EX-CEO EXPLAINS WHY CORPORATE TAX CUTS DON’T CREATE JOBS

As a small business owner, I’ve always known it would take a mighty big tax cut to pay for me to hire additional help. For small businesses, tax cuts are never sizeable enough to defray the cost of a full-time employee. Interestingly, at least one CEO of a publicly traded company agrees. This Linked In article penned by David Mendels, former CEO of Brighthouse, was enlightening.

You can find the article here: https://www.linkedin.com/pulse/chief-economic-advisor-trump-most-excited-group-out-big-david-mendels/.

WHAT’S GOING ON WITH TAX REFORM

The tax reform bills proposed by the House and Senate contain some similar proposals, but the many differences warrant separate examination. While unknown compromises can be expected before any legislation hits the president’s desk for consideration, here are the highlights from both bills:

HIGHLIGHTS FROM BOTH BILLS
House Bill Senate Bill
Lowers corporate tax rate to 20% from 35% starting in 2018.

 

Eliminates common personal deductions: state and local taxes, personal property taxes, deduction for medical bills, unreimbursed business expenses.

 

Significantly reduces the mortgage interest deduction, and limits the property tax deduction.

 

Changes from 7 individual tax brackets to 4. People earning $500,000.00 to $1M a year get the biggest break. Some middle income earners would be bumped into a higher bracket.

 

Raises standard deduction to $12,000 for a single person and $24,000 for a married couple.

 

Eliminates personal exemptions completely. Currently, the personal exemption is $4050 per household member.

 

Raises child tax credit to $1600 from $1000.

 

Imposes a minimum tax on foreign investments of US corporations.

 

Gives an income tax deduction for income from some “pass through” businesses. Those are businesses that report income on Schedule C. Deduction is limited. Lawyers, engineers, consultants, and doctors cannot take the deduction.

 

Changes the capital gains tax structure.

 

 

Lowers corporate tax rate to 20% from 35% starting in 2019.

 

Eliminates common personal deductions: state and local taxes, property taxes, personal property taxes, home equity loan interest, unreimbursed business expenses.

 

Raises the income levels for personal income tax brackets and lowers tax rate for the highest income tax brackets. People earning $1,000,000.00 or more per year get the biggest break.

 

Raises standard deduction from $6350 to $12,000 for a single person. Child tax credit is raised to $1650 from $1000, but the dependent exemptions are eliminated completely.

 

Gives an income tax deduction for income from some “pass through” businesses. Those are businesses that report income on Schedule C. Deduction is limited to a % of the owner’s W-2 income. Lawyers, engineers, consultants, and doctors cannot take the deduction.

 

Excludes business income earned overseas. In other words, companies won’t have to pay US taxes on overseas earnings.

 

Imposes limited tax withholding on independent contractors.

 

Eliminates the 50% business entertainment deduction but keeps the 50% meals deduction.

 

Expands businesses that can use cash method accounting.

 

 

If you have concerns with how tax reform will affect your bottom line, talk to your accountant. The House is scheduled to vote on Thursday, November 16th, and the Senate plans to vote the week after Thanksgiving.  Elected officials want to know whether constituents favor or oppose these bills. Here’s a website that will give you the contact information for your elected representatives: https://whoismyrepresentative.com/.

Employer News: You Must Start Using the New Form I-9

Employers are required to keep an employment eligibility verification form (I-9) on each employee. The form documents the employee’s citizenship status and eligibility to work in the United States. In July, U.S. Citizenship and Immigration Services revised the form for use beginning September 18, 2017. The new form only applies to new hires; employers don’t have to fill out the new form for current employees.

Where is the new form? You can find the new form I-9 in English and Spanish as well as instructions here: https://www.uscis.gov/i-9.

What changed? The changes seem minor. The most significant change is that U.S. citizens born abroad can now use a Consular Report of Birth Abroad (Form FS-240) as proof of status. Minor edits were made to the form instructions.

Keep a copy of the completed I-9 in the employee’s personnel file. I-9 forms do not get filed with any state or federal agency.

