A few simple steps you can take now will pay dividends when tax time rolls around next April, says Steve Gross, CPA, a partner at Skoda Minotti.
“Start now as opposed to waiting until late December and rushing to accomplish your goals. There are some very simple strategies you can follow now to reap the benefits when tax time arrives,” Gross says.
Smart Business spoke with Gross about tax tips, including a credit that is scheduled to expire this year.
What are some basic things to consider to reduce tax liability?
A few things you might want to look at are:
- Charitable contributions. Make any donations before the end of the year — you can put the donation on a credit card, even if the card payment isn’t due until January 2014, and still list the deduction in 2013. If you aren’t an itemized taxpayer, you may consider accelerating your 2014 pledges, whether that is one or several, to reach the totals needed to itemize and take advantage of the deduction. This also applies to pass-through entities; if you’re an owner of a partnership or shareholder in an S corporation, donations are deducted as a separate line item.
Another opportunity to realize charitable contributions is to donate unused or unwanted — but still in usable condition — household items and clothing to a qualified charitable organization. By doing so, you’ll get a deduction for the fair market value.
- Estimated tax payments. While fourth quarter estimated federal and state taxes are not due until Jan. 15, you could pay the state estimate by Dec. 31 and get the deduction this year.
You may also consider accelerating payment for your real estate taxes. Some taxpayers who don’t itemize every year because they don’t have enough in deductions can pay the entire real estate tax bill for one full year in January, and then again in full in December of the same year. This may help you reach the limit to itemize.
- Capital gains and losses. If you’ve sold stocks and had capital gains, it might make sense to look at your portfolio for any loss positions you might want to sell to offset the gains. The capital gains tax increased from 15 to 20 percent in 2013, and gains may be subject to the 3.8 percent additional Medicare tax on excess passive income.
- Energy credits. The residential energy credit, which technically expired at the end of 2011, was reinstated through 2013 and provides up to 10 percent of qualified expenses, up to a $500 lifetime limit, for the installation of energy-saving exterior doors, windows or air conditioners.
- Business property. Under Section 179 of the tax code, you may elect to deduct the cost of qualified business property purchased and placed in service during the year. The maximum deduction allowed for 2012 was $500,000, subject to a phase-out for acquisitions above $2 million.
Under the American Taxpayer Relief Act of 2012 (ATRA), these limits are extended through 2013. Absent new legislation by Congress, the maximum allowance will plummet to $25,000 in 2014. The ATRA also preserves 50 percent bonus depreciation on any remaining cost of qualified property your business places in service this year.
The bonus depreciation tax break is generally scheduled to expire after 2013.
Are these things you should be reviewing every year?
Yes. In addition, pay careful attention to the fair market value of the non-cash charitable contributions. Many organizations provide guidelines for establishing the fair market value of used property.
Tax rates are not changing in 2014, but when there is a major change in rates, depending on which way they’re going, that might influence what you do in a particular year. Your tax adviser should be in-step with the changes in tax law and if they will affect you. It would be impossible for any taxpayer to fully understand the variety of scenarios, given the complexity of ‘if/then’ situations surrounding deductions. ●
Find out more about Skoda Minotti's tax planning and preparation.
Insights Accounting & Consulting is brought to you by Skoda Minotti
At first glance, dropping health insurance for employees and sending them to the exchanges sounds like a win for everyone. Companies can give raises to make up the difference for employees, who then buy insurance for less, and everyone saves money.
But that’s not the result when you factor in all of the numbers, says William F. Hutter, CEO of Sequent.
“Drop your health insurance and give employees the same money is the mantra we keep hearing. It is not a simple decision and should not be treated as such for middle-market companies,” Hutter says.
Smart Business spoke with Hutter about the costs associated with this decision, and its potential impact on your business.
Would companies rather not worry about health insurance because of its volatility?
Companies are tired of thinking about health insurance; it’s becoming another distraction away from their business. Of course, that’s just considering cost and not taking into account the cultural issues involved with the perception of whether you’re taking care of your employees.
