changed to help maximize innovation.
  • Encourage competition. The government should not stand in the way of disruption and innovation.

What to do

I think the above-outlined suggestions to Congress all have a lot of merit and deserve attention. Will Congress act? Who knows?

In my view, to get entrepreneurship moving, two things have to get done:

  1. Accept the axiom that small business creation translates into job creation. The government says that “the major part of job generation and destruction takes place in the small firm sector, and small firms provide the greater share of net new jobs.” Thus, to get the economy growing, small businesses must bloom. Attention must be given to matters of concern to small businesses and entrepreneurs.
  2. Support elected officials who support actions that encourage entrepreneurship (less regulation, simpler tax rules). While still more than a year away, the upcoming presidential election could have a profound effect on whether or not entrepreneurship will thrive in years to come. Let’s keep an ear open for policy platforms benefiting entrepreneurship.



Time Cards for Owners?

August 11th, 2015


The time clock, which enables employers to verify the time employees start and leave the job, was invented in 1888 by Willard Bundy, a jeweler who used the mechanical timepiece to track employee hours in order to figure their pay.

There’s a famous picture of 74-year old Thomas Edison clocking in at his lab in Menlo Park, NJ (he used it to track the hours spent on projects and not to monitor workers’ hours for purposes of wages).

Blog_8-11-15_TimeClocks

Courtesy of Library of Congress Prints and Photographs Division, LC-USZ62-46809

Today, time clocks are still in use in many enterprises and are readily available for purchase at Staples and other office supply companies.

Professionals, such as attorneys, who bill for their time use various tracking systems for their workday. The question I raise is should every business owner clock in and out each day? From a tax perspective, it can’t hurt.

Compensation to C corporation owner-employees

The corporation can deduct compensation paid to an owner-employee only if it is “reasonable.” This has come to mean what an independent investor would pay under the circumstances. There are various factors used to make this determination, one of which is the time and activities.

In one recent case, a doctor who owned four ophthalmology surgery and care centers took salary and bonuses of $2.7 million, which the IRS claimed was largely unreasonable and the Tax Court agreed. He didn’t produce evidence of any kind that would demonstrate the compensation was reasonable. Would time cards (or similar evidence) showing what he did with his time have been helpful? Sure.

Compensation to S corporation owner-employees

These business owners need to be paid reasonable compensation for work performed. The IRS is on the hunt for such individuals who may understate compensation as a way to dodge FICA taxes, so S corporation tax returns showing little or no compensation to owner-employees when the corporation is profitable raises red flags. What’s reasonable? Again, many factors come into play. Tracking the owner’s time and activities is helpful in supporting the claimed compensation if the IRS questions the return.

Real estate professionals

Owners of rental real estate and other passive activities can deduct losses in excess of income annually if they can demonstrate that they are “real estate professionals.” There are two time-related tests, both of which must be satisfied:

  1. More than half of personal services performed by the taxpayer in trades or businesses must be done in real property trades or businesses in which the taxpayer materially participates. Real estate activities include development, construction, acquisition or conversion, rental, management, leasing, and broker.
  2. The taxpayer performs more than 750 hours of service in real estate trades or businesses in which he or she materially participates

The Tax Court has made it clear that “ballpark guestimates” of time and the activities performed are not sufficient. Actual records are essential (although testimony has been accepted in some situations).

Bottom line

One movie scene I can’t forget is Michael J. Fox in Doc Hollywood clocking in at a country hospital and his outrage at having to do so. Outrage or not, keeping track of time can be a tax saver. But who needs a time clock or work sheets — there’s an app for that:

Entrepeneur.com lists 3 apps
FastCompany lists 10 apps



Are You Going to Pay More for Broadband?

August 6th, 2015


© Simpson333 | Dreamstime.com - Router With Backup Storage Disk PhotoThat’s the concern expressed by the SBA’s Office of Advocacy in a letter it sent to the Federal Communications Commission (FCC) in July. Now that the federal government has asserted its right to regulate the Internet (in February the FCC issued “net neutrality” rules to treat broadband as a utility), the Office of Advocacy wants to protect small businesses and advises the FCC to take them into account when crafting regulations.