What You Need to Know About the Equifax Data Breach

What happened? From May to July 2017, hackers breached data security at Equifax, one of the three major credit bureaus. The hackers got names, Social Security numbers, birth dates, addresses, and driver’s license numbers. They also credit card numbers of 209,000 consumers and dispute documents with personal identifying information of 182,000 consumers. Equifax estimates this data breach affects 143,000,000 American consumers – over 40% of American adults. Texas Attorney General, Ken Paxton, estimates 12 million Texans are affected. Equifax learned about the breach on July 29 and failed to disclose the breach publicly until September 7.

Was my information stolen? Equifax has set up a website for consumers to find out if they are affected. Visit: https://www.equifaxsecurity2017.com/potential-impact/ and click the maroon box. You’ll be taken to a form where you type in your last name and the last 6 digits of your Social Security number. You’ll also have to answer a question to prove you are a human and not a robot. The site will tell you simply whether or not Equifax believes your information was impacted and will allow you to sign up for a year of free credit monitoring.

What is being done to help victims? Not a lot. Equifax is offering victims one year of free credit monitoring through its TrustedID service. The service includes one year of identity theft insurance. So far, 30 class action lawsuits have been filed against Equifax as a result of the breach; a couple are in Texas. The Senate Finance Committee is asking questions of Equifax, and that could lead to a Congressional investigation. The Federal Trade Commission has put up an information website: https://www.consumer.ftc.gov/blog/2017/09/equifax-data-breach-what-do.

What should I do? Here’s a checklist:

  • It is safest to assume you are affected.
  • Place a 90 day fraud alert on your credit report by calling 1-888-766-0008.
  • Consider placing a credit freeze. A credit freeze is more effective than a fraud alert, but unless you have made a police report, you must pay a nominal fee to each credit bureau to freeze your credit, and to use your credit you must unfreeze your reports. To place a credit freeze, you must contact each credit bureau separately at the links or phone numbers listed below:
  • Visit annualcreditreport.com and get a free credit report from Transunion or Experian. Look through the report carefully. If there is any information on it that does not belong to you, dispute it immediately. Check again with the other company in November.
  • Carefully check all of your bank statements and credit card statements from May forward. If you find transactions that you did not authorize, report them. Note that the financial institution is not required to investigate the items you report from May, June, or July.
  • Make plans to review all of your statements each month and immediately dispute any transactions that you did not authorize.
  • Be alert to scammers trying to profit off your misery. If you did not initiate a phone call, email, or text message, treat it like a scam!
  • Plan to file your federal income tax return as early as possible – before identity thieves do it.
  • Visit our identity theft information page: ppiercelaw.com/identity-theft.

Overtime Update

 

It seems a lifetime ago that the Department of Labor (DOL) announced changes to employee overtime rules that would raise the salary threshold for exempt employees.* The rule was to take effect on December 1, 2016. Many employees who had been exempt from overtime would be eligible for overtime pay under the new rule which raised the exemption threshold to $913 a week: $47,476 per year rather than the current $23,660. Employers scrambled to revise job descriptions and policies regarding overtime work to comply with the rule.

Twenty-one states file suit to challenge the new rule. On November 22, 2016, the U.S. District Court in Sherman, Texas granted the states’ motion to prevent the rule from taking effect. The DOL appealed the decision to the Fifth Circuit. Briefing was completed last month, and it appears that the DOL has abandoned the new salary level. Instead, the DOL is seeking information. On July 26, the Federal Register published a request for information posing 11 sets of specific questions for public comment. Questions include whether there should be multiple salary levels for exempt employees based on factors such as inflation, employer size, and census region; how setting different exemption levels for executive vs. administrative employees would affect businesses; and whether the exemption test ought to be based solely on the employee’s duties rather than salary. Comments are due by September 25, 2017. The questions and instructions for submitting comments are here. Anyone can submit a comment, and so far over 65,000 comments have been submitted.

What should employers do? Nothing for now. Now, we wait for the Fifth Circuit to issue an opinion.