For example, a client was advised that it could save money by sending everyone to the exchange and just giving employees raises. That has proven to be a fallacy. When you review all of the numbers, the savings are not there.
The company has 109 employees, and 79 are covered by the health plan. It has a high deductible, so the company contributes to a health reimbursement account (HRA) for employees.
Basic costs of the plan are:
- Total insurance premiums — $653,000.
- Company share — $522,400.
- Employees’ share — $130,600.
- Company HRA cost — $200,000.
- Total cost to company — $722,400.
Dropping insurance and giving those employees $7,500 in raises each — a total of $592,500 — would appear to save the company $129,900. But you have to consider the total cost impact, including deductible burden, taxes and penalties.
What are the tax implications under this scenario?
Because of the loss of the pre-tax deduction, employees and the company both pay more in taxes on the $592,500 in raises — $199,937 by employees and $73,395 by the company.
There’s also an Affordable Care Act (ACA) penalty of $114,000 the company would be required to pay because it would no longer be a health plan sponsor. And now the employees also are paying all of the plan deductible, so that’s another $158,000, assuming a $2,000 deductible.
When you consider all of those factors, the total cost is $779,894, or about $57,000 more to not offer health insurance. When shown the entire picture, the client was blown away.
Are there other variables to consider, even if dropping health insurance for employees made financial sense?
In addition to how it would be perceived by employees, there’s a concern about making a decision based on the short term. Organizations need to think more strategically, rather than looking just at how to fix a current problem.
No one knows how the exchanges are going to shake out. They are getting a tax subsidy for the first two years in the form of a $62 annual tax on every employee covered by an insurance carrier outside of the exchanges. In theory, that provides a pool of money carriers can draw on until the exchanges find their own balance regarding enrollees, costs and risks. That could result in a significant increase in premiums in two years when the subsidy goes away.
Also, you want to be cautious about dropping insurance and giving up the tax advantage of sponsoring a plan because it’s difficult to go back. That’s really the objective of the ACA — it’s a revenue enhancement bill rather than a health care bill. That goes back to the 2005 study by Sens. Max Baucus and Chuck Grassley, which flowed right into health care reform.
This analysis and case study is a dramatic illustration of how the changes written into health care reform are really about closing tax loopholes. Companies may be better off keeping the tax advantage of health care for themselves and their employees by providing access to predictable health care coverage. ●
Insights HR Outsourcing is brought to you by Sequent
In ruling that the Defense of Marriage Act (DOMA) was unconstitutional, the U.S. Supreme Court also created challenges for HR personnel in managing benefits related to employees in same-sex marriages.
“It’s great that the decision ensures equality and there will no longer be a disparate impact on employees’ spouses,” says Stephanie Martinez, PHR, Director of HR Services at Benefitdecisions, Inc. “But it does present additional challenges for HR.”
Smart Business spoke with Martinez about the ruling and its implications in administering employee benefits.
What was the Supreme Court ruling?
It struck down the DOMA definition of marriage as being between a man and a woman. Couples in same-sex marriages now have equal protection under federal law. The case also dealt with estate taxes.
Which states recognize same-sex marriages, and does the ruling affect other states?
Same-sex marriages are recognized in 13 states: California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington, as well as the District of Columbia.
While the ruling has little direct impact in states that do not recognize same-sex marriages, it does affect federal taxes, regardless of residence. The Treasury Department and IRS issued guidance that a ‘state of celebration’ approach will be used regarding treatment of same-sex couples for federal tax purposes, meaning the marriage will have federal tax recognition regardless of where a couple resides.
How are benefit plans changing?
The ruling is impacting benefits that are extended to spouses, ensuring same-sex couples are treated equally as compared to opposite-sex couples. If you don’t offer spousal benefits, there’s no requirement to do so as a result of the ruling.
You also don’t need to extend benefits to same-sex spouses if you have a self-insured wellness plan or are in a state that doesn’t recognize same-sex marriages. However, if you’re not extending that benefit to same-sex couples you could face legal challenges because it could be viewed as discriminatory.
