The Fein Print - For Business Owners and their Advisors

The second issue of The Fein Print is being distributed today.  This issue is addressed at the needs of business owners and their advisers.  Topics covered include:

  • Q&A on Tax Cuts expiring in 2012 - With the Bush tax cuts set to expire at the end of 2012, what can I do in my business now to take advantage of these lucrative laws?  Read more here ....
  • Customers Dont' Pay? We can help.  This article talks about how a business can use the services of our Collection Department to turn accounts receivable into cash and what clients experience during the collection process.  Read more here ....
  • Employee Responsibility for Payroll Taxes.  While most business owners know that all owners and officers of a business are personally responsible for any failure to pay payroll taxes, not all are aware that the liability may extend to some of their employees.  Read more here ....

The Fein Print is issued to subscribers monthly and contains inforation on a variety of topics that reflects the questions that our clients are asking us.  

  • Thoughts for Families - Every other month The Fein Print will focus on personal planning questions surrounding real estate, tax planning, estate planning and administration, personal litigation and elder law.  
  • Thoughts for Businesses - The other half of the year The Fein Print will focus on questions important to business owners on topics such as business operations, employee issues, mergers and aquisitions, tax law, and financing.

To sign up for issues of The Fein Print, click here.

Did you miss the first issue?  You can see it here.  Topics included:

  • Real Estate Tax Appeals - good for next year as the April 1 filing date just passed.
  • Your New Year's "Will-Power" - a guide for reviewing your estate plan
  • What is Elder Law?  A primer to a holistic approach to this growing need
  • 2011-2012 Tax Sale Video - Gift taxes are on sale for this year only.  This is a video guide to how congress's largess can benefit your family.

Any ideas for future topics?  Post a comment or contact me

He's not my employee, he's an independent contractor - or is he?

Employee QuestionsIn representing closely held businesses (those in which the business owners are intimately involved with the day to day operations of the business) one of the biggest issues that we run across is that owners treat employees like independent contractors, instead of as an employee. The owner does not get to decide who is an independent contractor and who is an employee - there are tax and labor laws governing those classifications.  Most importantly - if you have a person who you have been treating as an independent contractor who is actually and employee you have personal, non-dischargeable, liability for all those payroll taxes that you should have been paying but didn't.  Payroll taxes are only the start of the problems - do you owe the person benefits, what if they get sick and had they been an employee they would have had your insurance coverage, what if they get in an accident and you didn't have them listed on your liability policy?

Rich Lipton, CPA, founder of Lipton CPA Associates has put together a great guide on Employee or Independent Contractor - Which Is It? in his most recent newsletter.  Rich has kindly agreed to let me share it with you.  Importantly, Rich offers a great checklist of employee v. independent contractor that all business owners should be looking at.

If you hire someone for a long-term, full-time project or a series of projects that are likely to last for an extended period, you must pay special attention to the difference between independent contractors and employees.

Why It Matters

The Internal Revenue Service and state regulators scrutinize the distinction between employees and independent contractors because many business owners try to categorize as many of their workers as possible as independent contractors rather than as employees. They do this because independent contractors are not covered by unemployment and workers' compensation, or by federal and state wage, hour, anti-discrimination, and labor laws. In addition, businesses do not have to pay federal payroll taxes on amounts paid to independent contractors.

Caution: If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus a penalty.

The Difference Between Employees and Independent Contractors

Independent Contractors are individuals who contract with a business to perform a specific project or set of projects. You, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.

Example: Sam Smith, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. He is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if he works more or less than 400 hours to complete the work, Sam will receive $6,400. He also performs additional electrical installations under contracts with other companies that he obtained through advertisements. Sam Smith is an independent contractor.

Employees provide work in an ongoing, structured basis. In general, anyone who performs services for you is your employee if you can control what will be done and how it will be done. A worker is still considered an employee even when you give them freedom of action. What matters is that you have the right to control the details of how the services are performed.

Example: Sally Jones is a salesperson employed on a full-time basis by Rob Robinson, an auto dealer. She works 6 days a week, and is on duty in Rob's showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Lists of prospective customers belong to the dealer. She has to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Rob. Rob also pays the cost of health insurance and group term life insurance for Sally. Sally Jones is an employee of Rob Robinson.

Independent Contractor Qualification Checklist

The IRS, workers' compensation boards, unemployment compensation boards, federal agencies, and even courts all have slightly different definitions of what an independent contractor is, though their means of categorizing workers as independent contractors are similar.

