Transfer pricing refers to the pricing of goods, services or intangibles within a multinational organization, particularly in regard to cross-border transactions.
The vast majority of global trade occurs between related-party entities. As global trade increases, companies are confronted more and more with complex issues associated with intercompany pricing. This is compounded because many countries have specific transfer pricing legislation, and the tax authorities within those countries aggressively pursue transfer pricing adjustments. It is no wonder transfer pricing is often listed as the single most important international tax issue facing multinational companies.
Smart Business sat down with Will James and David Whitmer of BKD, LLP, to discuss transfer pricing and the following is their country-by-country breakdown.
Australia: Transfer Pricing Rule Changes Proposed
The Australian government has announced intent to reform its transfer pricing regime due to worries its regulations, issued in 1982, are outdated, leading to an eroding tax base and a less attractive business climate for investors. As part of the process, the Australian government issued a Consultation Paper on November 1, 2011, outlining potential changes in attempt to solicit comments. Comments on the Consultation Paper closed on November 30, 2011. The main point of the Consultation Paper was an attempt to modify Division 13 (Australia’s transfer pricing legislation) to better reflect the arm’s-length principle and line up more closely with the 2010 revised Organisation for Economic Cooperation and Development’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines).
The Consultation Paper suggests taxpayers are obliged to conduct intercompany business in an arm’s-length manner and maintain contemporaneous documentation; the paper also considers a statute of limitation for tax audits and adjustment periods. The Consultation Paper seeks to move away from looking at specific transfer prices, instead focusing on transaction outcomes. The Australian government also considered that there is some disconnection between its tax treaties and transfer pricing legislation and may apply clarifications retroactive to July 2004. Finally, the paper recognizes the differences between Australia’s approach of profit attribution to branches and the OECD’s “functionally separate enterprise” approach.
Canada: GE Capital Canada – Crown’s Appeal Dismissed
On December 15, 2010, Canada’s Federal Court of Appeal (FCA) dismissed the Crown’s appeal of the Tax Court of Canada (TCC) 2009 judgment in favor of the taxpayer, General Electric Capital Canada, Inc. (GECC). This concludes a landmark case regarding the treatment of intercompany financial guarantees. The Canada Revenue Agency (CRA) had disallowed GECC’s deductions of guarantee fees on the grounds that the explicit financial guarantee provided by General Electric U.S. (GEUS) did not provide a benefit to GECC. The CRA argued GEUS would have provided financial support to GECC with or without the explicit guarantee, asserting financial guarantees are implicit by nature.
Ultimately, the TCC determined and the FCA confirmed GEUS’ explicit guarantee did provide an incremental benefit to GECC and that the guarantee fee charged did not exceed an arm’s-length price. The TCC’s 2009 judgment relied on the “yield approach” (also commonly called the “interest-saved approach”) to determine the total benefit of the intercompany guarantee, i.e., the yield spread. The yield spread was calculated by comparing the actual cost of GECC’s third-party financing with an explicit guarantee to its estimated cost of financing without the explicit guarantee. This required a credit rating assessment of GECC to estimate GECC’s cost of finance without the explicit guarantee. The TCC determined and FCA confirmed implicit support would be considered by a third party when pricing an arm’s-length guarantee fee. As such, in applying the yield approach, the TCC estimated GECC’s cost of third-party finance without the explicit guarantee based on GECC’s credit rating inclusive of implicit support, rather than on a standalone basis.
With the GECC case serving as a precedent, analysis of intercompany guarantee fees should incorporate the concept of implicit support. Under this concept, the borrower’s credit rating would lie between its credit rating on a standalone basis and that of its parent. The yield approach provides an acceptable method to determine the benefit provided by the parent’s guarantee to its subsidiary, but it does not calculate the market price of intercompany guarantees. As the GECC case stopped short of determining an arm’s-length guarantee fee, the TCC and FCA have not yet suggested the preferred approaches to determine arm’s-length guarantee fees.
Estonia: Rule Revisions Require Documentation from More Multinationals
Estonia’s formal transfer pricing legislation (Article 53), which relies heavily upon the OECD Guidelines, has been effective as of January 1, 2007. Prior to the adoption of Article 53, the Estonian Tax and Customs Board (ETCB) rarely challenged Estonian taxpayers on transfer pricing matters. However, as the ETCB has built its transfer pricing expertise in recent years, it also increased its enforcement of transfer pricing regulations. According to KPMG’s Estonian entity, the number of transfer pricing audits conducted by the ETCB was expected to have doubled in 2010 compared to 2008 and 2009.
On January 1, 2011, new amendments to Estonia’s transfer pricing regulations took effect. The most significant change was the broadening of the previously limited definition of what constitutes related parties with respect to transaction participants in a business contract. Under the new amendment, entities now are to be considered related parties through common business interest or “dominant influence” of one of the partners over others. Presumably, with a broader definition of related parties, a greater number of Estonian business entities will be required to abide by the Estonian transfer pricing legislation, which includes certain documentation requirements.