If you offer a qualified retirement plan, it must treat the same-sex spouse as a spouse for purposes of satisfying federal tax laws. The plan must recognize valid same-sex marriages, even if the state they live in doesn’t recognize same-sex marriages.
Another change is that employees’ health plan contributions for same-sex spouses and children can now be done on a pre-tax basis. Also, they are eligible for COBRA continuation coverage.
In states that recognize same-sex marriage, the Family and Medical Leave Act (FMLA) extends to same-sex couples, giving them the right to take leave to care for their spouse.
Some questions that remain unanswered for HR representatives include whether same-sex spouses will be able to claim their benefits retroactively to the ruling’s effective date. There’s also a question as to whether past federal tax returns can be amended to claim refunds, and if same-sex couples will get their FICA taxes refunded.
What should employers be doing now in response to the DOMA ruling?
Private sector organizations in those 13 specific states should look at how benefit plans are communicated to employees. Make sure payroll taxes are handled correctly, that you’re collaborating with your health care insurance provider regarding COBRA coverage and that communications are modified to reflect necessary changes.
Pertinent policies for things like FMLA and COBRA will need to be updated in your employee handbook.
As an HR representative, it can be difficult from a legal standpoint to stay on top of all of the changes, and how those changes may impact your organization. One complication is that state definitions of terms like domestic partnerships are not clearly defined across the board. Civil unions and domestic partnerships are not normally affected by the DOMA ruling, but California law expanded the scope of domestic partnerships to include all the rights and responsibilities of a legal marriage.
Any effort to move forward with providing equal opportunity for all individuals is a step in the right direction. However, there are many things you need to pay attention to in order ensure everything is done lawfully. ●
Insights Employee Benefits is brought to you by Benefitdecisions, Inc.
It’s wise to consider the tax implications of business and financial decisions as the year winds down. This year, many tax benefits from the American Taxpayer Relief Act of 2012 (ATRA), which was extended through 2013, and many Bush-era tax cuts will end. The tax law changes from ATRA extensions ending and the implementation of the Affordable Care Act (ACA) introduce layers of complexity.
“It’s difficult for anyone to keep track of everything that is expiring, let alone what’s new. There are more moving parts than I’ve seen in a long time,” says Cathy Goldsticker, CPA, partner, Tax Services at Brown Smith Wallace.
“You need to plan and do some projections so you don’t discover in April that you have unexpected taxes due or you didn’t take advantage of a departing tax write-off.”
Smart Business spoke with Goldsticker about strategies businesses and individuals can follow to reduce tax liabilities.
What effect does the ATRA have on 2013 taxes?
Many of the provisions enacted under President George W. Bush are set to expire. Although the tax brackets from the Bush tax cuts will remain in place and are now permanent, individuals with taxable incomes of $400,000 or more — $450,000 for married couples filing jointly — are subject to a top marginal tax rate of 39.6 percent instead of the 35 percent marginal rate. These individual tax rates also will affect the taxes of the owners of pass-through entities.
A business relief provision that is scheduled to expire is for the built-in gain tax that is created when converting your C corporation to an S corporation, but is imposed after a subsequent sale of corporate appreciated assets. The temporary rule has been that if you hold your S corporation and related assets for five years, built-in gain tax goes away. Starting next year, the waiting period is 10 years. For owners looking to sell assets or a company, that may expedite the impetus to sell before the end of 2013.
Also being eliminated are faster write-offs for depreciation. Under Section 179, companies were able to deduct $500,000 for equipment in year one assuming less than $2 million in assets was acquired during the year. That will revert to the previous limit of $25,000. Bonus depreciation, which allowed you to write-off half of qualified property, is being removed for common acquired depreciable items.
You should think about accelerating your planned purchases, but also consider what your future income levels might be. You could be taking away deductions from future years when it’s possible to get a bigger bang for your buck with higher tax rates.
