Posted on Jul 3, 2019

Although maternity leave for new mothers has become more common in U.S. workplaces than it used to be, fathers don’t always receive the same benefits. Most new fathers aren’t granted any time off — let alone paid time off on the birth or adoption of a child. However, as the labor market tightens, employers are starting to recognize that paternity benefits can help attract and retain employees.

According to Mercer’s Survey on Absence and Disability Management, about 40% of employers now offer paid parental leave for both parents, compared to 25% in 2015.

Here’s what you need to know if your organization is thinking about adding paternity leave to its employee benefit package.

Know Their Rights

Under the Family and Medical Leave Act (FMLA), the controlling federal law in this area, there is no nationwide right to receive paternity leave. However, six states and all 20 of the largest U.S. companies mandate some form of paid parental or family leave. Although fathers have no federal right to be paid during paternity leave, the FMLA requires that the employee’s job be protected for up to 12 weeks after the birth or adoption of a child. In other words, the employee is entitled to return to his job without penalty in pay or position. To qualify, the employee must have worked at a company with more than 50 employees and have logged at least 1,250 hours on the job the previous year. Other requirements may apply.

In addition to federal law, workers may have rights under state law. As of this writing, 25 states supplement FMLA protection by either providing longer leave time (for example, 16 weeks), lowering the minimum employer size or even requiring private employers to pay for a leave, up to a dollar cap. Six states — California, Massachusetts, New Hampshire, New Jersey, New York and Washington — plus the District of Columbia, have passed family leave legislation that extends paternity leave rights to fathers.

Typically, employers providing leave to a birth father offer the same or similar benefits to fathers adopting a child. The FMLA states that employees may take 12 weeks of unpaid leave for an adoption and some individual states offer time off to adoptees under the umbrella of family leave (which can also include leave to care for sick children or elderly relatives).

Decide on the Details

If you’re thinking about making paternity leave benefits available to employees, discuss your intentions with legal and financial advisors. Although some companies offer unofficial benefits on a per-employee basis, you’re generally better off putting everything — including whether paternity leave is paid or unpaid — in writing. This includes updating employee handbooks and new employee orientation materials.

Most employers that offer paid paternity leave continue to cover full-time employee benefits such as health and life insurance during the leave period. However, you may want to reserve the right to be reimbursed for insurance premiums if the employee doesn’t return to work when the paternity leave period ends.

Employers typically suspend the employee’s right to other benefits temporarily — including their ability to:

  • Accrue seniority benefits,
  • Earn vacation and sick time, and
  • Receive 401(k) matching contributions or advance the vesting schedule.

And, of course, employees on parental leave can’t contribute to their 401(k) on a pre-tax basis because they aren’t receiving a paycheck.

Handle Leave Requests

Under the FMLA, employees working for employers that offer paternity leave must make a leave request at least 30 days in advance. The employee can take the leave any time during the spouse’s pregnancy or within one year of the child’s birth. It’s important to stress that this decision is made by the employee — not the employer —  and usually is influenced by such personal factors as the employee’s finances and the mother’s health during pregnancy.

An employer can require the employee to use up vacation, personal or sick days before being taking official FMLA leave. However, in many organizations, the employer and employee discuss and negotiate these issues to arrive at a mutually agreeable decision.

Pressure Is Growing

Smaller employers aren’t covered by the FMLA, and even large employers aren’t required to offer family leave benefits to part-time employees. But you may want to consider offering paid paternity leave anyway — particularly if you already offer maternity leave. Pressure is growing on lawmakers to address the issue and legislation could require more from employers in the future. In the meantime, offering paternity leave can give your organization an edge in the search for new talent.

Posted on Jun 11, 2019

The so-called “gig economy” challenges conventional practices between companies and the people who perform the work. A key question is: Are these workers independent contractors or employees?

The U.S. Department of Labor (DOL) recently published a new wage and hour opinion letter, spelling out its position with respect to a specific virtual marketplace company (VMC). Though the letter is directly applicable only to the specific employer that sought the opinion, it still offers insight on how the DOL might rule in similar cases.

Just the Facts

The DOL letter indicates that VMC workers can legitimately be classified as independent contractors, and thus aren’t subject to the Fair Labor Standards Act (FLSA). The DOL defines a VMC as “an online and/or smartphone-based referral service that connects service providers to end-market consumers to provide a wide variety of services.” Examples of  services include:

  • Transportation (for example, Uber and Lyft),
  • Delivery,
  • Personal shopping,
  • Moving,
  • Plumbing,
  • Painting,
  • Home repair, and
  • Cleaning.

To determine the appropriate classification for workers, the DOL letter identified the following relevant facts about workers at the company in question:

  • They were paid per task performed.
  • They could request pay rates that deviated from the VMC’s “default” local rate, based on their level of experience.
  • They could accept or reject work requests they received through the company’s platform.
  • They used their own supplies and equipment.
  • They could hire assistants to help them perform agreed-upon services.
  • They could use competing platforms to get tasks to perform. (This is similar to some Uber drivers who concurrently use the Lyft platform to solicit work and vice versa.)
  • They could turn down service requests without immediately being booted off the platform, and, if they were suspended due to inactivity, workers could reactivate their status.
  • They weren’t directly supervised by the company; rather, performance was judged by customer feedback.

The DOL letter distinguishes an employee from a person who’s engaged in business for himself or herself. An employee, “as a matter of economic reality, follows the usual path of an employee and is dependent upon the business to which he or she renders service.”