See our previous blogs about the overtime rule: 11/29/16 – A Lump of Coal for Admin Employees? Texas Court Blocks Implementation of DOL’s Overtime Rule Change; 11/16/16 $47,476 the Magic Number – Are You Ready?; 10/10/16 – Time’s a Wastin’ – Get Ready for the new Overtime Rule; 5/27/16 – Holiday Gift for Salaried Workers: OVERTIME.

Time’s A Wastin’ – Get Ready for the New Overtime Rule

running-payroll

 

Each year the Texas Workforce Commission and the Wage and Hour Division of the U.S. Department of Labor investigate scores of Texas businesses for violating minimum wage and overtime laws. With the new federal overtime exemptions imminently taking effect, employers should review their payroll policies to ensure compliance. Beginning December 1, salaried employees who make less than $47,476 per year or $913 per week will be entitled to overtime pay for working more than 40 hours in a work week. Texas recognizes the federal minimum wage which is currently $7.25 an hour.

 

Plan now to be in compliance with the overtime rule on December 1. Salary alone is not the only factor for determining whether a salaried employee is entitled to overtime or is exempt:

 

  • Salaried employees are paid a salary not an hourly wage;
  • Full-time exempt employees’ salaries must be at least $47,476 annually; and
  • Exempt employees must have executive, administrative, or professional duties, e.g., management, exercise of discretion and independent judgment, or work that requires advanced knowledge.

payroll1

Nonexempt employees are entitled to overtime pay at time and a half for each hour worked beyond a 40 hour work week. The Department of Labor enumerated four options for employers to comply with the new rule:

 

  • Raise salaries to maintain the exemption;
  • Keep current salaries and pay overtime;
  • Adjust workloads and schedules so that employees work no more than 40 hours per week; or
  • Adjust wages by converting salaried employees to hourly.

 

Raising salaries and paying overtime is not financially feasible for many small businesses. Converting salaried workers to hourly pay could tank employee morale. Another way to comply with the new rule without undertaking additional financial burdens is to adopt a workplace policy forbidding non-exempt employees from working overtime without prior written approval from a supervisor. Enforce the policy consistently. This allows the business to predict and control labor costs while encouraging healthy work-life balance for employees.

The last minute has arrived. If you haven’t already adopted procedures to comply, consult a lawyer to help your business transition to the new rule. The Department of Labor has published this fact sheet for employers: https://www.dol.gov/whd/overtime/final2016/general-guidance.pdf

 

Ins and Outs of Online Reviews The Communication Decency Act

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Anyone with a social media account can post online reviews of businesses, and there’s virtually no way to vet a review, that is, whether the reviewer is being truthful or whether the reviewer has an ulterior motive.

Schemes have been found where reviewers were compensated for good reviews, where reviewers blackmailed businesses into giving benefits in return for not writing bad reviews, where businesses threatened to sue reviewers for bad reviews, and where reviews were blatantly faked.

While a sudden plethora of five star reviews might be a red flag to Yelp, Google, or Tripadvisor, business owners are more concerned about the impact of fake negative reviews on their business.

amazon-consumer-reviews

When faced with a negative review that appears malicious or fake, people often respond by contacting the review site. Unfortunately, the review site has no legal responsibility for user posts.

Sites are protected by Section 230 of the Communications Decency Act (CDA), a little known federal law that was originally enacted to keep internet pornography out of the hands of children.

Congress passed the CDA in 1996. Most of the law focused on limiting indecent or obscene material on the internet; however, those provisions were struck down in a series of lawsuits filed by free speech advocates. Section 230 remains. In a nutshell, Section 230 says that internet providers are not the publisher or speaker of information they post when the information was created by someone else. 47 U.S.C. § 230. This means that a website generally is not responsible for content posted on it that was created by a website user. There are a couple of exceptions, e.g.,  criminal content and intellectual property infringement are not protected. So, online review sites are not responsible for the content of reviews posted by site users.

Even though they may not be legally liable, social media sites are concerned about the reliability of reviews posted on their sites. Most sites have adopted procedures for taking down fraudulent reviews. These procedures are site specific. So victims of fraudulent reviews must contact each site owner for instructions.