On the personal side, this is the last year business owners will have a choice between deducting sales taxes or state income taxes because the sales tax option will be going away. This could be a lost state benefit for those paying Alternative Minimum Tax.
This also will be the final year that taxpayers ages 70½ and older can transfer up to $100,000 from an IRA to a charity and bypass having the IRA distribution included as income. That can be important if you’re trying to stay below the $400,000 level and avoid the 39.6 percent tax bracket.
How will taxes change as a result of the ACA?
There is a new 3.8 percent tax on investment income and 0.9 percent Medicare tax that applies to self employment income for high income earners. Careful planning could avoid the claws of this extra tax.
To avoid these taxes and receive more benefit from your writeoffs, you might want to bunch deductions that are subject to phase-outs based on income. Instead of paying expenses such as advisory fees, and tax planning and preparation fees in 2013 and 2014, you might see if you can pay them in the same year.
Do the expiring cuts mean it’s best to move up as many deductions as possible?
You can’t look at your taxes in a vacuum; you still need to consider the impact of all options to determine the best route. Among the many moving parts, we could still see extensions of some provisions.
You should take the facts as they currently stand and put together pro forma projections for the next several years. Do some tax calculations for these years to figure out what you’ll encounter from a cash-flow standpoint, as well as what you could do to reduce some of the current increases. ●
Request your free copy of our 2013 Year-End Tax Planning Guide.
Insights Accounting is brought to you by Brown Smith Wallace
Owners of privately held midsize companies are increasingly using performance-based bonuses as a key way of compensating executives.
“Companies will pay for performance, but they want to see value,” says Tyler A. Ridgeway, director of Human Capital Resources at Kreischer Miller.
“Whether it’s a CEO, CFO, COO, vice president of sales or vice president of marketing, it’s about how they can create value for owners in an organization. If it’s a CFO, for instance, it’s not just about crunching numbers; it’s about being a strategic business partner,” Ridgeway says.
Smart Business spoke with Ridgeway about performance-based bonuses and other trends in executive compensation.
Why has there been a trend toward performance-based pay?
A lot of companies have been through tough times, but they’ve also learned to better operate their businesses. Many have available cash right now and are wondering whether to incentivize the current team, pursue an acquisition, launch a new product or upgrade their talent.
For some who’ve decided to incentivize the current team, one option has been to reward their top performers by creating phantom stock or stock appreciation rights plans. These plans can motivate key executives to stay, and also reward them as the company grows.
If they’re hiring an executive, the interview process is now much longer than it was five years ago because they can’t afford to make a mistake. When they upgrade talent or bring in a new CEO, companies want the entire management team involved in the decision. As a result, the chosen executive candidate can build trust and rapport with management before they even start. This allows him or her to hit the ground running.
Companies want to make new executives happy from a compensation perspective, but they don’t want to give away everything. So, they’re designing packages that provide long-term rewards. They’ll negotiate a base salary everyone is happy with, and then determine how to link the bonus to company performance.
How do phantom stock and stock appreciation bonuses work?
Companies are increasingly using these plans that put a percentage of an increase in revenues over a specified period of time into an executive’s retirement plan.
With these plans, the executive doesn’t own equity in the company but shares part of the increase in value. These vehicles reward executives for growth and profits with a focus on specific goals and objectives that need to be accomplished.
Are companies trending away from any particular types of compensation?
Mid-market companies — $20 million to $500 million — realize there is a talent war and know they need to pay for top talent. However, they want to share risk. One way to do this is by offering more in bonus compensation than salary. Executives might be asked to accept less cash upfront in return for the potential upside in bonus compensation and earn-outs.
Some owners might be reluctant to negotiate upfront agreements relating to severance because they may have been burned in the past, such as having to pay severance to a sales professional who was not driving revenue. While many companies do not proactively offer severance, depending upon leverage, executives can have success in gaining some change of control protection.
Most companies are trying to avoid employment contracts as well. Instead, the offer letter now summarizes expectations and includes some measures of protection.