Economic Reality

The “economic reality” standard must be applied to the workers’ activities as a whole, based on the following six factors:

  • Nature and degree of the potential employer’s control,
  • Permanency of the worker’s relationship with the potential employer,
  • Amount of the worker’s investment in facilities, equipment or helpers,
  • Amount of skill, initiative, judgment or foresight required for the worker’s services,
  • The worker’s opportunities for profit and loss, and
  • Extent of integration of the worker’s services into the potential employer’s business.

Applying those assessment criteria to the VMC in question, the DOL noted the “significant flexibility” the company’s workers have to pursue external economic opportunities. The DOL found no hint of “permanency” in the VMC’s relationship to the people who obtain work on its platform. Examining the third factor, the DOL observed that workers are required to use their own equipment.

Regarding skills, the DOL focused on the fact that the company assumes workers already have the requisite skills when they join the platform because it provides no training. And their initiative, the DOL inferred, is evident from the fact that workers chose for themselves which work opportunities to take. That power also touches on the fifth criterion, opportunities for profit and loss.

Finally, the VMC’s workers aren’t operationally integrated into its platform in the sense of developing, operating or maintaining it. Rather, they’re “consumers” of the service and, as independent people, “negotiate over the terms and conditions of using that service.”

Market Dynamics

Not everyone agrees with the DOL’s assessment, however. Maya Pinto, a senior researcher at the National Employment Law Project (a labor policy research not-for-profit organization) disagrees with the ruling. She recently advocated on behalf of gig workers, saying, “We believe in most cases, if not all cases, the workers are under control of the company and are in fact employees.”

Likewise, Uber drivers made a vocal pitch for employee status. Many drivers participated in a strike the day before the ride-hailing company’s recent IPO. Seeking to settle the nerves of potential investors, Uber agreed to increase pay rates, but it didn’t cave on the drivers’ independent contractor classification.

The lesson seems to be that the cost of labor, whether it comes from employees or independent contractors, is governed by market forces. The fact that striking Uber drivers extracted some concessions from the company on the eve of its IPO shows market forces at work.

How Does the DOL Letter Affect Your Situation?

An opinion letter is an official, written opinion by the DOL’s Wage and Hour Division on how a particular law applies in specific circumstances presented by the individual person or entity that requested the letter. However, the letter does provide insight into how the DOL regards the VMC business model.

So, regardless of whether your company operates as a VMC or uses a more traditional business model, the same basic principles of independent contractor vs. employee status apply under the FLSA. It’s also important for companies to consider state law, which may, in some cases, be more restrictive than the FLSA when analyzing independent contractor status.

Even when workers’ classification status seems straightforward, based on the standards laid out in the DOL ruling, that doesn’t guarantee protection. And the price of misclassifying workers can include paying back wages and payroll taxes, as well as fines and additional penalties if the IRS believes your misclassification was based on fraudulent intent. An employer also may be liable for employee benefits that should have been provided but weren’t.

It’s important to get worker classification questions right. Contact a human resources professional, tax advisor or labor attorney for additional guidance on this issue.

Posted on Jun 5, 2019

With the rise of artificial intelligence (AI), businesses across almost every sector find themselves entering uncharted territory. While still in its infancy, AI offers the potential to transform virtually every aspect of how companies operate.

Brave New World

AI is expected to increase revenue and profits, lower costs, drive improvements in customer service and assist in the creation of innovative new products and services. In fact, a recent survey estimates that AI will contribute roughly $15.3 trillion to the economy by 2030. The effects of AI and its close cousin, machine learning (ML), will ripple across all sectors of the economy, from professional services firms to manufacturers to retailers.

What makes AI so powerful is its ability to automate all manner of business processes ranging from the mundane to the complex. For example, AI can help automate routine transactions, find anomalies in vast pools of data, and accelerate the speed of research and development efforts.

Moreover, AI systems are designed to learn from experience. That is, the more transactions a system encounters and dissects, the greater its ability to handle subsequent transactions.

Potential Risks

AI isn’t without risks, however. In addition to the cost of purchasing automated equipment and training staff to use the technology, AI solutions require high-quality data and time to analyze it.

It also takes time for companies to envision the role of AI within their operations, select or build a suitable tool, and provide it with enough exposure to the company’s data to learn and optimize its approach. So, companies tend to be slow to adopt and benefit from AI.

There are additional challenges to adopting AI. With much of their data residing in legacy systems, companies often lack the technical expertise to extract what they need to fuel AI platforms. Furthermore, despite an unprecedented buzz around AI and its transformative nature, many businesses have a hazy understanding of its potential — and its limitations.

Finally, given the secrecy perpetuated by those using AI, companies must embark on a journey of discovery to determine how AI might create value within their environment. Inevitably, failed initiatives can make a company gun-shy when pursuing future investments and cause them to abandon AI efforts before they can achieve their full potential.

Coming Soon?

Today, many companies are experimenting with AI and ML. But they’re not yet as commonplace as, say, cloud computing. It’s too soon to assess how long it will take for companies to deploy them successfully to improve how they operate. Nevertheless, AI will play an important role in shaping the future of business for the foreseeable future.

If you’re considering AI solutions, contact your financial professional for help crunching the numbers. He or she can help evaluate whether the benefits justify the costs, as well as identify potential pitfalls.

AI in the Real World

How are companies in your industry using artificial intelligence (AI) to improve day-to-day operations? Most people equate AI with robots that replace human workers on the production line, drones that deliver supplies and automated checkouts at retail stores.

