Year-End Tune Up For Your Small Business


Ah, December . . .  It’s chock full of holiday parties, events, out-of-town visitors, and shopping.

It’s also when small business owners must get things in order for tax season.

It’s also a great time to take stock of the year that is ending and plan ahead for a successful new year.

Here’s a handy checklist to help you perform a year-end business tune up. No list is exhaustive, yet this list is still pretty long. Adjust it to fit your business needs.

Staffing:

Complete performance reviews for all employees and independent contractors.

Review your staffing needs and plan to add, subtract, or reorganize accordingly.

Review job descriptions for independent contractors to ensure they are truly contractors and not mischaracterized employees.

Review personnel files and update I-9s and W-4s as necessary.

Review employee benefits.

Policies & Procedures:

Review your employment policies and procedures to ensure they are up to date and comply with recent changes in the law.

Review your administrative and business policies and procedures to see whether they accurately reflect your current practices.

Sales & Marketing:

Compare your actual sales to your yearly goal.

Identify successes and areas for improvement in the areas of lead generation and conversion of leads to customers.

Adjust marketing plan to match your goals.

Quality:

Check customer satisfaction.

Review customer service policies and procedures.

Identify ways to improve the customer experience.

Financials:

Reconcile accounts.

Collect W-9s from contractors and vendors that need 1099s.

Review yearly journal or transaction entries for accuracy. Especially make sure that income and expenses are properly categorized.

Verify year-end accounts payable and accounts receivable.

Reconcile payroll including comparing taxes paid to payroll returns.

Prepare documents and files for your CPA or tax professional.

Run year-end reports such as a profit and loss statement, budget report, and balance sheet. Compare to last year’s reports.

Prepare next year’s budget.

IT:

Review IT policies and procedures.

If you collect personal information from customers, review your PCI compliance.

Train employees as necessary.

Install security patches, software, and operating system updates.

Consider getting a cybersecurity audit.

Goal Setting:

Review last year’s goals.

Review your long-term goals.

Set next year’s goals.

Adjust your business plan accordingly.

 

Finally, have a successful new year! 

 

$47,476 – The Magic Number ARE YOU READY?

On December 1,

new overtime rules take effect.

Is your business ready?

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Starting in December, administrative employees making less than the magic number, $47,476 per year, will no longer be exempt from the overtime provisions of the Fair Labor Standards Act. These administrative employees will earn overtime pay if they work more than 40 hours in a week.

 Overtime pay is 1.5 times the employee’s hourly pay rate. The change is huge because it more than doubles the threshold for the exemption. Previously, administrative employees making more than $23,660 a year have been exempt from overtime.

Salary alone is not the only factor for determining whether a salaried employee is entitled to overtime or is exempt. There is actually a three part test:

  • The employee is paid a salary as opposed to an hourly wage;
  • The salary must be at least $47,476 annually for a full time worker to be exempt; and
  • The employee’s primary job must be executive, administrative, or professional, e.g., management, exercise of discretion and independent judgment, or work that requires advanced knowledge.

Otherwise, the employee is entitled to overtime pay at time and a half the employee’s hourly equivalent rate for each hour worked beyond a 40 hour work week.

The Department of Labor has identified four options for employers to comply with the new rule:

  • Raise salaries to maintain the exemption;
  • Keep current salaries, and plan to pay overtime;
  • Adjust workloads and schedules so that employees are not working overtime; or
  • Adjust wages by converting salaried employees to hourly.

What are businesses doing to prepare?

Raising salaries and paying overtime is simply not financially feasible for many businesses. Employees may negatively view adjustments in workloads and schedules or converting them from salary to hourly pay.

There is another way to comply with the new rule without undertaking additional financial burdens: adopt a workplace policy mandating that non-exempt employees cannot work overtime without prior written approval from a supervisor.

Enforce the policy consistently. This will help the business be able to predict and control labor costs while encouraging healthy work-life balance for employees.

Small businesses may have a tough adjustment period ahead.

Adopting a policy regarding overtime, educating employees about the policy, and enforcing the policy will provide some predictability and enable the business to manage workloads in a way that minimizes financial strain and possible cash flow problems. We can help craft company policies that comply with the new rule while providing the ability to manage overtime.

The Business Owner’s Tax Dilemma

Tax time is coming up, and it’s worth taking a look at your business records now so that you are prepared to send your 2016 records to your tax preparer come January.

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It’s also a good time to think about your tax strategy.

Conventional wisdom is to maximize deductions and business losses and to minimize income. While this strategy results in lower tax bills, it may not be the best strategy for your business. Choosing the best tax strategy involves some advance planning and goal setting.

If your personal goals include buying a home or if your business goals include courting investors or seeking funding to meet your goals, then think carefully before minimizing your business income to avoid tax liability.

You may be outsmarting yourself out of your goals.

Mortgage companies tend to view the self-employed as high risk. Self-employed mortgage seekers must jump through more hoops than their counterparts who are employed by large companies. Mortgage lenders want to see a history of income stability. If your small business has taken a loss in each of the preceding several years, it will be hard to get a mortgage.