One of the most prevalent approaches used to categorize a worker as either an employee or independent contractor is the analysis created by the IRS. The IRS considers the following:

  1. What instructions the employer gives the worker about when, where, and how to work. The more specific the instructions and the more control exercised, the more likely the worker will be considered an employee.

  2. What training the employer gives the worker. Independent contractors generally do not receive training from an employer.

  3. The extent to which the worker has business expenses that are not reimbursed. Independent contractors are more likely to have unreimbursed expenses.

  4. The extent of the worker's investment in the worker's own business. Independent contractors typically invest their own money in equipment or facilities.

  5. The extent to which the worker makes services available to other employers. Independent contractors are more likely to make their services available to other employers.

  6. How the business pays the worker. An employee is generally paid by the hour, week, or month. An independent contractor is usually paid by the job.

  7. The extent to which the worker can make a profit or incur a loss. An independent contractor can make a profit or loss, but an employee does not.

  8. Whether there are written contracts describing the relationship the parties intended to create. Independent contractors generally sign written contracts stating that they are independent contractors and setting forth the terms of their employment.

  9. Whether the business provides the worker with employee benefits, such as insurance, a pension plan, vacation pay, or sick pay. Independent contractors generally do not get benefits.

  10. The terms of the working relationship. An employee generally is employed at will (meaning the relationship can be terminated by either party at any time). An independent contractor is usually hired for a set period.

  11. Whether the worker's services are a key aspect of the company's regular business. If the services are necessary for regular business activity, it is more likely that the employer has the right to direct and control the worker's activities. The more control an employer exerts over a worker, the more likely it is that the worker will be considered an employee.

Minimize the Risk of Misclassification

If you misclassify an employee as an independent contractor, you may end up before a state taxing authority or the IRS.

Sometimes the issue comes up when a terminated worker files for unemployment benefits and it's unclear whether the worker was an independent contractor or employee. The filing can trigger state or federal investigations that can cost many thousands of dollars to defend, even if you successfully fight the challenge.

There are ways to reduce the risk of an investigation or challenge by a state or federal authority. At a minimum, you should:

  • Familiarize yourself with the rules. Ignorance of the rules is not a legitimate defense. Knowledge of the rules will allow you to structure and carefully manage your relationships with your workers to minimize risk.

  • Document relationships with your workers and vendors. Although it won't always save you, it helps to have a written contract stating the terms of employment.

If you have any questions about how to classify your employees, please give us a call. We can help guide you in the right direction in the eyes of the IRS.

Image: Idea go / FreeDigitalPhotos.net 

Structuring Your Veterinary Practice for Future Opportunities

Veterinarian helping dog Steven A. Loeb, Esq. of our Business Law  Department recently hosted a webinar through Elevation Research Group, Inc. to a few hundred veterinarians across to the country on legal considerations in the business of veterinary medicine.  

Some points to be considered:

  • How to structure a partnership arrangement
  • Bringing in a new doctor
  • Being bought out or earning out of your practice
  • Owing business real estate
  • Creating liquidity for your practice for retirement or your family
  • Doing all this while minimizing Uncle Sam's share of your practice

Steve's topic is entitled "Structuring Your Veterinary Practice and Planning for Future Opportunities".  A link to the presentation can be found through www.elevationrg.com.

Buying or Selling a Veterinary Practice

We are privileged to represent many successful veterinary practices in New Jersey.  When I was little I wanted to grow up to be a veterinarian, but found I was better suited to law.  One of the joys of being an attorney is that you have an opportunity to learn how other businesses operate and help them to be successful.  In order for a veterinary practice to successfully grow, either by adding another veterinarian, merging with another practice, or selling as an exit strategy, there are key infrastructure items that need to be addressed.

Courtesy of guest blogger Steven A. Loeb, Esq.:

The purchase or sale of a veterinarian practice requires a concerted effort by both the buyer and the seller. There are certain formalities necessary to address prior to entering into formal negotiations with any buyer or seller. In order for either the buyer’s or the seller’s attorney to draft a proper term sheet or initial draft of a Purchase Agreement , the following checklist of items needs to be reviewed thoroughly during the due diligence process and thereafter:

Confidentiality Agreement.
A confidentiality agreement should be entered into by and between buyer and seller so that during negotiations a free flow of information can be obtained and reviewed without the concern that information will be passed along to any other individual other than the buyer’s and/or seller’s accountant and attorney.

