Technologies such as smartphone apps offer quick access to information, which leads to better decision-making. But technological improvements are only part of a solution to any given problem.
“You don’t start by simply adopting technology. You start by seeking a solution to a problem,” says Keith Stump, vice president of sales at Blue Technologies.
For example, the cost of labor is a business’s most significant expense. The more a company can influence what its employees do, how they do it and the time it takes, the more productive and cost-effective the business becomes, he says. And often technology can help achieve that goal.
Smart Business spoke with Stump about coupling technology and processes to create efficiency.
How do process improvements and technological upgrades intertwine?
Consider the problem you’re trying to fix, and then examine all aspects of the surrounding process to understand it. You should start to see how everything fits together, and if there’s a better solution. For instance, you may have excellent hardware for copying, printing and faxing, but the software managing the information and devices is in need of an upgrade.
Attack the problem piece by piece. Determine your outcome and develop a strategy to work toward that goal. There must be milestones along the way, as well as consistent, structured reviews.
How might technology boost productivity?
It’s common for some technology to be well structured within the business. For example, a company has specific IT help desk procedures, remote monitoring and data backup. However, the print management could be unstructured. Employees may be buying printer supplies from several stores. There’s no typical process for toner delivery. Support comes in a variety of fashions.
Nationally, on average, 19 percent of service calls to internal help desks are related to printers. If your IT department is supporting printers, it means high-paid people are doing a low-paid activity, which isn’t cost-effective. With the right service provider, software can automate your print management with supply alerts and service triggers. Now, toner is automatically shipped. If there’s a problem, the machine notifies the provider to send a repairperson.
How can companies better integrate mobile devices?
Today, there’s a greater proliferation of tablets and other mobile devices in the workplace, especially for employees operating in the field or at multiple locations. However, it’s still necessary to print and scan documents. There are free, downloadable apps that enable mobile devices to automatically sync with the multi-functional scanner/printer as soon as the device is brought into the facility.
What can be done to improve document management?
There are software applications that allow users to search for business documents, similar to how information from the Web can be pulled up through a search engine.
The information is housed within an infrastructure, and a software application allows you to easily access business documents, such as contracts, packing lists, invoices, copies of checks, etc. It’s a huge advantage in terms of speed and efficiency.
Also, when scanning, it’s important that everything ends up in the right place, accessible to the right people. With auto-capture software on multi-functional devices, an employee hits a speed dial button and the machine routes the scan to the appropriate storage place. Documents are more accessible and secure with fewer errors.
What is key to successful change?
Business technology — and the processes it improves — touches many areas. All employees must embrace changes that are implemented to enhance productivity, whether in the IT infrastructure and support, hardware or software applications. Designate champions within your staff to help employees understand why change is necessary. Having C-level support and a well-designed rollout is critical.
Buying hardware, software or managed services is a part of doing business. But the best companies ensure each purchase decision starts with an effort to improve processes and create cost efficiencies. ●
Keith Stump is vice president of sales at Blue Technologies. Reach him at (216) 271-4800 or email@example.com.
Insights Technology is brought to you by Blue Technologies
Depending on your circumstances, year-end tax planning strategies can bring multi-year benefits.
“The end of the year is a great time to review for tax planning opportunities because most of the income items for the year are known,” says Geoffrey M. Zimmerman, CFP®, senior client advisor at Mosaic Financial Partners, Inc.
Smart Business spoke with Zimmerman about some tax planning items to consider.
How can big year/little year planning help?
If your income varies significantly from year to year, look for ways to decrease income in the big income year and increase income in the small income year. Corporate executives with stock options have flexibility as to when they recognize this income. Employees with access to nonqualified deferred compensation (NQDC) plans have opportunities to defer some annual income.
For the charitably minded, a big income year offers opportunities to leverage the use of a donor-advised fund: A larger-than-normal charitable donation is made to the fund in the high-income year when the itemized deduction has more tax benefit, and then funds are disbursed to your preferred charities over multiple, lower-income years. Charitably minded investors over age 70 ½ with IRAs should consider making some charitable donations directly from their IRA.