Furthermore, the new amendments more clearly define the terms “transfer price” and “market price.” The term transfer price is now defined as the value of a transaction between related parties, while the term market price has been defined as the value of a business contract between unrelated parties.
France: Release of Guidance on 2010 Documentation Requirements
During January 2011, the French Tax Authorities (FTA) issued the final administrative guidelines regarding transfer pricing (Instruction 4 A-10-10). They are an interpretation of articles L13 AA and L13 AB of the French Tax Procedure Code (FTPC), which went into effect for tax years beginning on or after January 1, 2010. The revised rules apply to entities meeting any of the following requirements:
- Gross annual revenues or gross assets equal to or exceeding €400 million (approximately $520 million)
- The entity directly or indirectly owns at least 50 percent of companies meeting the €400 million criteria
- More than 50 percent of the entity’s capital or voting rights are owned, directly or indirectly, by French or foreign entities meeting the €400 million criteria
- The entity benefits from the regime of worldwide tax consolidation in France
- The entity is in a consolidated tax group in France when at least one company of the group meets any of the above criteria
The new guidelines rely on the OECD Guidelines to define the arm’s-length standard and methods to prepare transfer pricing documentation. The French transfer pricing guidelines state transfer pricing documentation must be prepared contemporaneously and must be provided within 30 days of a written request by the FTA during an audit. French transfer pricing documentation can be prepared in any language, but the FTA may require translation into French. The FTA’s final administrative guidelines on transfer pricing allows for penalties of up to 5 percent of the transfer pricing adjustment for each audited year, with minimum penalty of €10,000. Companies with French affiliates need to evaluate French transfer pricing documentation needs annually.
Italy: Government Issues Revisions to the Relatively New Transfer Pricing Regime
On September 29, 2010, the Italian Revenue Agency (IRA) established a new transfer pricing documentation regime under Regulation 2010/137654, which provides penalty protection for taxpayers that have prepared and maintained sufficient documentation. In addition, the IRA introduced new transfer pricing guidelines under Circular No. 58/E on December 15, 2010. Circular No. 58/E updates Italy’s original guidelines, introduced in 1980, and provides further explanation of the documentation requirements under Regulation 2010/137654.
Regulation 2010/137654 specifies who is required to prepare transfer pricing documentation and what information is required to achieve penalty protection. Italian taxpayers meeting these documentation requirements may avoid administrative penalties of 100 percent to 200 percent of unpaid tax resulting from an IRA-imposed income adjustment. Italian entities that are holding or subholding companies are required to prepare a master file containing documents pertaining to the taxpayer’s worldwide group. In addition, a country-specific file is required that must provide items such as a description of the local entity’s business, industry and intercompany transactions, as well as provide a detailed discussion regarding the selection of transfer pricing method and comparability analysis related to the relevant intercompany transactions. Circular No. 58 implies cooperation with the IRA and good faith efforts to prepare documentation will be factored into decisions whether to impose transfer pricing penalties.
Under Circular No. 58/E, the transfer pricing rules have been revised to be consistent with the revised transfer pricing guidelines issued by the OECD on July 22, 2010. The original Italian guidelines exalted traditional methods above income-based methods. The updated Italian guidelines, in certain circumstances, eliminate this hierarchy and allow selection of the most appropriate method given the transaction circumstances.
Korea: Better Alignment of Customs & Transfer Pricing Rules
Multinational corporations with subsidiaries in Korea and Korean companies purchasing goods from foreign related parties often face difficulties due to differences between Korea’s transfer pricing rules under income tax law and customs valuation rules under customs law. For example, if during a transfer pricing audit, a Korean importer is determined to have underreported income due to an overstated transfer price, it is often difficult for the importer to receive a refund on the applicable customs duties. In contrast, if the transfer price paid by the importer is subsequently raised due to a transfer pricing audit, the Korean Customs Service (KCS) often charges the importer the additional customs duties as well as any related penalties.
To better align Korea’s tax and customs laws and increase cooperation between the Korean National Tax Service (NTS) and KCS, a task force was organized by the Korean Ministry of Strategy and Finance (MOSF) in early 2011. On September 7, the MOSF announced proposals based on the task force’s instructions that would amend the Law for Coordination of International Tax Affairs (LCITA) and the Customs Act. The amendment is expected to take effect January 1, 2012.
The most significant change in the proposal is the provision of correlative adjustments between transfer pricing and customs value for import transactions. If the NTS or KCS makes an adjustment on a related-party import transaction and the taxpayer files a refund request to the other authority, the other authority must make a correlative adjustment if it views the adjusted price as appropriate. If the KCS or NTS views the price adjustment made by the other authority as inappropriate, the two authorities must come to a compromise.
Other major amendments included in the proposal include:
- Opportunity to present taxpayer’s opinion in determining customs value
- Improvement on profit and general expense ratio under Method 4 of customs valuation
- Exemption from penalties in relation to Advance Customs Valuation Arrangement
- Establishment of a Customs Ruling Examination Committee
- Establishment of a duty amendment system
The proposal represents a positive development in the Korean transfer pricing environment, as it reduces the possibility of a taxpayer being unfairly assessed additional customs or taxes in the event of an adjustment by either authority.