However, the most common application of AI is detecting and fending off computer security intrusions in the IT department, according to a recent Harvard Business Review article. Rather than replacing IT professionals, AI systems help employees identify suspicious activity and thwart hacking attempts. In addition, AI systems can help the IT department more efficiently resolve employees’ tech support issues and ensure workers are using technology only from approved vendors.

AI is being used by marketing and sales personnel to analyze customers’ online shopping patterns and recommend similar items or promotions that might be of interest. It also can help analyze transactions to reduce fraud and bad debts.

AI and machine learning (ML) are even being applied in old-fashioned industries like publishing. For example, Associated Press (AP) currently uses automated software to draft thousands of quarterly earnings reports based on digital data feeds from a financial information provider. Rather than replacing human editors, AP’s automated system frees up time for editors to focus on writing in-depth stories on business trends.

Even CPAs are jumping on the bandwagon. During audit fieldwork, don’t be surprised if your auditors use AI to enhance their testing procedures. For example, rather than relying on random sampling to test inventory pricing or revenue recognition procedures, auditors equipped with AI software can analyze an entire population in a fraction of the time.

Posted on May 7, 2019

Warm weather and rainy days bring the urge to purge. But before you clean your file cabinets or declutter your computer files, it’s important to review these guidelines.

Guidelines for Small Businesses

The retention guidelines are slightly different for small business records. Here are some best practices to consider.

Business Property

Records used to substantiate the cost and deductions (such as depreciation, amortization and depletion) associated with business property must be maintained to determine the basis and gain (or loss) on the sale. Keep these for as long as you own the asset, plus seven years, according to IRS guidelines.

Travel Records

For travel and transportation expenses supported by mileage logs and other receipts, keep supporting documents for the three-year statute of limitations.

Sales Tax Returns

State regulations vary. For example, New York generally requires sales tax records to be retained for three years, while California requires four years, and Arkansas, six. Check with your tax advisor.

Employee and Payroll Records

Keep personnel records for three years after an employee has been terminated. Also maintain records that support employee earnings for at least four years. This time frame should cover various state and federal requirements. However, never throw away records that might involve unclaimed property, such as a final paycheck not claimed by a former employee.

Time cards specifically must be kept for at least three years if your business engages in interstate commerce and is subject to the Fair Labor Standards Act. However, it’s a best practice for all businesses to keep the files for several years in case questions arise.

Keep employment tax records for four years from the date the tax was due or the date it was paid, whichever is longer.

Important: The more records you store, the greater the likelihood that your data will be stolen or hacked. Destroying sensitive documents and files can reduce the chances that you or your company’s employees and customers will become identity theft victims.

Federal Tax Records

Most tax advisors recommend that you retain copies of your finished tax returns indefinitely to prove that you actually filed. Even if you don’t keep the returns indefinitely, hold onto them for at least six years after they’re due or filed, whichever is later.

It’s a good idea to keep records that supportitems shown on your individual tax return until the statute of limitations runs out — generally, three years from the due date of the return or the date you filed, whichever is later. Examples of supporting documents include canceled checks and receipts for alimony payments, charitable contributions, mortgage interest payments and retirement plan contributions. You can also file an amended tax return during this time frame if you missed a deduction, overlooked a credit or misreported income.

Which records can you throw away today? You can generally throw out records for the 2015 tax year, for which you filed a return in 2016.

You’re not necessarily safe from an IRS audit after three years, however. There are some exceptions to the three-year rule. For example, if the IRS has reason to believe your income was understated by 25% or more, the statute of limitations for an audit increases to six years. Or, if there’s suspicion of fraud or you don’t file a tax return at all, there’s no time limit for the IRS to launch an inquiry.

In addition, records that support figures affecting multiple years, such as carryovers of charitable deductions or casualty losses for federal disasters, need to be saved until the deductions no longer have effect, plus seven years, according to IRS instructions.

There are also some cases when taxpayers get more than the usual three years to file an amended return. For example, you have up to seven years to take deductions for bad debts or worthless securities, so don’t toss out records that could result in refund claims for those items.

State Tax Records

The previous guidelines are all geared toward complying with federal tax obligations. Ask your tax advisor how long you should keep your records for state tax purposes, because some states have different statutes of limitations for auditing tax returns.

Plus, if you’ve been audited by the IRS, states generally have the right to resolve their own issues related to that tax year within a year of the federal audit’s completion. So, hold on to all tax records related to an IRS audit for a year after it’s completed.

Essential Personal Records

Your files probably contain more than just tax information. Certain essential documents should be kept indefinitely. Examples include:

Birth and death certificates,
Marriage licenses and divorce decrees,
Social Security cards, and
Military discharge papers.
These should be kept in a safe location, such as a locked file cabinet or safety deposit box. If stolen, essential documents can be used to steal your identity. In turn, a stolen identity can be used to file for bogus tax refunds or apply for credit under your name.

Bills and Receipts

In general, it’s OK to shred most bills — like phone bills or credit card statements — when your payment clears your bank account or at year end. However, if a bill or receipt supports an item on your tax return, follow the tax guidance above.

If you purchase a big-ticket item — like jewelry, furniture or a computer — keep the bill for as long as you have the item. You never know if you’ll need to substantiate an insurance claim in the event of loss or damage.

Real Estate Records

Keep your real estate records for as long as you own the property, plus three years after you dispose of it, and report the transaction on your tax return. Throughout ownership, keep records of the purchase, as well as receipts for home improvements, relevant insurance claims and documents relating to refinancing.

These documents help prove your adjusted basis in the home, which is needed to figure any taxable gain at the time of sale. They can also support calculations for rental property or home office deductions.