Households with unusually low income in 2013 may benefit from accelerating income by exercising stock options, or via a partial conversion from an IRA to a Roth IRA. Once in a Roth IRA, the converted amount plus any growth is generally tax free, and is not subject to minimum distribution requirements. This is a powerful planning tool for managing future income tax liability and preserving wealth across generations.
What’s important to know about alternative minimum tax (AMT) planning?
Households in the early stages of AMT should explore strategies involving timing of itemized deductions, particularly AMT preference items like property tax and state income tax payments.
Households that are deep into AMT have some significant opportunities beginning at the point where Alternative Minimum Taxable Income (AMTI) exceeds approximately $480,000 up until the point where ordinary tax exceeds AMT. In this range, the top marginal tax rate is 28 percent, not 39.6 percent. The opportunity involves increasing income — via exercise of stock options, IRA to Roth conversions, or other means — if such income would otherwise be taxed at a higher rate in the future.
As a starting point, couples with taxable income between roughly $500,000 and $1.2 million — particularly those with large amounts of preference items — should take a close look here.
What else should executives know about stock options?
Incentive stock option (ISO) strategies deserve a close look at the end of the year. If you have ISOs and are not in AMT, consider exercising ISOs up to the point of triggering AMT. If you’ve exercised ISOs during the year then you need to review your ability to meet the qualifying holding periods and the cost of paying AMT.
The AMT event is locked in on Dec. 31, so year-end planning is crucial to avoid the risk of paying AMT in the current year and ordinary tax the following year if the qualifying holding period isn’t met.
How can executives use NQDC plans?
An NQDC plan allows participants to defer a portion of their income to a future date. Salary deferrals typically may be invested and diversified, and distributions and taxation postponed until separation from service.
A tax-neutral planning strategy matches salary deferrals with stock option exercises of a like amount, moving dollars from a position with single stock risk and a distinct expiration date into a more diversified pool of funds with no explicit expiration date. NQDC plans do have risk because these plans are typically considered company assets until distribution occurs. •
Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.
With a stagnant economy and cautious investors, Simon Caplan, SIOR, a principal at CRESCO Real Estate, says he’s been hearing about deals suddenly falling apart in many industries. However, if commercial real estate buyers and sellers watch for ‘deal-killing’ issues, it’s less likely to happen to them.
“Sellers have to take care of certain issues with their buildings, and buyers may need to do a little more homework before entering into contracts,” he says.
Smart Business spoke with Caplan about how to mitigate real estate problems.
When buying commercial real estate, what if a building has structural or roof issues?
For roofs, get multiple contractor quotes because you’ll get differing opinions. Also, don’t be afraid to climb on the roof yourself and inspect it with your broker.
Structural issues aren’t as obvious. Ask the seller about the building’s history; they must disclose structural issues and prior repairs. Current or former tenants and previous owners are full of good information on the condition of the structure, roof, if there are flooding or drainage problems, etc. It’s your broker’s job to get the most information possible so you can make an educated decision.
How often do environmental issues come up? What do you do about them?
They were a big deal from around 1998 to 2005, then people learned how to handle them. Recently, they are starting to come up more.
When you buy a building today, your lender requires a Phase I environmental site assessment, which is basically research and a walk through. If that’s clean, you’re fine. Otherwise, you’ll need a Phase II report, which includes physical testing.
Sellers should clean up obvious environmental concerns, such as barrels or oil, to avoid buyer concern. If there are problems, the buyer and seller, and their brokers and the environmental company, need to figure out how to address them. Usually the seller pays for cleanup, which can be costly.
If it’s too expensive to clean up, but the buyer really wants the building and the property doesn’t require Environmental Protection Agency cleanup, consider a long-term lease. The buyer/tenant gets use of the property, while the seller puts off the cleanup.
What about boundaries and access issues?
When you buy commercial real estate, get an American Land Title Association survey, which shows just about everything, including property lines, the building, sidewalks, curbs, driveways, big trees, parking spaces, fences, encroachments, easements, etc. It also identifies all neighboring properties.