All of this comes back to companies expecting value creation from their new hires. When an executive joins a company, it’s difficult to know upfront exactly where or how he or she will add value. But if the executive helps generate leads that double revenue, for instance, companies are willing to revisit compensation because they want to reward that behavior.
Companies have become more transparent — owners are more willing to allow key team members to know the company’s cash position, and understand why bonuses are down if it’s not a great year. Their philosophy is that everyone is in this together, and, if the business grows, everyone will win. ●
Insights Accounting & Consulting is brought to you by Kreischer Miller
Anyone surfing the Web has likely come across cybersquatters. The owner of a website stating, “This domain may be for sale,” might not actually have legal rights to the domain name.
“Third parties without any legitimate interest or rights in a domain name will often purchase one knowing that someone else owns the trademark rights to the name. This forces the true owner of the trademark to either purchase the domain name from the third party or seek out another avenue to acquire the domain name,” says Jeff Nein, an associate at Kegler, Brown, Hill & Ritter.
Smart Business spoke to Nein about the process of acquiring a domain name and what to do if someone already has the Web address you want for your business.
What is the most common source of domain name disputes?
Typically, it’s cybersquatters. They’ll buy domain names with the intent to sell them directly to the trademark owner, which is a blatant example of bad faith registration. Another scenario is called typosquatting — a third party will register a domain name that’s similar to the trademark but with a letter or two out of place. In that instance, the third party usually benefits by receiving click-through revenue from links on the page.
How should a business proceed with securing rights to a domain name?
First, be aware that the Internet Corporation for Assigned Names and Numbers (ICANN) has created the Uniform Domain-Name Dispute Resolution Policy (UDRP), which authorizes domain name registrars to forcibly transfer domains in the event an approved dispute resolution service provider determines a domain name was improperly registered. Utilizing this dispute resolution process is quick and relatively inexpensive compared to traditional litigation. Any legitimate registered domain name registrar will be subject to the UDRP, which means almost every domain name falls under the governance of ICANN.
Next, evaluate the circumstances. If someone owns a domain name that encompasses your trademark in whole or in part, determine whether your trademark rights predate the current domain name holder’s registration. If so, examine how the website at the domain name is being used, if at all. If the website is not being used for a legitimate purpose — say, for instance, there is nothing but text that says ‘coming soon’ — this will work in your favor.
If your trademark rights do not predate the current domain name holder’s registration, the likelihood of successful transfer to you from the domain name holder dramatically decreases. Likewise, if the website is being used for a legitimate purpose, and the other party didn’t know you had trademark rights in the name and simply registered the domain name before you, there’s not much you can do. At that stage, the best option may be an offer to purchase the domain name from the other party.
What if they’re not using the domain name?
In those cases, we start by sending a letter outlining our client’s rights in order to effectuate transfer of the domain name without involving any sort of legal authority. If that doesn’t work, we file a complaint under the UDRP rules and start the arbitration process.
At arbitration you will need to show that you own the trademark, that the other party has no legitimate rights or interest in the domain name, and that the domain name was registered and used in bad faith. Once the other party is given an opportunity to submit its response, the arbitration provider will make a recommendation and advise the registrar on a course of action to take, which is often to immediately transfer the domain name to the trademark holder. The entire process only takes two to four months.
How can trademark owners stay ahead of the curve?
In light of the impending release of new generic top-level domains, trademark owners that want to avoid disputes should consider taking action now. Trademark owners have the option to register with ICANN’s Trademark Clearinghouse, which will verify your rights in any trademarks you submit for approval. Once you receive approval, the Trademark Clearinghouse will provide you with a defined window of time to purchase domain names that encompass your trademark at the new, generic top-level domains before they are publicly available. ●
Your company doesn’t need to have laboratories filled with beakers to be eligible for tax credits provided for research and development (R&D) activities.
“Many people don’t think they’re doing the type of research that qualifies. But in this context, research is a tax definition. And while there may be similarities to the laboratory sense of the word, it covers a wider range of activities,” says Christopher E. Axene, CPA, a principal in tax services at Rea & Associates, Inc.