Investment Account Statements

To accurately report taxable events involving stocks and bonds, you must maintain detailed records of purchases and sales. These records should include dates, quantities, prices, and dividend reinvestment and investment expenses, such as brokers’ fees. It’s a good idea to keep these records for as long as you own the investments, plus until the expiration of the statute of limitations for the relevant tax returns.

Likewise, the IRS requires you to keep copies of Forms 8606, 5498 and 1099-R until all the money is withdrawn from your IRAs. With Roth IRAs, it’s more important than ever to hold onto all IRA records pertaining to contributions and withdrawals in case you’re ever questioned.

If an account is closed, treat IRA records with the same rules that apply to stocks and bonds. Don’t dispose of any ownership documentation until the statute of limitations expires.

Got Questions?

Before you clear your files of old financial records, discuss the records retention requirements with your tax advisor. You don’t want to be caught empty-handed if an IRS or state tax auditor contacts you.

Posted on Feb 12, 2019

The IRS recently issued guidance on the new deduction for up to 20% of qualified business income (QBI) from pass-through entities under the Tax Cuts and Jobs Act (TCJA). It aims to clarify when the QBI deduction is available for income from rental real estate enterprises.

The QBI deduction is allowed only for income from a business. But the term “business” isn’t defined in the statutory language. When the TCJA became law, it was unclear whether a rental real estate activity could count as a business for QBI deduction purposes. Here’s how the new guidance helps clarify the issue.

Defining a Business under the QBI Regulations

What does the term “trade or business” mean for QBI deduction eligibility purposes? It refers to an activity that’s a trade or business under Section 162 of the Internal Revenue Code, which allows  deductions for business-related expenses.

Unfortunately, determining what constitutes a trade or business for Sec. 162 purposes requires parsing old court decisions. Under case law, a rental activity will generally be a Sec. 162 trade or business unless the property owner just collects the rent without doing much else, such as under a triple net lease arrangement.

However, IRS regulations stipulate that the licensing of tangible or intangible property that doesn’t qualify as a Sec. 162 trade or business can still be treated as a trade or business for QBI deduction   purposes. How? The property must be rented or licensed to a trade or business conducted by the individual or a pass-through entity that’s commonly controlled.

Basics of the QBI Deduction

The QBI deduction is potentially available to eligible noncorporate owners of pass-through business entities for tax years beginning in 2018 and extending through 2025. The deduction is scheduled to disappear after 2025, unless Congress extends it.

For QBI deduction purposes, pass-through entities are defined as:

  • Sole proprietorships,
  • S corporations,
  • Single-member limited liability companies (LLCs) with one owner that are treated as sole proprietorships for tax purposes,
  • Partnerships, and
  • LLCs that are treated as partnerships for tax purposes.

The QBI deduction is complex and involves a number of rules. For example, the deduction:

  • Is only available to individuals, estates, and trusts. (We refer to all three as “individuals” to keep things simple.)
  • Doesn’t reduce an individual’s adjusted gross income (AGI). In effect, it’s treated the same as an allowable itemized deduction.
  • Doesn’t reduce net earnings from self-employment for self-employment tax purposes.
  • Doesn’t reduce net investment income for purposes of the 3.8% net investment income tax (NIIT).

Income from the trade or business of being an employee doesn’t count as QBI. Also excluded from QBI are reasonable salaries collected by S corporation shareholder-employees and guaranteed payments received by partners (or LLC members treated as partners for tax purposes) for services rendered to partnerships (or LLCs) or for the use of capital by partnerships (or LLCs).

Important: The QBI deduction can also be claimed for up to 20% of an individual’s income from qualified real estate investment trust (REIT) dividends and up to 20% of qualified income from publicly traded partnerships (PTPs).

Potential Limitations

Above specified income levels, the QBI deduction for income from an eligible business can’t exceed the greater of:

  • 50% of W-2 wages paid by the business, or
  • 25% of W-2 wages plus 2.5% of the unadjusted basis immediately after acquisition of qualified depreciable property used in the business.

In addition, the QBI deduction is phased out for income from specified service businesses. Examples include doctors, lawyers, accountants, actuaries, actors, singers, consultants, athletes, investment managers, stock traders and any other trade or business where the principal asset is the reputation or skill of one or more of its employees.

For 2018, these limitations are phased in when the business owner has taxable income (calculated before any QBI deduction) above certain levels. These income limits are indexed annually for inflation. Here are the income-based phase-in thresholds for 2018 and 2019:


2018 Phase-In Range

2019 Phase-In Range

Married filing jointly



Married filing separately



Other taxpayers



These limitations are phased in over a taxable income range of $50,000, or $100,000 for married couples who file joint returns.

Under another limitation, an individual’s allowable QBI deduction can’t exceed the lesser of:

  • 20% of QBI from qualified businesses plus 20% of qualified REIT dividends plus 20% of  qualified publicly traded partnership (PTP) income, or
  • 20% of the individual’s taxable income calculated before any QBI deduction and before any net capital gain amount (net long-term capital gains in excess of net short-term capital losses plus qualified dividends).

New Guidance for Rental Real Estate Enterprises

The IRS recently issued Notice 2019-7 to clarify when the QBI deduction can be claimed for income from rental real estate enterprises. The notice includes a safe-harbor rule for determining whether a rental real estate enterprise can be treated as an eligible business for QBI deduction purposes.

If a rental real estate enterprise fails to qualify for the safe-harbor rule, it can still be treated as a business for QBI deduction purposes if it meets the general definition of a business set forth in the QBI regulations. Unfortunately, that definition isn’t very clear. (See “Defining a Business under the QBI Regulations” above.)

