April 2012 Newsletter

Small Business Tax Trends for 2012

The overall trend for business taxes for 2012 will continue to be a hot topic.  Typically taxes are raised to offset deficit concerns or taxes are lowered to help create jobs and improve the economy.  This is a difficult balancing act for Congress and the November 2012 elections will dictate which way taxes will go for the near future.

Here are a few tax issues that should be noted as trends for small businesses during 2012.

  1. Tax Audits on businesses will continue to rise.  According to a KPMG survey, corporate executives who were surveyed reported a 61 percent rise in federal tax disputes and 37 percent rise in state tax disputes.
  2. Worker classification continues to be a hot issue. Worker classification determines whether a company is properly treating a worker as an independent contractor or as an employee of the company.  The IRS receives information from the U.S. Department of Labor and from the states through information-sharing agreements.  So, it is important to understand who on your staff should be receiving a 1099-MISC and who should be receiving a W-2.  Many disputes arise from a 1099-MISC person filing for state unemployment.  The state investigates and determines that the company should have been treating the person as a W-2 employee all along, which leads to penalties and time spent to correct the worker classifications.
  3. State and Local governments need revenue and some are nearly bankrupt.  These municipalities are more vigilant in collecting late filing payments and are revoking requests for waivers of penalties. Municipalities are also looking toward gambling as a way to increase revenues.  Online gambling seems to be a popular choice to boost the collection of taxes fairly quickly.
  4. Federal Unemployment Taxes (FUTA) will continue to rise.  Employers in 20 states will continue to pay higher FUTA taxes because the state they conduct business in has had to borrow funds from the Federal Government to cover the unemployment claims for that state and the borrowed funds have not been paid back.  The states on this list are Arkansas, California, Connecticut, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Virginia and Wisconsin.
  5. The Treatment of Healthcare Costs remains uncertain.  The US Supreme Court has agreed to hear a case concerning the constitutionality of the law.  The decision is expected by the end of June 2012. The tax credit for small business that was in the Patient Protection and Affordable Care Act of 2010, was created to help pay for employee health coverage.  The credit was supposed to help small business continue or increase their payment of health coverage for the employees.  According to the Treasury Inspector General for Tax Administration has come to the conclusion that the business credit is not being utilized.  It was estimated that approximately 4.4 million businesses would use this credit at the time the law was passed.  Only 309,000 have used the credit by October 2011.  The chief complaint is the credit is not easy to understand or calculate.

Caring for Internal Customers

For many companies, providing superior service to customers is a priority within their organizations. Firms invest in service training, measure customer satisfaction with client surveys, and make customer service part of performance reviews. What sometimes is forgotten is that the customer base is comprised of both external and internal clients and that both groups are equally important. External customers are easily identified as the group who purchases a firm’s products or services. Internal customers are staff members who create or support a firm’s end product or service and include everyone from the receptionist to the I/T specialist to the president to the accountant.

Remember that your internal customer can be someone you work for as well as someone who works for you. Employees are all levels of the company require information from each other, and are dependant upon each other to meet needs, work productively, and surpass goals. Therefore, customer service – both internal and external — has to be a total company effort.

For companies large or small, providing good customer service begins with the internal environment. Employee satisfaction, customer loyalty, and profitability are all interconnected on a daily basis. All staff members must support each other in the organization. Excellent service to the external customer is dependent upon healthy internal customer service practices. The focus on developing effective internal customer service helps organizations cut costs, increase productivity, improve interdepartmental communication and cooperation, boost employee morale, align goals, harmonize processes and procedures, replace interdepartmental competition with interdepartmental cooperation and deliver better service to the external customer.

Internal customer service is the idea that your company’s employees are internal customers of your organization. When employees in one department take care of the needs of an employee or employees from another, teamwork and mutual cooperation are enhanced. This ultimately benefits external customers who are taken care of by more satisfied employees. It is important to note, however, that internal customer service can only excel in a high communication environment.

How To Better Serve Internal Customers

  • Be polite
  • Listen
  • Respond to requests in a timely manner – even if you don’t yet have the information / answer requested
  • Negotiate expectations
  • Consider how you would respond if the request were from an external customer
  • Go the “extra mile” and exceed internal customer expectations

How To Be a Better Internal Customer

  • Be polite
  • Listen
  • Get back to the provider promptly with replies to queries and requests for clarification
  • Be clear and realistic on what you need and provide all information needed to fill your request.
  • Provide an ideal timeline. Is the request a true emergency? Could you have made the request sooner? Remember that emergency deadlines strain schedules and disrupt priorities
  • Negotiate expectations
  • Always be professional – honor the providers’ priorities and workflow
  • Consider how you would respond if a similar request were made of you
  • Say THANK YOU!

Companies that practice outstanding external customer service find it is easier to attract and keep clients.  Companies that practice outstanding internal service find it easier to attract and keep good employees.

The Importance of Classifying Employees Correctly

If you are adding staff, and are contemplating adding an independent contractor versus an employee, it is imperative that the classification is based on the law and not personal preference.  Although an independent contractor looks appealing, and employer costs are less, it is not without complications. Incorrect classification can end up costing an employer much more than the intended savings initially hoped for with an independent contractor. The Internal Revenue Service gives specific guidelines called “Common Law Rules” to help in determining if this is the correct fit for your company.

Behavioral – Will the company control what job the worker will do and how they do it?

Financial – Are the business aspects of the workers job controlled by the company such as how the worker is paid, whether expenses are reimbursed and who provides the tools for the job?

Type of Relationship – Are there written contracts or employee type benefits that include, but are not limited to, insurance, vacation pay, pension plan, etc.?