Items which will need to be incorporated into the Asset Purchase Agreement and Ancillary Documents:

 * What are you purchasing?

  1. Good Will;
  2. Intangible Property including Intellectual Property Rights;
  3. Cash;
  4. Vehicles; and
  5. Leased Equipment.
  6. Real Estate

* What aren't you purchasing? (Items Excluded from the Sale)

  1. Accounts Payable
  2. Bank Accounts
  3. Personal Property

* Is the Buyer taking over any of the Seller's liabilities, such as mortgage, line of credit, prior tax payments, trade debt?  Note that we generally recommend against that - the Seller's liabilities should remain the sellers

* If the Buyer is taking over some of the Seller's liabilities (sometimes that is necessary to make the deal), then what liabilities are being excluded?

Other documents and agreements that need to make up  the deal:

* Financial Statements
* Purchase Price Information with Formulary Information
* Physical Inventory
* Closing Work and Capital Adjustments
* Landlord Consent

  1. If a Veterinarian Practice is purchasing the business and leasing real estate, then Landlord Consent needs to be obtained.

* Deliveries at the Closing
* Non-Assignable Leases and Contracts
* Government Consents and Approvals
* Confidentiality Information (inclusive of Employee Retention)
* Employee Matters
* Payments for Environmental Inspections (if not by buyer)
* Non-Solicitation Provision
* UCC/Judgment Search (usually obtained by Buyer’s Attorney) 


The above constitutes just some of the varying degrees of information that needs to be discussed and negotiated. Prior to beginning negotiations, you should speak to an attorney experienced in the sale of a veterinarian practice.

Image: Maggie Smith / FreeDigitalPhotos.net

The Flu Balancing Act - Keeping Staff Productive

 My previous post about "Business Plan to Prepare for the Flu" has generated a local look at flu preparations from the Daily Record.  In "Employers craft 'stay-home' policies - Workplace can be 'point of spread' for virus"  reporter Jake Remaly looks at what Morris County businesses are doing to address the flu this season - how to take reasonable steps to balance staff being ill or staff needing to care for a sick family members with maintaining productivity and efficiencies.  

The first point mentioned is to communicate a uniform policy.  It is no good to have a sick policy that nobody is aware of - Bayer's 15,500 U.S. employees were recently advised via email  "the two best ways to protect yourself and others from influenza are to practice good hygiene, and stay home if you are ill."  Whatever policy you have, it needs to apply across the board to all staff - employment attorney Jonathan Nirenberg points out the potential legal issues of sending some staff home if sick but not others.

My contribution to the article was to address the question of "My employee is home and work isn't getting done - what now?".  One solution is to look to your technology - do you have a means of having staff work from another location?  While this might not be a long term policy you wish to implement, for staff whose job responsibilities are computer based, the ability to access their desktops from home might be the perfect solution to bridge the gap between addressing illness and maintaining productivity.  

Business Plan to Prepare for Flu

Should we be worried about the flu this year?  Is it being hyped out of proportion, akin to the sensational news coverage of the first major snowfall of the season, which never seems to materialize?  Or is the idea of a pandemic flu is so "unreal" in this day and age that workplaces ignore its potential threats?

A great source I found is www.flu.gov.  This is the federal government site dealing with questions about the flu. This information on the site is straightforward and practical (wash your hands!)  Within the site there is must read article for business owners and executive , Guidance for Businesses and Employers to Plan and Respond to the 2009 – 2010 Influenza Season.  The article looks to business continuity preparation, as well as best practices a company might want to employ to address absenteeism and productivity during the the flu season.  

As an additional preparatory matter, do you you have the capability to allow employees to work from a remote location? If a local school closes, do any parents of younger children have job functions that might allow them to work from home? If so, do you have the technological capabilities allow that to happen? This may be the time to look at investing in infrastructure so your business can continue to be productive even if your employees are not at the office, either because they have to care for family members, or they have been experiencing symptoms themselves and you have made a business determination that sick people need to stay home.

Addendum - After I posted I came across this consumer oriented AP article - same message, while the flu may not be more deadly then others, it is more contageous, so don't panic, but take some practical steps:  Swine flu: 10 things you need to know

What is the Value of Chamber Membership?

In today's new economy, many businesses are seeking new markets. One traditional avenue of business development that is enjoying a resurgence is becoming a member of the local business community by joining a local Chamber of Commerce.