For purposes of eligibility for the safe-harbor rule, a rental real estate enterprise is defined as an ownership interest in real property held for the production of rents and may consist of an ownership interest in multiple properties.

To rely on the safe-harbor rule, the individual or pass-through entity must own the interest directly or through an entity that’s disregarded for federal income tax purposes. Such entities include single-member LLCs that aren’t treated for tax purposes as separate entities apart from their owners.

Taxpayers must either treat:

  • Each property held for the production of rents as a separate enterprise, or
  • All similar properties held for the production of rents as a single rental real estate enterprise.

Commercial and residential real estate can’t be treated as part of the same enterprise. Taxpayers also aren’t allowed to vary their treatment of properties from year to year, unless there’s a significant change in facts and circumstances.

Eligibility Requirements

To be eligible for the safe harbor, the taxpayer must pass an hours-of-service test. For tax years beginning before January 1, 2023, at least 250 hours of rental services must be performed each year in the enterprise.

For tax years beginning after December 31, 2022, the 250-hour test can be met in any three of the five consecutive tax years that end with the current tax year. But if the enterprise has been held for less than five years, the 250-hour test must be met for each post-2022 tax year.

For tax years beginning after December 31, 2018, eligible taxpayers must maintain separate books and records for each rental real estate enterprise to keep track of each enterprise’s income and expenses. Taxpayers must also maintain contemporaneous records (including time  reports, logs, or similar documents) to establish:

  • Hours spent on rental services for the enterprise, and
  • Descriptions of all rental services performed, including the dates and who performed the  services.

For purposes of meeting the hours-of-service test, rental services include:

  • Advertising to rent or lease real estate,
  • Negotiating and executing leases,
  • Verifying information contained in prospective tenant applications,
  • Collecting rents,
  • Managing daily operations,
  • Performing routine maintenance and repair of property,
  • Purchasing materials, and
  • Supervising employees and independent contractors.

Rental services can be performed by owners, employees, agents and independent contractors. Rental services do not include financial or investment management activities, such as:

  • Arranging financing,
  • Procuring property,
  • Studying and reviewing financial statements or reports of operations,
  • Planning, managing or constructing long-term capital improvements, and
  • Traveling to and from properties.

Real estate used as a residence by the taxpayer (including an owner or beneficiary of a pass-through entity) for any part of a tax year isn’t eligible for the safe-harbor rule. Real estate rented or leased under a triple net lease also isn’t eligible. With a triple net lease, the tenant or lessee, in addition to paying rent and utilities, agrees to pay taxes, fees and insurance, and to be responsible for property maintenance.

Ready, Set, Go

The Notice 2019-7 guidance on the eligibility of rental real estate enterprises for the QBI deduction isn’t final. But it can be relied upon until final rules are issued by the IRS. Meanwhile, taxpayers should be aware that complying with the recordkeeping requirements in Notice 2019-7 may be a challenge. Your tax advisor can help you set up procedures to meet the challenge.

Posted on Feb 1, 2019

Injury and illness reports aren’t generally fascinating reading material. Even so, the Occupational Safety and Health Administration (OSHA) requires most businesses to fill out detailed reports of work-related injuries and illness, and to post them conspicuously. From February 1 through April 30 the logs (known as OSHA Form 300 logs) for the prior calendar year must be displayed in an area where employees can view them.

Depending on the size of your company and the industry you’re in, you may qualify for an exemption. The details are outlined below.

Company Size and Industry

If you had more than 10 employees at any time throughout the year, even if your head count was 10 or fewer for 11-1/2 months, you’re subject to OSHA’s recordkeeping and reporting requirements. 

Traditionally, companies in the retail, insurance, finance and real estate sectors have been considered exempt. Since 2015, however, OSHA has used a more elaborate industry classification system to determine “low-hazard” exemption status based on the North American Industry Classification System (NAICS). To find your business’s industry code, visit the NAICS site.

In addition to industries that have long been required to report to OSHA, there’s a list of “partially exempt” industry sectors. And there’s a list of sectors added since 2015, all of which must maintain injury and illness logs. If you’re in doubt about whether your industry is covered by OSHA, contact your area OSHA office to be sure. Also, even if you’re off the hook with federal reporting, check with your state to determine what, if any, state reporting and posting standards you must adhere to. 

Reporting Basics

If you’re new to tracking OSHA reports, here’s a quick reminder of what you need to know. The basic recordkeeping and reporting requirements for companies that fall under the requirement involve these three forms:

  • Log of Work-Related Injuries and Illnesses OSHA Form 300 (and others listed below), which you can find on OSHA’s website.
  • Summary of Work-Related Injuries and Illnesses (OSHA Form 300A), and
  • Injury and Illness Incident Report (OSHA Form 301).

With a little luck, you won’t have any work-related injuries or illnesses to include on those forms, but you’ll still need to keep and post the log even if it’s empty. On the positive side, “no news” is good news.

OSHA Form 300 logs can be highly detailed. In addition to a basic description of an injury or illness, you must also provide the number of days away from work, or working with modified duties. “Modified duties” is considered a work restriction, even if the employee’s job is only changed in a minor way.

What should you do with Form 300 logs once they’re complete? Don’t send them to OSHA, but don’t dispose of them. You could later undergo an OSHA inspection and must be able to show you’ve properly maintained logs or face penalties.

Serious Cases

If you’ve never had a serious injury or illness at your business, you might be unaware that such cases need to be promptly reported directly to OSHA, either by telephone or using an online form on OSHA’s website.