One problem may be a building that’s on a lot that’s too small. If trucks need to turn around in someone else’s parking lot, for example, you can try to secure easements from neighbors.
With encroachments and easements, be aware of the situation. Let’s say you find the building is over the property line — legally it’s a problem, but physically it’s not. Then, you’d just need special title insurance. I have revamped easements to make properties more usable to finalize a deal.
How can you deal with inadequate utilities?
It’s usually a case of not enough electrical power, no gas or a gas line that’s too small. It’s also vital to calculate your future needs, so you only address this once.
Electrical issues are problematic, and expensive to upgrade. In Cuyahoga County, even discovering the cost is complicated, and takes time and persistence. A new transformer and wire may cost $50,000 to $300,000, or more.
Gas is cheaper to upgrade and more straightforward. After you identify your gas needs, the gas company will determine where it’s best to upgrade the system and what it will take to do it.
What do you tell a seller who’s building is in rough condition?
You only get one chance to make a first impression on a buyer. Clean and fix issues that are immediate turnoffs. A well maintained building adds value. Your broker should make suggestions to improve value that will provide a positive return.
Simon Caplan, SIOR, is a principal at CRESCO Real Estate. Reach him at (216) 525-1472 or firstname.lastname@example.org.
Insights Real Estate is brought to you by CRESCO
The world of retirement plans has transformed during the past five years, but the majority of companies sponsoring employee retirement plans have yet to catch up with the changing times.
"It is no longer acceptable to take a wait-and-see approach with your plan unless you are willing to accept the risk and the consequences of that decision, which in many regards could be very costly on a corporate and personal level," says Drew Gracan, Vice President of the Retirement Plan Advisory Group at First Commonwealth Financial Advisors.
Smart Business spoke with Gracan about what employers need to be aware of to modernize their retirement plans with the current environment.
What has changed with retirement plans in the past five years?
For the past 40 years, the Department of Labor (DOL) and the Employee Benefits Security Administration (EBSA) has largely focused on the rules governing the proper management of a retirement plan when plan fiduciaries were either fraudulent or grossly negligent in their decision-making processes. That's changed in the past five years.
The government has stepped up its efforts to ensure decisions are being made prudently and for the sole benefit of plan participants and their beneficiaries. This can be attributed to the demise of the defined benefit plan, the increased burden of savings, fees and investment decisions being borne by the individual employee, and the reality that 401(k) plans are now a significant part of an individual’s retirement savings. At the same time, there are widespread participant-based lawsuits against employers for imprudent decisions, bad publicity from the press and the government about the viability of the 401(k), and increased employee/plaintiff council scrutiny of fees.
What might plan sponsors not fully understand about their retirement plans?
The five questions employers/fiduciaries need to answer are:
- Do you fully understand your fiduciary responsibilities to plan participants and the requirements under the Employee Retirement Income Security Act?
- Do you fully understand the roles of your service providers, whether or not they are assuming any fiduciary liability for their actions, and if there are any conflicts of interest that may affect their recommendations?
- Do you know all of the direct and indirect costs of your plan, and how your service providers are compensated in relation to the value of services received?
- Do you have a formal process in place to make sure you are documenting your decisions?
- Are you consistently measuring participant behavior and the likelihood of success for them in their pursuit for a successful retirement?
How can retirement plan risk be mitigated?
The first step in mitigating risk is really understanding your service providers' roles and how they are compensated for their services. The main question fiduciaries need to ask their service providers is whether or not they are assuming any fiduciary liability for their rendered services. This would include record keepers, administrators, financial consultants/advisers, trustees and custodians, and third-party administrators. Once you know if service providers are assuming any liability for their services, you can then determine which aspects of risk in the decision-making process you want to mitigate through the hiring of a co-fiduciary.
In addition to hiring a co-fiduciary, it is extremely important to have a formal decision-making process for the plan and thoroughly document all retirement plan decisions to ensure you have the necessary proof to defend those decisions.
What coming regulations deserve attention?
In the immediate future, there are two areas that seem to be the focus of regulators. The first is the requirement that retirement income projections be provided to participants on account statements. The second is a broadening of the definition of a fiduciary to ensure service providers that are performing fiduciary functions — advising participants, investment menu recommendations, etc. — take liability for their advice and don't exonerate themselves in the fine print of their contracts.