Businesses must weigh all three factors in determining whether to hire an employee or an independent contractor. Although the IRS agrees there is no set number of factors to conclusively make the determination, the consequences are a compelling factor in getting it right. Incorrect classification of an independent contractor will cost the employer the employee portion plus the employer portion of withholding taxes on the total gross wages paid. Compounding the penalty, the employer will pay a higher percentage on these taxes if it is determined there is willful neglect versus reasonable cause in the belief that the worker truly qualified as an independent contractor.

If an employer remains uncertain after weighing the criteria above, IRS offers form SS-8, “Determination of Workers Status for Purposes of Federal Employment Taxes and Income Withholding Tax”.  Once the form is filed with the IRS, they will return a ruling as to the classification of the individual. However, be aware, the ruling can take up to six months to be determined.  The comfort level of having the IRS make the determination may be worth the wait.

Current Bank Balance vs. Available Bank Balance

You’ve seen the two balances on your banking account, but do you know the difference between the current balance and the available balance? These two balances are meant to give you a clear understanding of your financial situation.

Understanding The Current Bank Balance

The Current Balance, sometimes referred to as Ledger Balance, is the amount of money in your account at the beginning of a business day. This amount does not include any pending deposits or withdrawals. Your Current Balance includes all settled account activity, except transactions processed on the current day.

Understanding The Available Bank Balance

The Available Balance is the amount of funds available for immediate withdrawal or use. The Available Balance is updated throughout the day as transactions are presented to the bank. The bank goal is to make your Available Balance as up to date as possible so accountholders can make the right decisions on purchases and payments. Banks now offer many convenient ways to obtain your Available Balance through online banking, customer service telephone line, or thru Smartphone text alerts.

Transactions That Decrease Available Balance

  • Checks Cashed at the Bank
  • Pending Debit Card Purchases
  • Current Day – Cash Withdrawals
  • Wire or Bank Account Transfers
  • Current Day ACH Debits (Incoming)
  • Merchant Processing Fees
  • Holds Placed On An Account

Transactions That Increase Available Balance

  • Wire or Bank Account Transfers
  • Current Day – Cash Deposits
  • Current Day – ACH Credits (Incoming)

Insufficient Funds Fees

During the banks’ nightly processing, if the posting of debit transactions causes your Available Balance to become negative, you may be charged an Overdraft or Returned Item Fee. When reviewing your bank balance, be mindful of your transactions and know how much you can spend. If you have any question about your account, contact your bank.

Selecting The Best Candidates and Checking Their References

In last month’s article we talked about the importance of writing structured interview questions so that we can validly compare candidates applying for the same position.

In order to ensure that we are selecting the best candidate, we look at the job requirements and specifically review the experience and skills that the candidates bring to the table.  The other side of this process is to make sure there is a good “fit” between the best candidate and the organization.

Some of the additional questions you must ask can be taken from the employment application.  Even the most basic issues can be a problem if they are ignored.  To find the best candidate you will need to ask about these things as well: 

  • Remember to ask about the commuting distance and whether or not the candidate is prepared to make the drive everyday.
  • Be sure that you quantify the number of hours that the candidate will likely have to work to ensure that they “get the job done”.
  • Ask what salary or hourly rate the applicant made in their last job. (Are they prepared to come to work for the same salary? Are they looking for an increase?)
  • Be sure to look at the tenure on previous jobs.  If the candidate has only worked 12 – 18 months on each previous job, do you think they will make a longer commitment to you?
  • Don’t forget to ask the candidate if they are interviewing with other companies.  It’s perfectly acceptable to get a feel for how close the candidate may be to making a decision.  If you are interested in the applicant, let them know it!
  • Be sure to get the name of the manager and the contact number for each of the previous jobs.  These are the references you will call to verify employment.
  • Allow the candidates to meet their potential peers.  Let the applicant ask questions of the team, and encourage the employees to find out what they like about their potential new co-worker.

Don’t forget to give the candidate a chance to ask you some questions.  Take the time to answer their questions fully, and let them know when you anticipate getting back with them with your decision.

Finally, take the time to make some reference calls.  While usually managers have been trained to be very careful in terms of what they say about a candidate, it never hurts to ask.  And, what I have found is that when an applicant is REALLY GOOD, managers will tell you that—even if they have been trained not to!

Now, it’s time to take a look at all of your data and make a sound hiring decision.

  • Review your interview notes.  Who clearly stands out in terms of experience and skill level?
  • Be sure that the candidate is a “fit” for all of the basics:  commuting time, hours of work, salary, and longevity.
  • Take peer comments seriously. Often what make or breaks an employment relationship is the new employee’s ability to fit into the team environment.
  • Finally, what did the references tell you?  Did you “hear” comments that reinforce what you found in the interview process?

Make your decision and share it with the team.  Extend the offer and ensure that the candidate knows how much you are looking forward to working with them!

Next month we will look at Orientation and On-The-Job-Training — the keys to ensuring that your new employee will be successful!

OSHA Reminders and Updates

Reminder To All Employers To Post Injury/Illness Summaries

Employers are required to keep the OSHA Form 300A Injury and Illness log posted from February 1 to April 30, 2012 in a common area wherever notices to workers are usually posted. The summary must list the total numbers of job-related injuries and illnesses that occurred in 2011. A company executive must certify all establishment summaries.

OSHA Co-Sponsors Safety Days Across The United States

In upcoming events around the country, OSHA will co-sponsor safety and health training opportunities and conferences for workers, employers, and the general public. To learn about events in your area, including upcoming safety days, please visit http://www.osha.gov/as/opa/events/osha-conferences.html