Here are the specific deadlines you need to know:

  • Reportable events must be logged within a week.
  • Events that involve inpatient hospitalization, amputation or eye loss (both of which presumably would also involve an inpatient hospitalization), within 24 hours.
  • Fatalities must be reported within eight hours.

Common Reporting Errors

Until you become familiar with keeping OSHA logs, it cab be easy to miss details. Here’s a list of common reporting errors to avoid in the event your records are inspected.

  • Failing to have a company executive certify the accuracy of data reported on forms.
  • Failing to report medical treatment (other than basic first aid, which is exempted).
  • Not using or including an employee’s description of the illness or injury.
  • Not reporting incidents that involve temporary or contract workers,
  • Misclassifying an illness as an injury. Incidents cumulative in nature (for example,  noise-induced hearing loss) are generally considered as “illnesses.” In contrast, an injury involves a single exposure or event.
  • Not reporting an incident because the employee didn’t report it to you until several days afterwards.
  • Using work days instead of calendar days to report the number of days away from work or days worked under restrictions necessitated by the injury or illness.

Last Words

Given the detailed reporting that OSHA requires, you may wonder if all that work benefits your company in any way, apart from the avoidance of penalties. Consider this: The practice of reviewing your own records of reported injuries or illnesses can provide insight on patterns or conditions that you need to address to improve the safety of your workplace. That’s always a win.


Posted on Jan 27, 2019

New Year’s is traditionally a time to make resolutions for the upcoming months. Once you set  your personal goals, it’s time to get serious about your business goals. Here are ten changes you might consider making — and sticking to — to put you on track to prosper in 2019.

1. Compare 2018 financial performance to the budget.

Did you meet the goals you set at the beginning of 2018? If not, why? Analyze variances between budget and actual results, and evaluate what changes you could make to get closer to achieving your goals this year. In some cases, you might need to look at several years’ results to understand what’s happening and how problems can be resolved.

2. Create a three-year capital budget.

What large investments will you need to make to grow your business and maintain its competitive edge? Such investments can be both tangible (for example, purchasing new equipment and launching new product lines) and intangible (for example, training to develop employees’ technical and soft skills).

The depreciation deductions reported on your income statement aren’t just bookkeeping notations. Machines, equipment, furniture, vehicles and other types of capital equipment eventually wear out and become obsolete, so you’ll need to maintain, update and replace these assets on a regular basis.

3. Assess the competition.

Make an honest appraisal of the quality of what your business sells versus what competitors sell. Are you doing everything you can to meet (or exceed) customer expectations? Staying ahead of the competition is critical in a free market economy. Loyalty and inertia will allow you to retain some customers over the short term. But, over the long run, you’ll likely be out of business if you lose your competitive edge.

4. Nurture vendor relationships.

Many companies are so focused on building and maintaining customer relationships that supplier relationships fall by the wayside. At the start of each year, review your contracts with key vendors to find out whether their products and services are fairly priced. Long-term vendor relationships can be helpful if you need to ask for more generous payment terms or a rush emergency shipment. But periodically renegotiating contracts or even switching vendors can help ensure that you’re getting the best possible terms and service.

5. Benchmark employee compensation.

Look at your entire compensation package, including wage and salary rates and benefits. How does it measure up against competitors? In today’s tight labor market, employees might be tempted to leave for greener pastures. So, review compensation studies and job listings — or talk to local recruiters — to gain some objective insight into what’s reasonable in today’s job market.

You might not be able to afford immediately giving workers a large pay raise. But you can react sympathetically if an employee asks for a raise, make gradual increases to improve below-market rates, or find low-cost ways to boost morale and prevent turnover.

6. Review insurance coverage.

Don’t assume that your insurance agent is on top of your property casualty and liability coverage. Property values or risks may change — or you may add new assets or retire old ones — requiring you to increase or decrease your level of coverage. A fire, natural disaster, accident or out-of-the-blue lawsuit that you’re not fully protected against could put your business on a downward spiral. Along similar lines, be sure you have current operational contingency plans to stay open and minimize disruptions in case disaster strikes.

7. Seek independent feedback on marketing efforts.

Companies often spend a lot on marketing. But are your efforts generating tangible results? Set up focus groups or hire outside professionals to evaluate the quality of your company’s website, branding, advertising and social media presence. Then review the findings with an open mind. Address any shortcomings and consider discontinuing ineffective campaigns. It’s easy to fall in love with your creative efforts, but your customers might have different opinions.

8. Conduct a personal time assessment.

Business owners tend to be overachievers. But there comes a time when you need to delegate lower-level tasks to others. Controlling everything 24/7 can wear you down. It also sidetracks you from two critical tasks: 1) proactive, strategic planning, and 2) building a successful management team. Gradually transitioning managerial tasks to subordinates builds their confidence and improves job satisfaction. Employees are loyal to employers who provide opportunities for professional development.

9. Conduct a personal skills assessment.

Do you (or other members of your management team) need to acquire any new skills or knowledge to help run the business more effectively? Highly effective people seek continuous improvement and renewal, both professionally and personally. Complacency is bad news for growing your business.

10. Analyze market trends.

What direction is your industry heading over the next five or ten years? Consider trends in technology, the economy, the regulatory environment and customer demographics. Anticipating and quickly reacting to trends are the keys to a business’s long-term success. Companies don’t operate within a vacuum. Trends can be positive or negative, creating either opportunities or threats. Either way, it’s important to give yourself time to formulate a strategic response to make the best of it.

This may be a daunting list. But as the familiar Chinese proverb states, a journey of a thousand miles begins with a single step.