While the site may not be liable for fraudulent content, the individual doing the posting does not have legal protection for fraud, criminal acts, or defamation. If a reviewer did not use the business it reviewed, the review is likely fraudulent. If the review contains facts that are not true, the review may be defamatory. The basic test for defamation is that the statement is false and caused harm, is published, and is made negligently or maliciously. However, an opinion is not defamation.

So, what’s a victim to do? Look at the site’s acceptable use policy and see if the site has a procedure for taking down fraudulent content. Contact a lawyer to see whether the review contains content that is not legally protected and what recourse you may have against the individual that posted the review.

What’s The Deal With Arbitration?

It seems like every contract, service agreement, or website terms of service has a mandatory arbitration clause in it. Why is that? There are compelling reasons to arbitrate disputes, but arbitration also has its drawbacks.

Arbitration

Why arbitrate?

Arbitration is private; whereas, generally documents in court cases are public records.

So, if keeping a dispute out of the public eye is important, arbitration is preferable. In most cases, arbitration is faster. Arbitration can be accomplished in a matter of months. In smaller cases, parties can ask for fast track arbitration which is even faster. Fast track arbitration can be accomplished in a month or two.

Litigation of smaller cases will generally take six months or more. Litigation of complex cases can take years. Arbitration is informal. Because arbitration is done by agreement, it is flexible.

The rules of evidence don’t apply, so parties can either loosen or dispense with the need for testimony necessary in court that makes documents and such admissible. The investigation phase of a lawsuit is called discovery.

Discovery in arbitration is more of an informal exchange of information rather than a structured process involving asking, objecting, and getting court rulings on information requests. Arbitrators can, but do not have to, strictly follow some statutes. For example, an arbitrator can relax some of the “gotcha” procedural laws that litigants find to be unfair such as the time limits for filing suit. Arbitration is final. It is very difficult to appeal an arbitration award.

 

What are the drawbacks to arbitration?

Because the arbitrator does not have to follow laws strictly, statutory claims and defenses that may be a slam dunk in litigation may not be followed by the arbitrator. It is very, very difficult to overturn or appeal an arbitration award. Litigants have a right to have a higher court review lower court rulings.  

Because the rules of discovery and rules of evidence do not apply to arbitration, parties run the risk of not getting all of the information and evidence relevant to the case. The arbitrator may base an arbitration award on evidence that is not admissible in court. Courts and juries cannot consider inadmissible evidence.

There is no jury right in arbitration. The arbitrator is both judge and jury. If the losing party doesn’t pay the award, it will take longer to make the award collectible. If a court judgment is not appealed, it becomes final and collectible in 30 days. After arbitration, the winner must file the arbitration award in court, and the court will confirm the award making it collectible. However, the loser has 90 days to dispute the award in court.

 

Which is more expensive?

That depends. The filing fees for arbitration are higher, but overall costs of arbitration can be lower because arbitration takes less time and because preparing the case for arbitration is less expensive.

 

Mediation is an alternative.

Mediation is a means of dispute resolution that is less expensive than arbitration or litigation. Mediation is attractive because the parties agree on a resolution. If mediation is not successful, then the parties may resort to arbitration or litigation.

Many businesses prefer arbitration because it provides a private forum for resolution of disputes, and arbitration can be faster and less expensive than litigation.

In business disputes among licensed professionals such as doctors or lawyers, the privacy afforded by arbitration is preferable to public court proceedings that may expose the dispute to media coverage.

In reality, inserting arbitration clauses into business contracts has become a knee jerk almost rising to the level of boilerplate. Before inserting an arbitration clause into a contract, consider the pros and cons in light of the contract and the parties’ relationship. Rather than inserting an arbitration clause into every contract, consider requiring mediation prior to arbitration or litigation as an even less expensive means of resolving disputes.

Writing it Down: 4 A Recipe for Writing Simple & Personal Agreements

Contract

My last post explored common problems with handshake agreements.

Now that you’re convinced to write stuff down, what do you write?

