February 2011 Newsletter

Important New Business Tax Laws for 2011

Tax law is constantly changing, and over the last decade, dozens of tax acts have been passed. Below is a list of some of the new tax laws that will affect your business as of January 1, 2011.

Tax Deadline
The deadline to file and pay taxes this year is NOT April 15th. This year, taxpayers will have until Monday, April 18, 2011, to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls on Friday, April 15. Taxpayers requesting an extension will have until October 17, 2011, to file their 2010 tax returns.

Tax Preparer Requirement
All paid tax return preparers, including CPAs, now must use a PTIN when signing all tax returns, forms or claims for refund (except for certain specified returns and forms—see Notice 2011-6), and must have obtained or renewed an existing PTIN to prepare returns after Dec. 31, 2010. The PTIN requirement is part of the IRS’ broader effort to establish minimum standards for all paid tax preparers.

Employee Payroll Taxes
Specifically, the Social Security portion of payroll taxes (OASDI) will be reduced from 6.2% to 4.2%. This reduction affects only the employee portion, not the employer portion, which remains at 6.2%. The hope is that the payroll tax will put more money into the hands of taxpayers more quickly. Taxpayers who have extra dollars are likely to spend and that, Congress hopes, will stimulate the economy.

New 1099 Requirements
The biggest concern and change for the new 2011 tax year, is the requirement of businesses to file IRS Form 1099. This form must be filed for any business-to-business transaction for goods or services that exceed $600 dollars. Companies will have to incur the expense of tracking and recording the name, address and taxpayer ID number of each vendor. This will cause extra stress for businesses, especially for those who utilize various vendors.

To review how the changes in tax law can affect your company, we encourage business owners to make an appointment with your tax or accounting professional.

5 Strategies For More Productive Interviews

Have you ever finished your interview process only to realize that you don’t have enough information to confidently make a decision on who would best fill the position? We commonly hear from our clients that they are not getting enough out of their interviews and that they feel like they are making guesses on their hires. Let’s face it; many applicants are skilled at presenting themselves well, so improving your own interviewing skills will help you to better determine which candidates will really fit your needs and which are just very good at making you think so.

A key component of a productive interview and the logical first step is to craft a clearly defined job description. Be specific when developing the list of experience, specific skills and behaviors that you need. Once you know this, you can put together a job classified advertisement and create the interview questions. Resist doing anything until you know exactly what you are looking for in the new hire.

The most critical step in the interview process is preparation – the second step. We know about the importance of preparation for the job seeker, but it is equally as important for the employer. Be sure to account for the following before placing a job posting:

  • Consistent interview questions to be asked of each candidate that are designed to determine performance related behaviors and skills
  • Concise interview schedule with a hard stop time for each candidate
  • Sufficient time to review candidate applications and or resumes to determine any additional and unique questions that should be addressed
  • Notes pages where candidate answers can be summarized and notes made that relate to each question asked
  • Legally compliant employment application that each candidate completes prior to the interview

Third, make sure the interview is about the applicant and not about you. I cannot tell you how many business owners or managers spend an inordinate amount of time talking during an interview. This usually occurs from one of two conditions. The applicant will ask questions to buy time during a particularly stressful part of an interview or as a general tool to get a feel for who you are. You do want to be open with the candidate. However, let the candidate know at the beginning of the interview that he or she will have time for questions at the end of the interview. Stay focused on your questions and the candidate’s responses. Resist the urge to brag about your business. Instead, embrace the idea of challenging the candidate in a respectful manner. You want to get a feel for how he or she responds under pressure.

Fourth, establish a defined interview process commensurate with the level and importance of the position. It may involve multiple interviews, at multiple venues, over multiple days with multiple staff members to stress the importance of filling the open position with the right hire. As the importance of the position increases, the person filling that position will represent your company in many different circumstances outside of the office. Therefore, you want to get a 360-degree view of candidates. Don’t be afraid to take important candidates out to dinner or onto the golf course to get a feel for who they are away from the office.

Lastly, treat each hire as if he were the most important hire you will make. I have been involved with organizations that have great people and organizations that have below average people. These organizations commonly differ in how they approach the hiring process. Those organizations with average people just assume they are going to hire the best person that walks through the door. The great organizations know that they are looking for a specific type of person and will not hire until they are confident that they’ve found the right match. If you count yourself among those organizations with great people, keep your eye on the ball. If you are trying to get there, put these steps into practice and stay committed to getting there.