Wikipedia defines a Chamber of Commerce as "[A] form of business network, e.g., a local organization of businesses whose goal is to further the business interests of the community. 

Generally, chambers of commerce serve the following purposes:

  • Creating a strong local economy
  • Promoting the community
  • Providing networking opportunities
  • Speaking with government on behalf of business
  • Political action, such as getting pro-business candidates elected to office"

What can your local Chamber do for you?  The Morris County Chamber of Commerce has developed a video (courtesy of Grey Sky Films) talking about the benefits of Chamber membership. I guess the fact that the video but features me underscores the value of my clients have found with Chamber membership!

 

Lets get Banks Lending - SBA Loan Guarantee Amount to 90%

As reported by NJBIZ, in an effort to get banks lending again:

Starting today, the U.S. Small Business Administration is raising to 90 percent the federal guarantee on most SBA loans and temporarily suspending a fee that is charged to banks, but passed along to borrowers.

The 90 percent guarantee will be on loans up to $1.5 million. The portion of the loan above $1.5 million, up to the maximum SBA loan of $1 million, will be subject to a lower guarantee amount.

Gas Costs Bringing Your Business Down

Category: Business Law and Planning

The skyrocketing costs of gas are hitting all of us. Business owners are especially concerned as to how this will hit their bottom line, both directly in the costs of materials and shipping, and indirectly, as employees look to balance the cost of getting to work against their paycheck.

It appears that the New Jersey Assembly is trying to help. NJ Biz reports that Bill Would Allow Gas to be Sold at Cost or Below:

"A bill designed to lower gas prices by removing the state''s gasoline "price floor" was approved by an Assembly panel yesterday. "

"Service stations with convenience stores or auto-repair shops make the most of their revenue from those more profitable services, not the sale of gasoline, [Assembly Person] Burzichelli said. Allowing gasoline to be priced below cost would allow stations to lower prices to attract more customers for those services while simultaneously providing a much-needed price break at the pump, he said.

New Jersey has required gas station owners to price their fuel above cost since 1938, when many states enacted laws to protect consumers from gas companies that would undercut competitors in sparse marketplaces to gain a monopoly on fuel sales, Burzichelli said."


Other employers are looking to take their own action to control the indirect costs of gas prices. Some ideas and concerns:

  • Provide gas allowance - note however this must be included in the employees income each year
  • Foster telecommuting - make sure that you have an appropriate security policy in place in your employment agreement, employee handbook, or other policy regarding remote access of computers. You may also want to invest in a program to be able to track an employee's productivity while out of the office
    • Adopt a flex workweek of 4 day / 10 hours, or 9 days/9 hours every 2 weeks - while you need to make sure your critical daily activities are covered, this may allow you to get all the work done for the week in a shorter period, and be a cost free "bonus" to the employees who not only have to commute less days, but get an extra day to address their out of office obligations (perhaps making for more productive employees)

    Paid Family Leave now Law in NJ

    Category: Elder Law, Business Law and Planning

    Hot from njbiz.com, Corzine Signs Paid Leave Bill in 'Legacy Moment' New Jersey's Governor Corzine today signed paid family leave into law. "Calling it a "legacy moment" and a "moral necessity," Gov. Jon S. Corzine today signed into law a bill that will give government and private-sector workers six weeks of paid leave to care for newborns or seriously ill immediate family members."

    New Jersey becomes only the second state in the nation to have 6-weeks mandatory paid family leave. The new law is not without its detractors. "Supporters of the bill say the new law will help workers balance their work and family life. Business lobbyists and other critics argue that employers--especially small ones like doctors' offices and car repair shops--cannot afford to lose key workers for up to six weeks at a time. The critics say that becoming the first state in the region to mandate paid leave would further damage the state's image as a place to do business."

    Business owners are obviously concerned that they can't afford key employees to be gone for 6 weeks at a time, regardless of who is paying for the time off. On the flip side, caregivers should take heed of a law that may allow them to devote their full time and efforts to a family emergency without fear of losing their job and all of their salary.

    The article outlines the details of the new law are as follows:

    "Under the law, workers will get two-thirds of their regular pay, up to $524 per week. Employees could collect the money for up to six weeks and employers would have the option of requiring the workers to first take two weeks of fully paid vacation or sick leave.

    The program would be funded by workers, who would pay about 75 cents a week more into the existing state Temporary Disability Insurance fund through payroll deductions. That translates into about $35 per year.