A contract is no good if it isn’t enforceable. To be enforceable, a contract must be made by people who are legally able to make a contract (generally, adults who understand what they are doing), must have a lawful purpose, and must have an offer, acceptance, and consideration.

An offer is exactly what it sounds like – a promise to do something if the other person will do something else. Acceptance means both parties agree to hold up their end of the bargain. Consideration is payment. Consideration can be money, a promise, an action.

The Texas Comptroller’s Office has a handout that describes the legal elements of a binding contract: 

http://comptroller.texas.gov/procurement/pub/contractguide/LegalElementsofaContract.pdf.

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‘TIS THE SEASON TO BE SCAM SAVVY

With Thanksgiving behind us, the Holiday Season is in full swing, and so are scams. There may be nothing you can do to prevent the early morning call from your credit card’s fraud department asking if you are buying athletic shoes in London, however there are ways to protect yourself from scams and identity theft.

Here are a few tips for minimizing your risk during the holiday season.

  •  Surf smart. When shopping online make sure you are using a safe site. Take a moment to look for the lock symbol on the screen or “https” in the URL (website’s address). Type in the URL line; don’t click on a link from an email. And, Google has a free service that monitors malware attacks. Type http://google.com/safebrowsing/diagnostic?site= and the website you want to check. You will see a report whether the site has been attacked by malware in the last 90 days.
  • Shop smart. Be aware of your surroundings especially at ATMs and in stores. In the past, pickpockets were the main concern. Someone may still try to snatch your purse or wallet by hand, but now digital pickpockets use technology to steal your credit card information remotely. For a modest investment in equipment, thieves can wirelessly read the information on your credit card’s magnetic strip from a short distance and place the information on a fake card. If your card has one of the new EMV chips in it, you are still vulnerable. The magnetic strip is still hackable, and last summer fraud experts in Mexico found a device on ATMs intended to hack EMV chips. So, how can you minimize your risk? Carry only what you need. If you are going to use one credit card on a shopping trip, leave the rest at home. Most devices work within a short distance – six inches or so. If someone is standing too close to you, move away.
  •   Don’t fall for phone or email scams. All phone and email scams follow a pattern: unsolicited contact, with either a sad story or a fabulous deal, followed by an “Aask.” The Aask takes one of two forms: money or the victim’s personal information. A scammer seeking money will usually request a wire transfer because once started, a wire transfer is extremely difficult to stop. Once completed, a consumer has little hope of recovering the money. Here are a few tips for avoiding scams:
    • If you didn’t initiate the call or email, treat it like a scam. Be cautious, and don’t give out any personal information.
    • If a phone call, don’t guess who it is. Ask, “What is your name?” A common scam begins with a caller saying, “Grandma?” This scammer is betting the recipient will guess a grandchild’s name instead of saying, “Which grandkid are you?”
    • Don’t give out personal information over the phone if you didn’t initiate the call. If you call your bank, they need to verify your identity by asking for information. If you don’t give them information, they cannot help you. A scammer pretending to be your bank, will ask for your account number. Don’t give it.
    • Don’t fall for a fake deal. If you didn’t enter a lottery, you didn’t win a lottery. If you don’t have any relatives in Michigan, it’s unlikely you’d inherit anything from a Michigan resident.
    • Don’t use a phone number or email address given by a scammer. It just goes right back to the scammer. Instead, if you are unsure whether a call is genuine, look up the phone number independently and call back. If a credit card, call the number on the back of the card and ask for the fraud department. If a financial institution, call the number on your statement.
    •  Verify email addresses. If you get a suspicious email that looks like someone you know, look closely at the email address. Scammers fake email addresses by changing one or two letters.
    • Don’t wire money to another country without independent verification. You don’t have the same consumer protections when you send money to another country. A common scam involves an imposter who pretends to be a friend or relative who is stranded in another country. Hang up. Call the person who is supposedly asking for the money. Ask whether they just called you.
    • It’s okay to hang up on a scammer. Scammers are masters of human behavior. They rely on victims to be polite and helpful. The best way to avoid the scam is to simply hang up the phone or delete the email.

Stay safe, and enjoy the holiday season!