 The same goes for financing to grow your business. Lenders are looking for credit worthiness and stable income – not a brilliant tax strategy. Don’t let your brilliant tax strategy compromise your ability to meet your goals.

 Have a frank discussion with your tax preparer in advance if your business or personal plans include getting financing in the next 2-5 years.

AUSTIN PROPOSITION 1: Moving Austin Forward or Money Pit?

We’ve all seen the competing signs urging Travis County voters to vote yes or no to Proposition 1 – $720,000,000 in transportation bonds. So, what’s Prop. 1 about? My goal is not to tell anyone how to vote but simply to assist us in making an informed choice.

If passed, the bond money would be used for three kinds of projects:

  1. improvements to roads, sidewalks, bridges, trails, and bikeways including safe routes to schools;
  2. traffic signals and traffic control systems;
  3. improving drainage systems.

Austin Roads

Improvements would be made to Loop 360, Spicewood Springs Rd., Old Bee Caves Road Bridge, Anderson Mill Rd., RM 620 at RM 2222, Parmer Lane, North Lamar, Burnet Rd., Airport Blvd., East MLK Blvd., South Lamar, East Riverside, Guadalupe St., Slaughter, William Cannon, Rundberg, East Colony Loop, South Congress, Manchaca Rd., and South Pleasant Valley Rd., Fallwell Ln., FM 1626, Cooper Ln., Ross Rd., Circle S Rd., Rutledge Spur, Davis Ln., Brush Country, Johnny Morris Rd., and Brodie Ln.

The bonds would increase the debt service part of Austin’s tax rate by 2.25 cents meaning most homeowners’ taxes would go up by $40 to $100 per year.

Supporters say that the improvements will help traffic flow and increase safety for bicyclists and pedestrians and that improvements are necessary to help the City cope with population growth. Supporters concede that the bonds will pay for only a fraction of the City’s comprehensive transportation plan but believe this would be a good start.

Opponents believe voters should be able to vote on various components of the plan rather than the comprehensive bond package represented by Prop. 1 especially since the bonds are not adequate to pay for the cost of the listed improvements. Opponents fear the City will keep coming to taxpayers for more and more bond issues.

The League of Women Voters’ election guide is here: http://lwvaustin.org/, and the City’s voter education brochure about the transportation bonds can be found here: http://austintexas.gov/sites/default/files/files/Capital_Planning/2016_Bond/2016_Bond_Voter_Information_Brochure__English.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.

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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.

Break Room Art A Quick List of Required Postings for Texas Employers

Ah, the employee break room – the smell of stale coffee, long-forgotten leftovers lingering in the fridge,

and… a panoply of informational posters decorating the walls?

Yesterday, the EEOC raised the penalties for failing to post required notices of employee rights under several federal laws.

At issue are the notices covered in the “Equal Opportunity is the Law” poster.

The maximum fine increased from $210 to a whopping $525 per violation.

This begs the question, “What notices are required?”

EEOC

All employers must post information regarding:

Additionally, federal law requires federal contractors and employers with 15 or more employees to post the “Equal Opportunity is the Law” poster.

There are plenty of vendors who sell the required posters; however, all required posters can be downloaded free of charge through the Texas Workforce Commission and EEOC websites.

Happy decorating!

Taking A Cue From Business: Using Technology to Help More People With Less Resources

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It’s become ubiquitous on customer service web pages: the chat box.

Searching through a site’s FAQs, a box pops up with an avatar of a person who looks eager to help encouraging you to type your question in the box.

Years ago, legal aid lawyers began wondering if we could use a chat box to help people who lived far away from the nearest legal aid office or who didn’t have transportation to their local legal aid office.

Nationally, several groups started working on the idea.

What if we could leverage internet chat to allow lawyers to help low income people from their desk?

Enter Texas Legal Services Center (TLSC) and the Texas Access to Justice Foundation. TLSC proposed and received a grant from the Foundation to start a chat service. We call it Live Help, and it’s still up and running on the Texas Law Help website, www.texaslawhelp.org.

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The site and Live Help are geared to legal issues faced by low income Texans; however, the site contains a plethora of useful information about Texas law. It’s well worth a visit.

The first chat lawyer, Elliott Fontenette, is now the project manager leading a team of paid and volunteer attorneys. I consider him to be a visionary. When we started Live Help in 2010, Elliott and I were swimming in uncharted water. Now, legal aid groups around the world are using chat to help people access legal information, and the service has proved popular here in Texas with nearly 28,000 Texans having used the service.

I was reminded of my time at TLSC and working on Texas Law Help when Elliott and I were interviewed for a recent ABA Journal article about legal aid agencies that use web chat: http://www.abajournal.com/magazine/article/legal_aid_agencies_are_using_webchat_to_answer_queries/?utm_source=maestro&utm_medium=email&utm_campaign=tech_monthly

Thanks, Elliott, TLSC and Texas Access to Justice Foundation for continuing to bring quality legal services to those who cannot afford it. Well done!