Posted on Dec 18, 2017

Definitions of the Millennial generation vary, but basically these are people who, today, range from 20 to 36 years old. Their distinctive characteristics are attributed to two primary factors:

  1. Most were raised by highly attentive Baby Boomer parents, and
  2. Instant communication via electronic technology has been ubiquitous.

As Millennials left home and went to college, far from being tossed into a sink-or-swim environment, many of them landed instead in a cocoon. For some Millennials, that protective nest was created by institutions trying to accommodate their expectations and included some sheltering from the slings and arrows of normal life. So when Millennials join your workforce, they may assume that pattern of nurturing will continue.

That leaves employers with the choice to accommodate them (within reason), or treat them the way they treated employees of other generations when they first entered the workforce.

How Some Millennials View the World of Work

Many anticipate:

  • An orderly work environment and clearly articulated directions,
  • An informal atmosphere that emphasizes collaborative work arrangements instead of a top-down hierarchical structure (notwithstanding the desire for an orderly work environment mentioned above),
  • A basic understanding of the broader context of their role within your organization,
  • Enjoyment and stimulation tied to their work, rather than a nose-to-the-grindstone atmosphere,
  • Recognition of their contributions, as well as regular feedback on performance,
  • The chance to add their opinions about how things should be done,
  • Opportunities to acquire new skills,
  • A sense of purpose in their work,
  • Work-life balance, and
  • Communication with co-workers and superiors mostly by email or other electronic means, rather than face-to-face.

Perhaps you’re confident that your management philosophy and work environment already accommodate such expectations. But it’s helpful to take a step back and assess the degree to which that’s true. One telling indicator might be the turnover rate among this generation of employees. Keep in mind, however, that Millennials have been dubbed by the Gallup Organization as the “job-hopping generation” due to their tendency to not stay too long with employers. (In fairness, many jobs these days are done on a contract basis and are designed to end after a specified term, even for Millennials that would choose to stay.)

Motivating this Generation

Here are some recommended steps to maximize the productivity of Millennials and lower their turnover rates:

  • Provide structure and guidance. While few Millennials are looking for helicopter-style supervisors breathing down their necks, many would like their bosses to be attentive to their efforts and readily available for advice and direction upon request.
  • Selectively encourage team formation. Group projects were common in school assignments for Millennials, so you may find fewer lone wolves among this group than in earlier generations.
  • Keep them briefed. They’re anxious to know how they and their workgroup or division is contributing to the performance of the entire organization, as well as how the company as a whole is doing relative to it its peers.
  • Mix work and play. You probably don’t want to turn your workplace into a Silicon Valley-style field of foosball tables and other impromptu games. However, you can still be open to having an upbeat — and even playful work environment — without making the office into a playground.
  • Provide feedback, feedback, feedback. Members of the generation when “every player got a trophy” don’t necessarily expect to receive high praise no matter what, but they also don’t want to wonder about their performance. Although it’s important to maintain a documented work appraisal system, Millennials seem to expect and appreciate more frequent casual comments about how they are doing.
  • Make conversations with employees a two-way street. “360 feedback” is an old concept, but it often has particular appeal for Millennials. And it’s not just about how managers are doing, but about how the company could be better run.
  • Create training and development opportunities. Like many young people, members of this generation tend to be impatient, and like to see a path to new roles and growth opportunities. Giving them the chance to make their own decisions about the direction of their skills development can be particularly motivational.
  • Cultivate a “greater good” culture. Part of many Millennials’ common desire for social connection (as manifested in their social media habits) spills over into a longing to do work that has meaning — and a sense that their efforts are ultimately improving society. Emphasize the benefits that your company’s products or services create in your community or beyond, over and above providing a paycheck to its employees.
  • Pay attention to your digital footprint. Millennial applicants will search the Internet before they interview with your organization. Make sure your website and social media pages reflect the image you want to project.
  • Prevent work overload. Inevitably, there will be crunch periods when overtime is unavoidable. But many Millennials tend not to be workaholics, so watch for signs of burnout. Provide work schedule flexibility to offset the emotional impact of long stretches of demanding work schedules.

The good news about adapting to your growing younger workforce is that doing so doesn’t come at the expense of alienating older workers. At worst, they’ll probably just be neutral about  it. But it’s entirely possible that moving towards being a Millennial-focused organization will spur greater loyalty and productivity among your older employees as well.

Posted on Dec 5, 2017

The IRS has announced that the annual gift tax exclusion is increasing next year due to inflation. After five years of being stuck at $14,000, the exclusion will be $15,000 per recipient for 2018 — its highest point ever.

Annual Gift Tax Exemption

Here’s what the recent increase in the exclusion may mean for you, including how annual gift-giving can lower your taxable estate.

The federal gift tax applies to the giver of a gift, not the recipient, for amounts above a specified level. Most gifts are sheltered from gift tax by the annual gift tax exclusion and the lifetime gift tax exemption (or both).

For starters, you can give gifts valued up to the annual gift tax exclusion amount each year without ever touching the lifetime exemption. For 2017, the exclusion is $14,000 per recipient. In 2018, it increases to $15,000 per recipient.

Unlike most other IRS inflation-based adjustments, the annual gift tax exclusion increases only in increments of $1,000. Thanks to relatively low rates of inflation, it’s taken five years for the annual exclusion amount to increase.

To illustrate how it works, suppose you have three adult children and seven grandchildren. In 2017, you could give each family member $14,000 — for a grand total of $140,000 — without owing any gift tax. In 2018, you could give $15,000 to each recipient for a total of $150,000.