Drew Gracan, ChFC®, AIFA®, is a vice president, Retirement Plan Advisory Group, at First Commonwealth Financial Advisors. Reach him at (412) 690-4592 or email@example.com.
Insights Wealth Management is brought to you by First Commonwealth Bank
Business research incentives come in so many forms across various jurisdictions that they apply to more companies than you think. Although the bulk are used in manufacturing, consumer products, biotech or pharmaceuticals, they are available to anyone developing or creating something, whether a product, process, technique, software, new technology or a new application of an existing technology.
“A lot of people are aware that these incentives exist, but often they don’t make the leap that it applies to their company,” says Trisha Squires, director of tax at SS&G’s Chicago River North office.
A company could make nuts and bolts for 100 years using similar equipment, but if it has improved its cost margins by changing development, it could still qualify for certain research incentives, she says.
Smart Business spoke with Squires about how to ensure your company’s research and development (R&D) qualifies for available incentives.
What research incentives are available?
It’s typically a tax savings — either a credit or a deduction. Sometimes, it’s a refundable credit, so you don’t have to pay taxes in that jurisdiction. Certain global or state incentives are super deductions where, for example, you get 150 percent of the cost. You also might get tax abatements.
The federal research credit is essentially 6.5 cents on the dollar, depending on the method of calculation. You are rewarded for increasing the amount spent on R&D at a greater rate than you are for increasing your gross receipts. The credit expires and is reinstated so often that companies don’t pay attention.
The IRS spends a lot of time fighting these credits with an array of qualifications and substantiation arguments. Evidencing what you’re doing with R&D is extremely important. You must spell out the new functionality or improvements. This typically is not documented for any other reason. You have to look at the credit, and then align your facts and documentation to match the requirements.
How do state and global credits work?
State and local incentives vary. They can be as easy as in South Carolina, which is 5 percent of qualified research expenses, or as complex as California, which has its own formula. Ohio’s tax credit for research and experimentation expenses was extended through 2013. The majority of businesses figure out their federal credit, then state.
Globally, research incentives are less reactive. Canada has similar qualifications to the U.S., but it qualifies projects and dollars prior to the filing of returns. Europe is very friendly to R&D. In the Asia-Pacific region, companies often have tax abatements and incentives may not apply.
Has anything recently changed in this arena?
In 2005, the IRS came out with its Tier 1 Program as an attempt to bring consistency in application to normally contentious areas, such as the R&D credit and transfer pricing. However, the initiative required more documentation and accounting on a project-by-project basis. Creating a nexus between the activity and the dollar spent on that activity was very onerous.
The IRS got rid of the program at the end of 2012, but how it thinks about the credit and what’s required hasn’t changed.
What’s your advice for business owners?
Most companies and their people are very comfortable gathering the dollars that qualify. It’s gathering the qualitative documentation — the text that describes why they qualify for the credit — where companies fall short. These are details about who was working on the project, what their role was and what kinds of experimentation were involved. The tax department, engineering group or both have to put this documentation together, and many are not getting enough substantiation.
You may need outside help with this, especially if it’s new to you. If your tax year is still open, you can go back three years to claim prior credits. When an adviser gathers data for one year versus four, it’s not that significantly different, so you could be looking at some worthwhile savings.
The credits and other R&D incentives are vast and can provide substantial savings that affect your bottom line. It’s also likely that your competitors are taking them.
Trisha Squires is director of Tax at the Chicago office of SS&G. Reach her at (312) 863-2300 or TSquires@SSandg.com.
Insights Accounting & Consulting is brought to you by SS&G
During a merger and acquisition (M&A), both the buyer’s and seller’s retirement plans have ramifications on the deal and its aftermath.
“Make sure you get the right people involved in advance of any acquisition, whether you’re a buyer or seller,” says Don Dalessandro, QPA, QKA, Vice President of Finance at Tegrit Group. “It can be difficult because some people are not privy to this information, but if the CEO, CFO and others doing the deal don’t understand the plan, they should involve somebody that does before it comes back to haunt them.”