    State and federal law now entitles workers to 12 weeks of family leave, but it is unpaid and employers with fewer than 50 employees are exempt. While the new paid family leave bill covers all employers, those with fewer than 50 employees are not required to hold open jobs for workers on paid leave.

    Payroll deductions would start on Jan. 1, 2009, with workers able to take paid leave starting July 1, 2009, according to the bill. The Department of Labor estimates that approximately 38,000 individuals, or about 1 percent of New Jersey's work force, will collect benefits annually, but business lobbyists have argued it will be much higher."

    3 New Years Resolutions for the Small Business Owner

    Category: Business Law and Planning,

    I am always in favor of lawyers who can speak English instead of Legalease - here is a 1-2-3 New Years Resolutions for Small Business owners, courtesy of Jean D. Sifleet, Esq. I added some emphasis here and there for some points to really take to heart.

    You've heard it all before, but year-end is a great time to reflect on your accomplishments and plan for the future. This year, try the 1-2-3 approach.

    Succession, retirement and estate planning are closely linked for the small business owner. If a small business owner dies without a succession and estate plan, chaos occurs in the business and for the family. If the small business owner does not have a retirement plan, financial security for the later years of life is uncertain and remains tied to the business.

    Doing nothing can have extremely severe and unintended consequences. There are many sad horror stories of family fights and legal battles about how the estate of a small business owner will be divided up by the survivors. Businesses have been forced to sell property to pay taxes owed or close as a result. Many of these problems can be avoided.

    As you pull together your year-end financial results, it's a good time to make your plans for the future. Recent changes in the law make it easier to put more money away for retirement in a tax advantageous manner. This is the time to think about reducing your taxes by funding your retirement plan.

    Try the 1-2-3 approach to New Year's Resolutions.

    Resolution (1): Take action.

    Taking action before a crisis arises is much better than reacting under stressful circumstances. If your will and estate planning documents were prepared years ago when the kids were little, as is frequently the case, they need to be reviewed and updated. If the small business owner's will or trust says, "equal shares to my children," there can be a disaster in the making. Similarly, if you have put retirement and benefit plans in place over the years, it is important to review them from time to time.

    Resolution (2): Articulate your long-term goals.

    Planning for your succession, retirement, death is never easy. Your goals should drive the planning process. Hence, articulating your long-term goals is a critical step in the planning process. Answering the following questions will help to articulate your goals and establish a framework for planning.

    - Do you plan to retire? At what age?

    - Do you plan to transfer ownership and/or management within the family?

    - Do you plan to transfer ownership and/or management to employees?

    - Do you plan to sell the business?

    The succession plan is a critical element of estate planning. A succession plan provides for the orderly transition of ownership and management of your company. Basically, the plan becomes a contract amongst the parties. Family members who are active in the business should be treated differently from family members who are not participating in the business. There are ways to equalize the relative shares that each of the children receives, while avoiding the potential for a power struggle in the business.


    Resolution (3): Develop a written plan.

    It's critical that the plan be in writing because people have selective memories and memory fades with time. The importance of communication ... and more communication amongst family members and key players ... cannot be overstated. The plan can be reviewed, discussed, and revised over a period of time.

    To avoid problems down the road, succession, retirement and estate planning should be done with professional assistance. Do not just sign over property or give away stock. A proper estate plan is truly a kindness to your survivors. Having a professional review of your plans gives you a clear understanding of what revenue stream you are likely to have in retirement and how your affairs will be handled if you die or become disabled.

    Planning ahead is the best way to achieve your goals. Doing nothing can have severe and unintended consequences. So this year, try the 1-2-3 approach. It's the best gift you can give your family. Best wishes for the New Year!

    Business Owners - Don't Fail to Plan

    Category: Business Law and Planning

    It is a truism that "Business owners often feel that they -- and the business -- will always be around. But without some thoughtful planning about succession, it's common that businesses wither when the owner passes away or leaves."



    In Keep Business Alive With Succession Plan from the Small Talk Column of WSJ Online, the author highlights "four steps to making sure your business lives beyond you." These are common-sense concepts to spur you to action. Some key points to consider:



    * You need to have a plan as to what will happen to your business if you get hit by a bus.

    * Your plan needs to be in writing

    * Know who your successors are let them know so you can groom them to succeed

    * Be able to finance your succession, whether through a buy-sell agreement, life insurance, etc.



    Another truism all business owners should consider: Nobody plans to fail, just fails to plan.