Smart Business spoke to Axene about activities that qualify for credits and the application process.
What is the credit?
It’s an income tax credit available to U.S. companies for R&D activities within the U.S. While companies conducting research are already deducting those expenses, the credit is better because it’s a dollar-for-dollar reduction in their tax liability.
The credit has been around since the early 1980s, but has expired many times and continues to be extended by Congress every year. It’s set to expire again at the end of 2013 unless Congress takes action.
There are three main categories of credits:
- Labor or the wages of people involved in R&D activities.
- Supplies expended as part of the process.
- Costs relating to hiring an outside company to assist with research, provided that the company paying for the services is at risk regarding the success or failure of the work.
For most companies, only the first two categories would apply.
There are two types of credits, a regular credit and a simplified credit. The regular credit is often referred to as a 20 percent credit, which is something of a misnomer because there’s an adjustment to prevent double dipping. Since companies are already deducting the expenses on their tax returns, the net credit given is 13 percent. Few companies claim this credit because of the detail required with the filing. The simplified credit is more common and is 4.5 percent of every R&D dollar spent.
Is the credit just for manufacturers?
No, it has wide potential applicability because it’s not limited to a particular industry. It’s truly about whether a business is performing qualified research. Lean manufacturing and Six Sigma certainly qualify, but so do other activities. For example, a software company that averages $10 million in annual revenues routinely gets $80,000 a year in credits because it continually upgrades and enhances its products.
There’s a four-part eligibility test for the credit:
- There must be some uncertainty that the activity is undertaken to eliminate. If you know the result before you start a process, it wouldn’t qualify.
- It must be for a permitted purpose, such as to develop or improve a product or process.
- There has to be a process of experimentation. Failure is a good thing — it shows a process.
- It must be technological in nature, which means it relies on a hard science. It’s physical, biological or computer engineering rather than one of the social sciences.
Why don’t more companies apply for the credit?
Many aren’t aware of the credit because advisers haven’t informed them or they don’t use advisers. Others don’t think they do R&D because they don’t have employees wearing lab coats.
There also are owners of pass-through entities who don’t bother applying because the tax credit is not available to individuals who are subject to the alternative minimum tax (AMT). If it were allowed as a credit against AMT, the percentage of people taking the credit would skyrocket.
Keep an open mind, have a conversation and determine whether the benefit is worth the time and effort to file the necessary paperwork. Also explore the state-level R&D incentives that can apply regardless of whether or not the federal credit is claimed. ●
Business banks can provide more to their clients than financial products. With all of their connections, bankers can steer businesses toward resources such as government entities and industry organizations that can help them grow and thrive.
“Their bankers should be introducing them to the people and organizations that know their industry like the back of their hand, and can offer assistance in everything from tax benefits to manufacturing locally,” says Gloria Ferguson, senior vice president and market manager of the Corporate Banking Division at Bridge Bank.
Smart Business spoke with Ferguson about the various resources available to local manufacturers and other businesses.
Why go to a bank for industry resources?
Choosing a bank that has extensive experience in your industry can be the difference between your bank offering you traditional banking services and your bank playing a vital role in the growth and success of your business. Part of the role of a consultative banker is to ensure clients are aware of the various resources available to them. When you become a client with a banker who knows your industry, he or she can help your business thrive. A banker who knows your industry is more likely to have a network of industry professionals and organizations and will also know the ins and outs of government resources available to you. Bankers have connections to a vast network of people from CPAs to lawyers to industry leaders.
As an example, the Bay Area participates in an annual manufacturing week during which people tour manufacturing companies in order to understand those businesses and help them take advantage of resources.
What are some of the local organizations dedicated to helping businesses?
California is a great example of a state with a strong support system for local businesses and manufacturers. Cities and the state of California have worked to attract and retain manufacturing companies by providing resources and benefits, things such as tax incentives and support for their labor force.