Smart Business spoke with Dalessandro about handling retirement plans in an M&A.
Why involve a plan administrator early in the M&A process?
A plan administrator can help with the financial and fiduciary due diligence, laying out the costs and liabilities associated with both retirement plans and how they match up. For example, if your company provides a 4 percent match, but the seller only gives a 1 percent match, you may need to calculate the extra cost of bringing newly acquired employees into the plan.
Retirement plans also have notification requirements. If a buyer or seller plans to merge or terminate a plan, it must follow Employee Retirement Income Security Act (ERISA) regulations. Examples are 30-day participant notifications prior to certain plan changes or a ‘blackout’ period where participant access to plan features may be curtailed. Also, if you terminate a plan, all participants must be 100 percent vested in all plan accounts, which could be an additional cost.
As a buyer, what else should be considered?
Think about whether it’s going to be a stock or asset purchase. If it’s a stock purchase and you absorb the selling company’s plan, you take on many of the risks and liabilities from previous years. In many cases, the buyer may request that the seller terminate its plan prior to the sale. This takes time and coordination, and may adversely impact participants’ retirement goals — as much of the plan participants’ money may be spent or used for other purposes.
With an asset purchase, even though you are not taking on liabilities, you still must consider the companies’ cultures and how to best integrate by comparing plan provisions, such as eligibility, matching contributions, vesting, etc. Whether you merge plans or not, you will likely change certain provisions of your plan as your company is growing and changing as a result of the acquisition.
You will want to understand who the decision-makers are, such as trustees, plan administrator, custodian, record keeper and others who may be making fiduciary decisions. Making a change to the decision-makers may require committee resolutions and amendments, which may be beneficial prior to the acquisition.
How should due diligence be conducted?
As a buyer, make sure the seller has administrated the plan according to ERISA regulations. Ask for prior Form 5500s. Companies with 100 or more plan participants are generally required to have audited financial information as part of the Form 5500 filing. Also, ensure that timely contributions have been made. There is appropriate fiduciary liability bonding, and an investment or retirement committee with meetings and written minutes. The company should be following proper procedures and policies, and all documents are in compliance and signed.
A possible deal breaker is an underfunded defined benefit plan, which promises to pay certain monthly benefits. If the liabilities are too high, it becomes difficult to terminate the plan. Additionally, it may require that you continue to fund and contribute to the plan, which can be expensive going forward.
After the sale, what’s critical to know?
In addition to following ERISA, if you maintain two separate plans by the last day of the plan year following the year in which the two companies merged, a coverage test runs on both.
If the plans have different matching structures, eligibility rules or provisions, they must meet the ‘benefits, rights and features’ test as a single entity. This ensures you don’t discriminate in favor of highly compensated employees. Many people forget, and then two years later realize they never did the testing. Like many of these decisions, it takes careful planning.
Don Dalessandro, QPA, QKA, is Vice President, Finance at Tegrit Group. Reach him at (330) 983-0527 or firstname.lastname@example.org.
Insights Retirement Planning Services is brought to you by Tegrit Group
New lease accounting rules will require all leases to be on corporate balance sheets, even though the Financial Accounting Standards Board (FASB) has yet to circulate the final FASB Exposure Draft, which details the changes.
“Until the dust settles, it’s very difficult to make any kind of strategic decision,” says R. Timothy Evans, president of Equipment Finance at FirstMerit Bank. “Yes, it will have a negative impact on some segments of the leasing business for both lessees and lessors, but it’s not going to signal the end of the equipment leasing industry by any stretch.”
Smart Business spoke with Evans about who will be impacted and how operating leases will function when the new rules take effect.
Where does everything stand right now?
Companies currently report operating leases in the footnotes, while incorporating capital leases on the corporate balance sheet. To create more transparency, the FASB wants all leases on the balance sheet.
In the current draft, only operating leases of less than 12 months are allowed off-balance sheet. However, many organizations are lobbying to have more exceptions included, creating further delays.
The current expectation is an implementation date of late 2016 or early 2017, but that could get pushed back.
