Monthly Archives: April 2016

What Revised Overtime Compensation Regulation Means for Your Business; How Avoid Costly Mistakes

As a small to mid-size business owner, your list of to dos is never ending. Somewhere between hiring employees and delivering on your corporate mission comes a little thing called payroll. How is your company currently handling compensation? Before your employees can start logging hours, you need to make payroll distribution a top priority to ensure that everything runs smoothly and that your employees are getting the proper compensation in a timely manner.

Payroll is a complex process that includes many things beyond writing and distributing checks. Filing government-mandated forms, paying taxes, and most importantly, making sure your employees get the compensation they’re entitled to are just a few of the issues that come to mind when we tackle payroll as a small/mid business. With so many factors to consider, paying close attention to detail is essential to preventing mistakes.

This year business owners are in a unique situation as new rules are being adopted regarding overtime compensation and the current definition of exempt and non- exempt employees. If you are not clear about the latest regulations, you will quickly find yourself managing higher than expected labor costs – clearly something not any business can afford as it plans for growth.
Below is our “cheat sheet” on how to navigate federal and state overtime requirements.

Last year, the Department of Labor (DOL) announced new proposed changes to the overtime exemptions under the Fair Labor Standards Act (FLSA). The proposed timing for the new changes could become effective sometime this summer or early fall. The DOL estimates that as many as 4.6 million workers could become eligible for overtime under the new changes, Depending upon the number of employees in your organization, your bottom line could take a significant hit.

As you know, currently hourly employees get time-and-a-half after 40 hours of work a week. That is not always the case. Employees must be paid according to all the other mandates of the FLSA and the state law in which they work. A common mistake among many small to mid-size business owners is to grant compensatory overtime (time off) instead of paying overtime. In most situations, this is illegal. In addition, many employers often fail to calculate overtime at 1.5 times the employee’s regular rate of pay, which includes their hourly wage an plus other forms of compensation. To be compliant, you need to make sure you’re following your state’s Wage and Hour regulations. They may be more generous than the federal rules.

The FLSA requires covered employers to pay “non-exempt” employees at least the minimum wage for each hour worked as well as overtime pay for all hours worked in excess of 40 in a workweek. While most employees are non-exempt, the FLSA includes exemptions for certain administrative, professional, executive, highly compensated, outside sales, and computer professional employees. These employees are known as “exempt” employees and are not entitled to the FLSA’s protections.

Do Your “Exempt” Employees Pass the Test?
To be considered exempt, employees must generally satisfy three tests:
1. Salary-level test (currently, $455 per week for the executive, administrative, professional employee exemptions*)
2. Salary-basis test (receive their full salary in any week they perform work, regardless of the quality or quantity of the work)
3. Duties test (the employee’s primary duty must meet certain criteria)

Under the proposed rule, the salary threshold for the executive, administrative, and professional employee exemptions would be set at the 40th percentile for full-time, salaried employees using data published by the Bureau of Labor Statistics (BLS). In 2016, the DOL projects this amount to be about $970 per week (or $50,440 per year).

The current salary threshold for highly compensated employees is $100,000 per year, but that may also increase. The proposed rule would raise the salary threshold for highly compensated employees to the 90th percentile, which was $122,148 in 2013. This amount is likely to increase by the time a final rule is published.

Properly Prepare Your Business

• Review all exempt classifications to ensure that employees still qualify under the existing duties tests.
• Double check the status of your exempt employees to determine if they fall below the new proposed salary threshold before the rules become final. If they do, you have two options: 1) reclassify the employees as non-exempt and pay them overtime whenever they work more than 40 hours in a week, or 2) raise their salary to meet the new requirement. Be sure to budget for salary increases and/or overtime costs.
• It is possible that some states will update their salary threshold as well. If this is the case, covered employees must comply with the higher minimum salary requirement.

Armed with this cheat sheet, we hope that you and your business will have all the information you need to prepare payroll for your unique business situation. Did you know that your Windfall membership gives you access to member-only prices on payroll services? Learn more today!

What Will Make the IRS Audit Your Business?

The IRS keeps the exact criteria it uses for auditing select business tax returns a secret. The audit process includes some random selection, but there are certain triggers that are known to make an audit more likely. While an audit shouldn’t be a concern if you file your taxes accurately, understanding the common audit triggers can help you to better prepare your taxes and ensure you have adequate documentation in the event you are audited.

Document Matching

The IRS uses a computerized process to match all of the tax forms issued to your business with your tax return. If you omit a form or if the numbers don’t match, your tax return will be selected for human review. If your tax return intentionally differs from any of your tax forms, including a clear explanation with your tax return may be enough to satisfy the reviewer without a formal audit being initiated.

Other Audits

If your company has been audited in the past or a business owner is undergoing an audit, the chances you will be audited increase dramatically. This is especially true if the IRS has found discrepancies in previous audits.

High Income or Assets

The IRS audits businesses with higher income or assets more frequently under the theory that the potential tax dollars that can be collected are much higher. The IRS Data Book shows that businesses with balance sheets reporting assets less than $250,000 were audited 0.9 percent of the time while those with assets between $5 million and $10 million were audited at roughly double that rate. Corporations with balance sheets of greater than $20 billion were audited 84 percent of the time.

Repeated Losses

Most businesses set out to make a profit, so the IRS takes notice when businesses repeatedly show a loss. The goal isn’t to punish you for having a bad year or not being able to adapt to economic changes. The IRS is looking for businesses that take excessive non-business related deductions, such as the owners expensing personal travel. Be sure to keep records of all expenses for at least three years.

Large Business Entertainment Deductions

Business entertainment deductions are also carefully scrutinized due to attempted claims for personal travel or parties. If you regularly entertain clients to try to gain sales, you’ll need more than just meal receipts. Keep a record of each event, regardless of whether it was a one-on-one lunch or a large gathering, that details who was there and what the business purpose was.

Tax-Exempt Status

The IRS Data Book also shows that the IRS examines a little over one percent of the returns filed by tax-exempt organizations. The most common reason for these examinations is to ensure that the organization continues to meet the criteria for tax exemption. The IRS may also conduct an audit when it notices unusual patterns on individual tax returns related to deductions for donations to the organization.

Excessive Contributions to Charity

Large charitable contributions are often a cause for an audit. With many businesses now having a social or charitable component to their business model, the IRS may begin to look more closely at whether these tax write-offs are valid. As a general rule, if your business donates a percentage of sales, the organization you are donating to should not provide any kind of benefit to your directors, officers or employees.

Of course, with random selection, you can’t always avoid an audit, and you shouldn’t avoid taking legitimate deductions because you’re afraid of an audit. If you keep accurate records to back your tax return, an audit should be resolved quickly in your favor.

Seasonal Allergy Tips

The culprit behind seasonal allergies, also known as hay fever, is pollen from blooming flowers and trees during spring.

One of the best ways to help reduce your hay fever symptoms is to reduce your exposure to pollen as much as possible. The Mayo Clinic has provided an extensive list of tips on how to accomplish this, including:

In the home

• On dry, windy days, stay inside as much as possible
• Hire (or ask) someone to mow the lawn, pull weeds, and do other gardening chores
• Keep doors and windows closed at night when pollen counts are high
• Turn on the air conditioning if you have it
• Use a dehumidifier to keep the indoor air dry

Your clothing and body

• After you’ve been outside, remove and wash your clothes
• Rinse off after being outside
• Don’t hang laundry outside to dry
• Wear a pollen mask if doing outside chores

For many people, avoiding allergens and taking over-the-counter medications is enough to ease symptoms. But if your seasonal allergies are still bothersome, don’t give up. A number of other treatments are available.