The annual gift exclusion is available to each taxpayer. If you’re married and your spouse consents to a joint gift — also called a “split gift” — the annual exclusion amount is effectively doubled to $28,000 per recipient for 2017. So, in the previous example, a married couple with ten family members could gift up to $280,000 in 2017 ($300,000 in 2018) completely exempt from gift tax.

Section 529 Plans: Make Five Years of Gifts in a Year

Normally, a gift made directly to a family member to pay for college education costs  would be covered by the annual gift tax exclusion, up to the limit of $14,000 in 2017 ($15,000 in 2018). But there’s a special tax break available for transfers to a Section 529 plan, a type of education savings program that’s run by individual states.

For a transfer to a Sec. 529 plan, the tax law allows you to make a one-time contribution that’s effectively treated as if it’s made over five years for gift tax purposes. In other words, you can gift the equivalent of five years’ worth of contributions in a single year.

For instance, if your grandson plans to attend college next year, you and your spouse may be able to transfer up to $150,000 to a 529 plan designating him as  the beneficiary ($15,000 x 2 spouses = $30,000 x 5 years = $150,000). The entire transfer in 2018 will be exempt from gift tax. That could pay for most, if not all, of the college expenses he’s likely to incur. Contact your tax pro for more information.

Lifetime Estate and Gift Tax Exemption

In addition, if you gift an amount that’s above the annual gift tax exclusion, you can also tap into the lifetime estate and gift tax exemption. The lifetime exemption effectively shelters from tax $5 million, indexed for inflation. The inflation-indexed amount for 2017 is $5.49 million per donor. It increases to $5.6 million for 2018.

However, if you tap into the lifetime gift tax exemption, it erodes the estate tax exemption amount that would be available when you die.

For instance, suppose an unmarried individual gives gifts to family members valued at $1,150,000 in 2018. After the annual gift tax exclusion is applied to $150,000 of gifts, the lifetime exemption can shelter the remaining $1 million from gift tax. That leaves an available estate tax exemption of $4.6 million if the individual dies in 2018 (assuming the decedent hadn’t ever tapped into his or her lifetime exemption in a previous year).

Exceptions to the Rules

Be aware that the following gifts are generally gift-tax exempt, preserving the full annual gift tax exclusion and unified exemption:

  • Gifts from one spouse to the other spouse,
  • Gifts to a qualified charitable organization,
  • Gifts made directly to a health care provider for medical reasons, and
  • Gifts made directly to an educational institution for a student’s tuition.

For instance, if your granddaughter attends college, you might pay her tuition directly to the school for the 2017-2018 school year. The payments don’t count against the annual gift tax exclusion so you could still give her $14,000 in 2017 and $15,000 in 2018. Furthermore, you may take advantage of a special tax break for gifts made to a Section 529 plan for a student beneficiary. (See “Section 529 Plans: Make Five Years of Gifts in a Year” at right.)

Filing Requirements

Do you need to file a gift tax return? For any gifts below the annual gift tax exclusion, you’re not required to file a gift tax return. However, you still may want to file one to establish the value of certain gifts of property with the IRS.

A gift tax return is required if you individually exceed the annual gift tax exclusion amount or a joint gift with your spouse collectively exceeds the amount. For the latter, each spouse must file an individual gift tax return for the year in which they both make gifts.

The deadline for gift tax returns is April 15 of the year following the year of the gift, the same as the due date for personal income tax returns. (The deadline is moved to the next business day if it falls on a weekend or holiday.) So, for gifts made in 2017, you must file a gift tax return by April 17, 2018. However, if you extend your federal income tax filing to October 15, 2018, the extension also applies to your gift tax return.

Year-End Gifts

This year end, estate planning is complicated by the potential for sweeping tax law changes. The current House bill would essentially double the life estate and gift tax exemption to $10 million (adjusted for inflation). After 2023, the estate and generation-skipping tax would be entirely eliminated and the gift tax rate would fall to 35%. The Senate bill also would double the exemption, but it doesn’t propose an estate or generation-skipping tax repeal or lower the gift tax rate. These proposals could change significantly over the next few weeks, however.

Absent any radical developments, there still would be an incentive to give lifetime gifts from a tax perspective. For instance, you might gift securities or other assets to younger family members in lower tax brackets for two key reasons:

1. To reduce the size of your taxable estate. As long as a federal estate tax remains in effect, this could still be beneficial, especially to elderly taxpayers.

2. To transfer income-producing assets to younger family members in lower tax brackets. This could create income tax savings for your family over time.

Generally, the value of the assets for gift tax purposes is their fair market value. However, if you give away property, such as stock that has appreciated in value, the recipient must use your basis (usually, the original cost) to compute the taxable gain if he or she subsequently sells the property. Depending on your situation, you might arrange to sell property first and give  the cash proceeds to another family member. The subsequent gift is covered by the annual gift tax exclusion.

Plan Ahead

Transferring wealth for your family typically calls for long-term planning. To maximize the tax benefits, you should engage in a systematic series of gifts over several years. For example, you may arrange to give five family members gifts totaling $70,000 ($14,000 x 5) in 2017 and $75,000 ($15,000 x 5) in 2018. All of the gifts would be exempt from gift tax.

Your tax advisor may suggest other creative and sophisticated estate planning tools, including family limited partnerships (FLPs) and intentionally defective grantor trusts (IDGTs), designed to maximize the benefits of the $5.49 million exemption in 2017 ($5.60 million in 2018). Consult with your advisors before year end to discuss your short- and long-term options.