What distinguishes an operating lease?
An operating lease has to meet four main criteria, as defined by FASB:
- Rentals and all guaranteed rents discounted back at the customer’s borrowing rate cannot exceed 90 percent of the equipment cost.
- Term cannot exceed 75 percent of the economic life of the lease property.
- Cannot transfer ownership of the property at the end of the lease term.
- Cannot contain an option to purchase the property at a bargain price.
If your lease violates any of the criteria, you must characterize it as a capital lease.
Why do companies favor operating leases?
An operating lease offers an extremely low ‘cost of use’ for a company that is capital intensive. As an example, if a company has net operating losses, it cannot utilize depreciation. With a true lease structured as an ‘operating lease,’ the lessor takes the depreciation and prices a residual into the deal, giving the lessee a lower rate.
Operating leases require no down payment and give the flexibility to return the equipment at the end of the term. Companies can upgrade to state-of-the-art equipment without large down payments.
A point to clarify is that for accounting purposes, a lease is either operating or capital. For tax purposes, it’s either true or capital. There are components of an operating lease that are also components of a true lease — the two aren’t synonymous. Operating leases are off-balance sheet, but not all true leases are operating leases.
How are companies preparing?
Right now, there’s not enough clarity to develop a strategy. A company with many leases must search through every contract, identify the operating leases and then reconstruct the rent stream in order to report it on-balance sheet. Many may decide to outsource this to accounting firms.
What’s the anticipated impact?
Companies that just lease to have off-balance sheet treatment will see a major impact. But this change does nothing to modify a lessor’s ability to take depreciation, price residuals and offer creative structuring for the standard equipment financing.
Eight out of 10 companies have some kind of equipment lease, but that doesn’t mean all are operating leases. For most lessors, the operating lease piece of their business generally is less than 20 percent. Some lessors specialize in operating leases.
Almost every bank monitors and restricts the amount of leverage on a balance sheet through covenants. With the accounting change, some businesses’ balance sheets will have too much debt, so covenants and lending agreements will need to be restructured. However, many lenders already look at the operating leases in the footnotes, so there could be other ‘work arounds’ to deal with the new requirements. It’s expected there will be at least 12 months to complete the transition to the new requirements.
R. Timothy Evans is president of Equipment Finance at FirstMerit Bank. Reach him at (330) 384-7429 or email@example.com.
All opinions expressed herein are those of the authors/sources and do not necessarily reflect the views of FirstMerit Corporation. FirstMerit is not offering tax or accounting advice. We recommend you consult with your tax or accounting adviser.
Insights Banking & Finance is brought to you by FirstMerit Bank
Starting next year, the Affordable Care Act requires individual and small group insurance plans to cover 10 “essential” health benefits. But, these minimum essential benefits go beyond the coverage that many individuals and small businesses purchase today, so plan costs may increase to meet the coverage requirements.
“Regardless of your funding type, whether you’re self-funded or not, your plan is required to provide the minimum essential benefits,” says Mark Haegele, director, sales and account management at HealthLink. “But something that wasn’t really contemplated is the difference by states based on price points from different providers.”
Smart Business spoke with Haegele about the minimum essential benefits and their impact on individuals and small employers.
What are minimum essential benefits?
Starting Jan. 1, 2014, all health insurance policies sold to individuals and small employers must cover a broad range of benefits, setting a standard for all plans and allowing for easy comparison. The 10 categories of coverage are:
- Ambulatory services.
- Emergency services.
- Maternity/newborn care.
- Mental health/substance abuse.
- Prescription drugs.
- Rehabilitative and habilitative services and devices.
- Laboratory services.
- Preventive and wellness/chronic disease management.
- Pediatric services, including oral and vision.
Plans offered on the insurance marketplaces also must cover these benefits.
In addition, plans will be separated into tiers, which helps consumers compare plans. Known as the metal levels, there are bronze, silver, gold and platinum plans. Essential health benefit plans must cover at least 60 percent of costs. The only exception is catastrophic plans that target people younger than 30 or otherwise unable to obtain affordable coverage.