Prepare For Emergencies

With the country experiencing record cold weather, ice, and snowfall this winter, the management teams of U.S. businesses face the complicated decision on whether to close their businesses, open with limited hours, or close altogether.  This decision is further complicated by difficult economic times.   We advise that every company have a written Emergency Preparedness plan.

What Is an Emergency?
An emergency is any unplanned event that can cause death or significant injuries to employees, customers, or the public; or that can shut down your business, disrupts operations, cause physical or environmental damage, or threaten the facility’s financial standing or public image. These include fire, hazardous materials incident, flood, tornado, winter storm, earthquake, communication failure and explosion.

The Emergency Preparedness plan should include at minimum:

  • Mission statement
  • List of potential emergencies
  • List of team members
  • Authority statement
  • Emergency contact list
  • Analyzed capabilities and hazards of the business
  • Codes and Regulations that apply to all emergencies
  • Critical products, services and operations
  • Assessment of the potential human impact
  • Assessment of the potential business impact
  • Assessment of the potential property impact
  • Assess of the internal and external resources
  • List of all insurance policies and contact information
  • Communication to the employees

Winter Employee Safety
During the recent winter storms companies saw an increase in the number of reported claims. The majority of the reported claims have been slips and falls on ice, snow and water. In response, OSHA released a press release reminding employers of their responsibility to their employees to comply with hazard-specific safety and health standards and to provide a workplace free from recognized hazards likely to cause death or serious physical harm.

Employers should conduct a hazard analysis of their building and parking lot and pay special attention to the slip and fall hazards. The management team should have a written plan in place to address the hazards and may have to work with the landlord or Management Association to insure the safety of their employees in the parking lot. Employers should also hold a document safety meeting with their employees address the hazards.

Importance of Non-Compete Agreements

With today’s high employee turnover and diminishing company loyalty, the risks of having intellectual property, confidential information, and customers walk out the door with ex-employees has grown tremendously. As a small business owner it is vital that you address these risks by developing (or enhancing) confidentiality policies and non-compete/ confidentiality agreements. We provide a basic overview of a non-compete below. Non-compete/Confidentiality Agreements should be drafted by attorneys so they meet particular company needs, conform to relevant state laws, and are deemed enforceable.

Under a non-compete agreement, an employee agrees not to compete with the employer after employment ends. Confidentiality covenants are generally also included in such agreements. In enforcing such agreements, courts must balance the company’s need to protect its interests with the employee’s need to make a living. Therefore the documents must be very carefully drafted to ensure enforceability.

A few issues to consider when implementing non-compete/confidentiality agreements:

  • “Competition” must be carefully defined. In general, the more narrowly this term is defined the more likely it will be able to be enforced.  If you define competition as companies throughout the U.S. in any field related to your industry, you will be too broad in your definition and have difficulty enforcing after an employment split.
  • “Customers” or a “specific type of customer” must be clearly defined if customer relationships are to be protected.
  • Goodwill (e.g., the good relationship an employee or company has with a customer) is an asset that belongs to the company. However, courts closely examine the nature of the employee’s responsibilities and relationship with customers to determine whether goodwill is threatened.
  • Limit your non-competes to key employees.  Key employees with significant responsibilities and/or regular customer contacts are more likely to be restrained from competing.  Non-competes for lower level employees are hard to justify.
  • Confidential information must be clearly defined and identified. Only information that is “truly” confidential may be protected. Courts consider the importance of the information to the business, if the information is otherwise available to third parties, and what restrictions were implemented to prevent its disclosure. Be careful not to be over-inclusive in your definitions of what you consider to be confidential.
  • Start from the beginning.  Non-compete agreements must be supported by “consideration.” In other words, the employer must give something to the employee in exchange for his/her promise not to compete. Hiring an applicant generally provides the necessary consideration. After employment has begun, additional consideration may be required, such as a “signing bonus,” a promotion, or a pay increase. However, such agreements are stronger and more easily enforced if signed at the start of employment.
  • Agreements must be negotiated in good faith and be restricted in time and geography. These concerns are particularly important in today’s high tech environment where information becomes obsolete quickly and markets change daily. In some industries, one year can equate to several generations or an eternity.

The information provided above is for informational purposes only and should not be misconstrued as legal advice.