Manex has consultants that provide services to small and midsize manufacturers in Northern California. It has an edict to meet with companies to determine their needs and help create efficiencies in their business, whether that’s teaching them lean manufacturing methods or working with companies in foreign trade zones that may enable companies to receive tax advantages.
The East Bay Manufacturing Group seeks to educate manufacturers through sponsoring events with CEOs and CFOs on how to successfully run companies and solve common business problems.
SFMade supports San Francisco start-ups and manufacturers through industry specific education and networking opportunities, while connecting companies to local resources.
Also, there are additional resources provided by coalitions dedicated to innovation. The Bay Area Council, Innovation Tri-Valley Leadership Group and East Bay Leadership Council, and Fremont’s Innovation District and the Fremont Advanced & Sustainable Technology strategy explore common issues for manufacturers and seek solutions.
Why is manufacturing a particular area of focus?
Manufacturing covers such a broad spectrum of companies. It can be anything from semiconductor production to food processing. When you look at the Bay Area it’s very diverse in terms of manufacturing; there is everything from steel fabrication to bio companies, large-scale candymakers to industrial bakeries.
This is an area of focus because of the large amount of manufacturing that has moved overseas because of costs and regulations. In an effort to bring manufacturing back to California, cities and the state have worked to provide incentives and support to these companies. That’s why a lot of these organizations have been created — to attract and keep more manufacturing companies.
Although I’ve focused on manufacturing, it’s equally important to find a banker who knows your industry, no matter what business you’re in. There will be industry organizations, tax incentives and industry professionals that will be able to help your business, and your banker can be the person introducing you to this valuable network. ●
Insights Banking & Finance is brought to you by Bridge Bank
Civil courts, trying to manage busy caseloads with reduced staffs, are pushing litigants to seek alternative means of resolving their differences.
“Alternative dispute resolution (ADR) is the debt that all civil litigants pay. One way or another, everyone has to pass through some form of ADR during the life cycle of his or her litigation,” says Brock R. Lyle, a partner at Ropers Majeski Kohn & Bentley PC. “Everyone has the right to a trial by a jury of their peers, but most cases can be resolved without one. Courts cannot force you to resolve your case through mediation or some other alternative means of resolution, but they can, and will, strongly encourage you by placing settlement stops and incentives along your path to trial.”
Smart Business spoke with Lyle about the various trial alternative methods available.
Do you need to attempt mediation or some form of ADR before a case can go to trial?
There are several nets in place to catch cases before trial. The first is often mediation, a formal negotiation assisted by a neutral professional. At the initial case management conference, the court will inquire whether the parties are willing to go to mediation. If so, the court will set a completion date and follow-up hearing. If one party refuses, the matter is generally set for trial.
There are instances where parties are willing to enter into mediation even before a case is filed, a good way to save money on legal fees. But you run the risk of resolving a case before the parties fully understand it. The parties can conduct as many mediations as they believe would be helpful. Some mediators keep working with the parties after the formal session ends. Certain courts also offer no-cost mediation for simpler cases.
In place of, or sometimes in addition to, mediation, the parties can submit to an early neutral evaluation or an early settlement conference, both of which involve an impartial lawyer or judge evaluating the case and pushing both sides toward a resolution.
The final net is a mandatory settlement conference, where the judge meets with both parties separately to remind them of the costs and uncertainties inherent in trial, and to push them once again to settle. Depending on the type and size of the case, settlement through ADR can help avoid tens of thousands or even hundreds of thousands of dollars in attorney fees.
What other ADR options are available?
Another option is arbitration, which is like a private trial. It can only occur by agreement of the parties or a prior written agreement, because it involves a waiver of the right to a jury trial. Arbitrations can be binding or nonbinding, though the latter is often more informational because one or both parties can disagree with the ruling and disregard it.
At arbitration, a retired judge hears evidence from both sides with exhibits, witnesses and many elements of trial. The arbitrator then issues an award that the prevailing party has confirmed by the court.