How is this different from minimum essential coverage?
Although they sound the same, minimum essential coverage (MEC) only applies to large employers, those with more than 50 full-time equivalent employees. MEC relates to the employer mandate, ‘play or pay,’ that was pushed back to 2015, where employers must at least provide preventive and wellness care or face fines.
Small employers aren’t required to offer insurance. But if they do, the plans they buy must cover the 10 essential categories.
Large employer group plans do not have to cover the essential health benefits, but there cannot be annual or lifetime dollar limits on the benefits within this set.
How might minimum essential benefits increase insurance premiums?
Plans may now have to cover new areas, such as pediatric vision care coverage as part of the medical benefit for children up to age 19, which could increase premium costs. Like other essential health benefits, there are no annual or lifetime dollar limits allowed.
According to the U.S. Department of Health and Human Services, many individuals purchasing coverage don’t currently have coverage for maternity services (62 percent), substance abuse services (34 percent), mental health services (18 percent) and prescription drugs (9 percent).
However, the out-of-pocket costs paid by individuals will likely be lower, according to the American Academy of Actuaries.
How might costs vary by state?
If you live in a state with a lightly regulated insurance industry, the minimum essential benefit plans’ more comprehensive coverage will have a greater impact. That’s because insurers previously sold ‘bare bones’ plans that excluded the sick, keeping costs down. Independent estimates of premium impact in the individual market, according to America’s Health Insurance Plans, have large increases in Maine (33 percent), Indiana (20 percent) and Ohio (20 percent). Other states — Rhode Island (0.13 percent), Colorado (2.2 percent) and Wisconsin (6 percent) — will see less of an impact.
To further complicate matters, states can specify benefits within each of the essential categories, at least for 2014 and 2015.
Mark Haegele is director of sales and account management at HealthLink. Reach him at (314) 753-2100 or firstname.lastname@example.org.
Insights Health Care is brought to you by HealthLink
In June, a New York federal court decided a case — known as the “Black Swan” case — that should make employers think hard about how to structure internship programs.
The court found that a major movie studio should have paid its interns, and several other companies using unpaid interns are now facing similar lawsuits.
“We’re going to see a lot of people reconsidering their internship programs in light of these cases,” says Gabrielle Sellei, a member at Semanoff Ormsby Greenberg & Torchia, LLC. “Those who decide to stick with it will think about how to structure an internship program to avoid risk.”
Smart Business spoke with Sellei about how employers should structure upaid internship programs.
What are the guidelines for unpaid internships?
There is no definition of ‘intern’ in the Fair Labor Standards Act (FLSA), but there is a long-standing exception for ‘trainees’ to the general rule that workers must be paid. More recently, the Department of Labor issued a fact sheet listing six criteria to help employers determine whether an intern can be considered a trainee under the FLSA:
- The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment.
- The experience must be for the benefit of the intern, not the company.
- The intern must not displace regular employees, but must work under the close supervision of the existing staff.
- The employer providing training derives no immediate advantage from the intern’s activities, and on occasion its operations may actually be impeded.
- The intern is not necessarily entitled to a job at the conclusion of the internship.
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
However, even compliance with all of these factors is not an absolute safe harbor; employers should consult an attorney familiar with this area of the law to review their internship programs.
What’s your advice for employers deciding whether to pay interns?
Employers contemplating an unpaid internship program should do a quick gut check, asking: ‘Who will benefit?’ If the honest answer is ‘the company,’ you’ll want to think again. Alternatively, you can always pay your interns — just be aware of minimum wage and child labor laws.
If you decide to use unpaid interns, what can you do to protect your business?
For starters, consider the selection process. It should not look like a hiring process, but a component of somebody’s education that just happens to be at a company. In other words, specific skills are irrelevant, a demonstrable interest in the industry or a compatible educational path are not.
Then, put your internship program in writing, emphasizing what the interns will learn and how tasks will be geared to learning. The program should have a purely educational component, such as seminars, instructive lunches with senior staff or speakers, or maybe even a retreat. If possible, one-on-one mentoring with senior managers would be terrific programming.