Inclement Weather Pay Requirements

In the winter months, with the unpredictability of winter storms, it is a good practice to review the pay requirements if your business is forced to shut down or employees are unable to make it to work. The Department of Labor opinion letters provide guidance for employers to follow in paying exempt salaried employees during periods of inclement weather.

Closings – Employers who elect to close during such periods must pay the weekly salary for an exempt employee during the closure.  Regardless of whether an employee was at work for the entire week, the employee should receive their non-fluctuating salary for the week.  An employer may require an exempt employee to use accrued paid time off (PTO) or vacation time for days of absence during the closure but the employer continues to be obligated to pay the full salary of the exempt employee, regardless of whether the employee has a PTO or vacation balance.  If the employee does not have a PTO or vacation balance, an employer may be required to advance them PTO or vacation hours.

Continuing Operations – Employers who remain open during such periods must pay an exempt employee for any partial or whole day the employee reports to work during such periods; however, for days where an exempt salaried employee elects not to report to work, the employer is free to deduct accrued PTO or vacation for such absences from the employee’s accrued bank.  If the exempt employee is not yet eligible for accrued PTO or vacation or has used all available time, an employer may make reductions from pay for whole day absences.

An employer may not take partial-day deductions from exempt employee pay for less than a full day absence regardless of whether the employee has any accrued PTO or vacation.

As a general rule for non-exempt salary or hourly employees, businesses that opt to close are not required to compensate the employees for time not worked. There are some states such as California, Connecticut, District of Columbia, Massachusetts, New Hampshire, New Jersey, New York, Oregon (minors only) and Rhode Island that require  “reporting time pay”.  Reporting time pay guarantees at least some compensation for employees who report to work expecting to work a specified number of hours, but are deprived of that amount of work. The “reporting time pay” for these states varies with each state.
Federal law does not have any such law nor do the states not mentioned above. However, if there is a wage agreement that provides a non-exempt employee with a guaranteed minimum number of work hours and/or pay, employers must abide by the terms and conditions of the agreement.

Understanding Unemployment Insurance

Unemployment Insurance (UI) is a Federal and State program that is jointly financed through Federal and State employers payroll taxes. The UI is paid 100% by the employer and is known as State Unemployment Insurance Act or SUTA.  Employers pay both Federal and State unemployment taxes for any employee earning $1,500.00 or more in any quarter in a calendar year or had at least one employee during any day of the week during 20 weeks in a calendar year, regardless of whether or not the weeks were consecutive. The unemployment Insurance is a temporary benefit paid as a source of income to a former employee who loses his job due to no fault of his own.  A worker is eligible for weekly UI payments immediately upon termination from his employer that was recently extended to an additional 13 weeks. The total amount of weeks allowed are determined by various factors including the employment States Unemployment rate.  If an employee quits or resigns his job of his own accord then he is ineligible for UI unless there were extenuating circumstances.  The extenuating circumstances will need to be proven before UI payments will be made to the former worker.

The former rule that no benefits would be paid to a former employee who has worked fewer then three months is not being applied and even these circumstances are approved for unemployment benefits. Employers will need to ensure that any necessary terminations, regardless of the time an employee has worked, is well documented and proven that the employee was given all necessary tools and training to perform their job but did not apply these tools

The Federal Unemployment Tax Act (FUTA) authorizes the Internal Revenue Service (IRS) to collect a Federal employer tax used to fund state workforce agencies.  Employers pay this tax yearly by filling out the IRS form 940 – Employer’s Annual Federal Unemployment Tax (FUTA) Return.  FUTA covers the cost of administering the UI and Job Service programs in all states. FUTA also pays one-half of the cost of extended unemployment benefits for periods of high unemployment and provides for a fund from which all states may borrow if needed to pay benefits.

With the recent economic crisis over the last several years, states have taken loans from the Federal FUTA reserves to assist in meeting the demand of paying the increase in unemployment claims. States now must pay these Federal loans back. In meeting these requirements, States will be forced to increase the SUTA tax liability on employers and the cost will most likely increase in each State. Four Point HR will notify our clients when increases are implemented by each State applicable to them.

Payroll Corner

The 2010 W-2’s have been mailed to the employee home addresses. If an employee has not received their W-2 by the end of the first week in February, instruct them to contact Four Point HR for instructions. There will be a $5.00 W-2 reprint charge, payable prior to a reprint being released.

Although the banks will be closed on Monday, February 21st in honor of President’s Day, Four Point HR will be open and operating during our regular business hours.