Here’s the problem identified by the Office of Advocacy:

AT&T, Verizon, and others (technically called competitive local exchange carriers, or CLECs) provide service to an estimated one third of all small business owners. These carriers are planning to upgrade their technology (e.g., retire copper landlines) and the Office of Advocacy fears that this will translate into higher costs for small businesses. The letter urges the FCC to take this concern into account.

A court challenge to FCC regulation of the Internet had hoped to block implementation of the rules. The challenge failed in June when a U.S. District Court in D.C. refused to block the rules, opening the way for the FCC to proceed.

Many small business advocacy groups, including the Small Business & Entrepreneurship Council, had opposed the net neutrality rules (which the FCC refers to as the Open Internet rules), believing that the marketplace has so far done a good job regulating things, keeping prices down, and ensuring continued innovation.

Now that the federal government has taken control in this area (at least for now), it’s important that the interests of small businesses are protected. Let’s see what happens.



How Many Hours in Your Workweek?

August 4th, 2015


© Iqoncept | Dreamstime.com - Work Clock Word Time To Get Working On Job Career Photo Americans are hard workers, according to one article, with employees averaging 34.4 hours per week. This average includes part-timers.

When considering only full-time employees, the average is 47 hours per week. In comparison, those in the Netherlands average only 26.6 hours per week. What’s more, U.S. workers have less vacation time — about 15 days off, compared with 28 days off in many European countries.

But it seems that there’s no pleasing some workers when it comes to hours. Some want more hours, some want fewer. Examples:

  • Employees at some companies want more hours.
  • Some part-timers want to be full time. There are 6.6 million part-timers today, many of whom would choose to have full-time jobs.
  • Some Seattle workers benefiting from the higher minimum wage of $15 per hour asked that their hours be reduced so that their income won’t cause them to lose government benefits.

What does this mean for employers (especially small business owners)?  You have to do what you have to do (what works best for your company).

Factors in setting workers hours for some businesses include increased minimum wage rates and exposure to the employer obligation under the Affordable Care Act.

Of course, whatever hours you set for employees, as the business owner, you’re likely to work considerably more.



Small Businesses as Government Cops

July 30th, 2015


© Andreypopov | Dreamstime.com - Businesswoman Scrutinizing Bills With Magnifying Glass PhotoWe’ve already seen private citizens standing guard in front of military recruiting stations in the wake of the Chattanooga attack on July 16 because the government hasn’t agreed to provide additional security for these facilities. This is a voluntary action on the part of concerned citizens.

Now, however, the Treasury is making some small business owners their cops because it can’t figure out how not to issue refund checks to identity thieves. Here’s the story so far:

You probably heard that the IRS had been hacked through its “Get Transcript” program, exposing the personal information of 100,000 taxpayers. This made news a couple of months ago. The hacking raised concerns about the potential for bogus refund claims (as if there weren’t already bogus refund claims).

As one way to stem this fraudulent tide, the Treasury now requires check-cashing services in Miami-Dade and Broward counties, Florida (places with numerous identity thefts), to take certain steps when cashing a refund check over $1,000:

  • Obtain a photocopy of the customer’s identification
  • Take a digital photo of the customer at the time the check is cashed
  • Find out the customer’s phone number
  • Get the customer’s thumbprint (this is Florida law)

Presumably the Treasury intends to use the information to go after these fraudsters, if they can find them. But in the meantime, it means that these check-cashing companies, which are primarily small businesses, have additional tasks to do in conducting business; they can’t charge for this additional work. Should this program prove successful, the Treasury undoubtedly will roll it out to other parts of the country where incidents of identity theft are high.

This isn’t the first instance of the government imposing enforcement duties on businesses. There is a long-standing requirement that businesses receiving payment in cash of more than $10,000 must report it to the IRS. The government suspects that drug dealers and money launderers use cash, and want this information to help identify these people.

So the government needs our help (we, the small businesses).

What other burdens will the government impose on us?