Operationally, make sure that interns are not providing services that employees would normally provide, and that you are not using interns to reduce your (paid) headcount; this would constitute a clear benefit to the employer.
Finally, a written internship agreement, signed by the intern, should state that the internship is unpaid and that there is no guarantee of a job at its conclusion.
If the guidelines are so strict, why bother having unpaid interns?
In this economy, internships are popular with employers and interns. Students who anticipate entering the workforce want as much experience as they can get — paid or not. And even though unpaid internships don’t directly benefit the employer, they can be valuable as community relations tools and to expose a new generation to an industry. An internship program that leads to a lawsuit is going to have the opposite effect, so it’s important to get it right.
Gabrielle Sellei is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach her at (215) 887-0200 or email@example.com.
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Business succession is the one thing many companies fail to address for fear of relinquishing control, a lack of time, the feeling that successors aren’t ready or other reasons. But, it’s never too early to start succession planning.
“Statistically, roughly only 30 percent of family-owned businesses are effectively transferred to the second generation and just 10 percent make it to the third generation,” says Julianne Cruz, managing director of Advisory Services at CB&T Wealth Management. “There are myriad reasons for this, but one recurring issue is a lack of effective succession planning.”
Smart Business spoke with Cruz about how to effectively position your chosen successors for success.
How should business owners get started?
You need to consider the three ‘T’s of successful transition:
- Transferring management.
- Transferring ownership.
- Tax consequences.
In all cases, having a plan that is strategic and well executed is key, but that takes time. The most successful transition plans take place over a number of years, as successors develop the skill sets required to run the business.
How is management transferred?
It’s important to select an independent adviser who is highly experienced with planning issues to arrive at the best plan for you and the next generation.
Some areas to consider are: If more than one child is involved in the business, how will contentious decisions be made once you exit the business? If you want certain key, loyal employees to be cared for, as they are likely necessary for a smooth transition, what assurances do you have this will happen? What happens if unexpected health issues force the transition early? A well-developed plan ensures the business will thrive without interruptions, helps the next generation grow into their role at a reasonable pace and promotes future harmony among family members.
A short-term plan ensures there’s enough liquidity and insurance to hire necessary experts and avoid a fire sale. A mid-term plan must prepare developing successors or key employees to be in decision-making roles initially. It also would have a timeline for family members to step into their new roles with certain targets. The long-term plan is ultimately what you want to happen — the best of all circumstances.
After discussing your plan with advisers and successors, involve your key employees, who may be more satisfied knowing the company’s future.
What are some factors to consider with transferring ownership?
Once the management transition plan is established, plans for transferring ownership can occur. Usually this begins with your retirement plans. How much income will be needed and what’s the timeline? If you need cash from the business, are you willing to bear the ‘investment risk’ of the business as a source of income once you’re not involved?
Then, consider estate-planning issues. Are all your children involved in the business? If not, do you desire to ensure each child will ultimately receive an equal estate share?
How do tax consequences factor in?
Taxes are the tertiary consideration once decisions have been made regarding the general retirement and estate plans. As is the case with investment portfolios, taxes should never drive the decision-making process. Tax-reduction strategies should only be considered after other issues are decided.
Business owners in general, and particularly family-business owners, should begin now and get an experienced, independent adviser to guide them through the process. The earlier you plan, the better the results. Sound, experienced advice will make the process that much easier, and maybe even bring family members closer. λ
Julianne Cruz is managing director of Advisory Services at CB&T Wealth Management. Reach her at (310) 258-9301 or firstname.lastname@example.org.
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Wealth management services are offered through Contango Capital Advisors, Inc. (Contango), which operates as CB&T Wealth Management in California. Contango is a registered investment adviser, a nonbank affiliate of California Bank & Trust and a nonbank subsidiary of Zions Bancorporation. Some representatives of CB&T Wealth Management are also registered representatives of Zions Direct, which is a member of FINRA/SIPC and a nonbank subsidiary of Zions Bank. Employees of Contango are shared employees of Western National Trust Company (WNTC), a subsidiary of Zions Bank and an affiliate of Contango. #CCA0813-0090