Of course, either attorney or party can always discuss settling the case and try for an informal resolution over coffee or lunch.
How do you know what ADR method is best?
In many cases, the contract or agreement at the center of the case will require mediation, arbitration or both. For example, most real estate contracts include mediation provisions. As an added ‘incentive,’ California case law cuts off a party’s entitlement to have attorney fees reimbursed if the party is unwilling to mediate, or starts a case without first offering to mediate. If no ADR process is spelled out in a written agreement, the posture and progress of a case often dictates the best fit.
What are some pitfalls to avoid with ADR?
One concern is going through an ADR process before the case is ready. If essential information needs to come forward in written discovery, depositions or expert testimony, an early mediation may be a waste of time and money.
The ADR process also creates pressure to settle that can force a disadvantageous position. After investing time, money and energy in preparing for and attending the ADR session, parties often feel they should settle. There is no shame in walking away.
Finally, parties can abuse ADR by going through the motions without any intent to settle, delaying the matter and racking up attorney fees. It is useful to see if the other party is ‘in the ballpark’ before the cost and effort of preparing for an ADR session. ●
Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC
Gone are the days when companies could simply post openings on job boards and expect responses from a large pool of qualified candidates.
“It’s no longer appropriate to just reactively post on a job board — to post and pray that a correct candidate will submit a resume. You need to have a recruitment strategy,” says Mary Oslin, manager of Talent Acquisition at TriNet, Inc.
“It used to be that managers went to HR about an opening. Now the entire organization needs to be involved in talent acquisition. Managers should be meeting about talent acquisition on a regular basis to determine what recruiters should be pipelining,” Oslin says.
Smart Business spoke with Oslin about how the hiring process has changed, and simple steps to ensure your company’s job openings reach top quality candidates.
What are some current trends in talent acquisition?
Pipelining — having a network of candidates you keep in contact with — is one. For example, IT is always a hot skill set, so your recruiters should be in constant communication with candidates. You may not have a need now, but you may have a need in six months, so you want to be ready with pipelined candidates who have the skills you need.
Mobile recruiting is another trend. With mobile apps, contact is immediate. You might think your employees are checking news headlines when they’re actually applying for a job or negotiating terms. Applicants no longer have to wait until they get home or have a break to correspond with a recruiter. Mobile needs to be one of the tools in your toolkit for talent acquisition. Top talent is making use of mobile apps, and they want to get their resumes in front of a hiring manager as soon as possible. Employers that are only utilizing job boards are losing out to companies that are using mobile apps to reach those candidates immediately.
Focusing on employer branding also has become much more prevalent. A subset of that is the practice of using current colleagues not only for referrals, but to act as ambassadors for the brand via social networking and professional networking sites.
Do strategies change with the level of the job?
Strategies need to fit the candidate. C-level and senior management positions are typically more difficult to fill, so more networking is required. Get involved in professional organizations and professional networking social media sites like LinkedIn. For some administrative jobs, it may be OK to use the old method of posting a job and gathering resumes. But for higher-level and more skilled positions, finding passive candidates through networking is the way to go. Occasionally, great candidates are looking for a job and apply to a posting. However, the real talent is the people who are happy with their jobs and not actively looking to leave.
Is branding particularly important when it comes to attracting passive candidates?
You want your company to be one where people want to work, so be careful about what type of reputation it has in the marketplace. Many employers aren’t aware of how they are perceived.
Survey your employees and find out what can be done to make your company a great place to work. Create an atmosphere where people are happy coming to work, proud to say where they work and willing to post positive workplace developments on social media, such as Glassdoor.
What are some tips to follow to ensure talent acquisition is done well?
Every company should seek to improve its branding and reply to applicants — it’s not good to start developing a reputation of being a black hole. Eventually, word will get around and people will be told not to bother sending you their resume. Establish a procedure to contact the candidates who are not selected, whether by email or phone.
Focus on the candidate experience. Those who are not hired may walk away disappointed, but you want them to be impressed that the process was professional and they were treated with respect. ●
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