 

Holiday Gift For Salaried Workers: OVERTIME

Department of Labor

The Department of Labor has finally issued a long anticipated rule raising the “white collar exemptions”, that is, the salary exemption level for executive, administrative, and professional workers. Traditionally, salaried administrative workers were not eligible for overtime pay unless their salary was very, very low. Beginning December 1, 2016, the overtime eligibility threshold for salaried employees will raise to $47,476 per year or $913 per week. What this means is that salaried employees making less than $47,476 yearly will be entitled to overtime pay for working more than 40 hours in a work week.

The exemption threshold had not been updated since 2004. The new rule provides for automatic updates every three years to maintain the exemption threshold at the 40th percentile of full time salaried workers’ earnings in the lowest wage region according to the U.S. Census.

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

  • The employee is paid a salary as opposed to an hourly wage;
  • The salary must be at least $47,476 annually for a full time worker to be exempt; and
  • The employee’s primary job must be executive, administrative, or professional, e.g., management, exercise of discretion and independent judgment, or work that requires advanced knowledge.

Otherwise, the employee is entitled to overtime pay at time and a half the employee’s hourly equivalent rate for each hour worked beyond a 40 hour work week.

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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 plan to pay overtime;
  • Adjust workloads and schedules so that employees are not working overtime; or
  • Adjust wages by converting salaried employees to hourly.

Raising salaries and paying overtime is simply not financially feasible for many businesses. Employees may negatively view adjustments in workloads and schedules or conversion from salaries to hourly pay. There is another way to comply with the new rule without undertaking additional financial burdens: adopt a workplace policy mandating that non-exempt employees cannot work overtime without prior written approval from a supervisor. Enforce the policy consistently. This will help the business be able to predict and control labor costs while encouraging healthy work-life balance for employees.

Businesses have only a few months to plan for the new rule. Start analyzing your options now. A business lawyer can help your business make the 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

New Federal Law Protects Business Trade Secrets

Pres Obama Signs

On May 11, President Obama signed the Defend Trade Secrets Act of 2016 into law. The Act protects businesses from misappropriation of trade secrets and gives businesses the ability to litigate trade secret cases in the federal courts. The text of the new law can be found here:

https://www.congress.gov/bill/114th-congress/senate-bill/1890/text.

Texas adopted the Uniform Trade Secrets Act in 2013. The Texas law is codified in Chapter 134A of the Texas Civil Practice and Remedies Code. The text of the Texas statute may be found here:

http://www.statutes.legis.state.tx.us/Docs/CP/htm/CP.134A.htm.

There are a few differences between the Texas law and the new federal law. The definition of a trade secret is essentially the same under both the federal and state statutes. A trade secret is information that is valuable because it is specific to the business and that the business reasonably tries to protect. Trade secrets typically include a company’s financial data, policies and procedures, customer lists, supplier lists, intellectual property, and other proprietary information such as formulas, techniques, processes, drawings, and the like

The new law allows a business to file a federal lawsuit to protect trade secrets “related to a  product or service used in, or intended for use in, interstate or foreign commerce.” 18 U.S.C. § 1836(b)(1). Courts traditionally interpret interstate commerce broadly, so many businesses will be able to litigate in federal court. One of the most interesting provisions of the new law is a pre-emptive strike: the law allows a party to obtain a court order for seizure of property to prevent the dissemination of trade secrets in “extraordinary circumstances.” The seizure order can be obtained without notice to the opposing party. A prevailing party may get an injunction to prevent dissemination of trade secrets, an order requiring the opposing party to pay a royalty, damages for actual business losses, damages for unjust enrichment, and attorneys fees. The law also allows an award of up to two times the amount of damages if the misappropriation was willful and malicious.

Protecting trade secrets is of paramount concern when a competitor hires a former employee. The Defend Trade Secrets Act allows a court to place conditions on the former employee’s employment when there is a threat of misappropriation.

There are some circumstances when employees or former employees have immunity from disclosing trade secrets. For example, an individual is immune from liability for disclosing a trade secret in confidence to a government official or attorney solely for the purpose of reporting or investigating a violation of law. If trade secrets are disclosed in documents filed in a court, the statute requires the filing to be sealed to prevent public disclosure.

Important: The Defend Trade Secrets Act requires employers to notify employees of the immunity provisions in the law. If your business has incorporated non-disclosure language in your employee handbook, or if you require employees to sign non-disclosure agreements, you will need to revise your handbook or agreements to properly notify employees that they are protected from liability when disclosures of trade secrets are made to government agencies or attorneys solely for the purpose of reporting or investigation violations of the law. An employer that fails to provide the required notice loses the right to recover attorneys fees and exemplary damages.

The availability of both state and federal court actions to protect businesses from misappropriation of trade secrets is a welcome development; however, most businesses need to revise their non-disclosure agreements, handbooks, or policies and procedure manuals as soon as possible to avoid losing valuable rights under the new law.