Luxembourg: Circular Issued on Advance Rulings for Finance Companies
A circular (Circular L.I.R. No. 164/2) affecting multinational enterprises with financing arrangements involving a Luxembourg entity was issued by the Luxembourg tax authorities on January 28, 2011. Luxembourg, like the Netherlands, has been a preferred jurisdiction for intercompany financing arrangements, and many multinationals have obtained informal rulings covering their intercompany financing arrangements.
The new requirements were a result of pressure from the European Union to harmonize the pricing approach for financing companies. The circular specifies companies wishing to obtain advance clearance on their intercompany financing arrangements must meet more stringent requirements in order to qualify. The rules necessitate the Luxembourg company must have significant substance in Luxembourg and must bear real economic risks related to its financing activities. The substance requirement necessitates: the Luxembourg company’s board of directors be comprised of Luxembourg residents—or nonresidents with a professional activity in Luxembourg—who have decision-making ability; the key management decisions should be made in Luxembourg; the entity must not be considered a tax resident of another country; and the entity must have a Luxembourg bank account or a bank account with a Luxembourg bank with a foreign branch. A ruling, which is valid for five years, only will be granted if the above conditions are met and an OECD-compliant transfer pricing study, which includes a functional analysis, is prepared.
Malaysia: New Intercompany Disclosure Form Launched in Malaysia
In July 2011, the Inland Revenue Board’s (IRB) Multinational Tax Department (MTD) introduced Form MNE [1/2011] in an effort to increase transfer pricing compliance by multinational companies under section 140A of Malaysia’s Income Tax Act, 1967. While this form does not establish formal transfer pricing rules, it is regarded as a step toward prescribed transfer pricing regulation in Malaysia.
Form MNE [1/2011] is divided into four sections: General Information, Related Party Transactions, Intercompany Financing and Other Information. The General Information section requests information related to the taxpayer’s legal entity structure and details regarding the taxpayer’s dealings with related parties. The Related Party Transactions section asks for information regarding intercompany transaction volumes in relation to tangible goods, intangible assets, services, interest and guarantee fees. The Intercompany Financing section requests disclosure and details of the financing arrangements between foreign related parties and information about whether this financial assistance is interest bearing or interest free. The Other Information section requests a functional characterization of the Malaysian entity and an indication of whether the company has prepared contemporaneous transfer pricing documentation for the current year; outdated transfer pricing documentation would need to be updated for a positive response to the latter request.
Company data from Form MNE [1/2011] will enable the MTD to target companies engaging in significant related-party transactions, consistently reporting losses or poor profits and lacking transfer pricing documentation for audit. The IRB has advised taxpayers to maintain current documentation or pursue advance pricing agreements to avoid uncertainty and potential costs related to transfer pricing audits.
People’s Republic of China: Assault Continues on Multinational Companies
China’s transfer pricing laws took effect January 1, 2008. There usually is a lag between the enactment of the new transfer pricing rules and vigorous enforcement. However, the State Administration of Taxation (SAT) has been aggressively auditing the transfer pricing arrangements for inbound multinational enterprises as part of a concerted enforcement effort.
In a recent turn of events, the SAT has started to compile information from its audits into a database. According to the Deputy Chief of SAT’s Anti-Avoidance Division, more than 1,000 audit cases will be added to the database. The information will be used as ‘secret comparables’ during the course of transfer pricing audits where publicly available data is not available or is not sufficient. The use of secret comparables is permissible in China. Taxpayers are at a distinct disadvantage when secret comparables are used as the basis of the tax authority’s position, as taxpayers have no ability to review the information to determine if it is on par.
According to an SAT official, a number of taxpayers are producing inadequate transfer pricing documentation. The SAT is working on a template to enable local tax inspectors to assess the transfer pricing documentation. Circular No. (2010) 323, issued in July 2010, requires local tax authorities to review and grade at least 10 percent of documentation.
Qatar: Transfer Pricing Principles Introduced
The introduction of self-assessment tax regime in Qatar also included some transfer pricing provisions. Companies registered in the Qatar Financial Center (QFC) must pay a flat corporate income tax of 10 percent. Companies operating in the QFC are largely in the banking, asset management, insurance and reinsurance sectors.
The new rules provide a definition of what constitutes related parties, i.e., control, introduce the arm’s-length principle and provide a process for advance rulings and relief from double taxation. The new rules enable tax authorities to adjust non-arm’s-length intercompany transactions for companies located in the QFC and outside of the QFC using arm’s-length principles. The new rules, retroactive to January 1, 2010, do not require taxpayers to maintain transfer pricing documentation.
Russia: New Rules Require Increased Transfer Pricing Documentation
With the introduction of Federal Law No. 227-FZ by the Russian Ministry of Finance in July 2011, Russia’s transfer pricing rules have been amended to include additional technical detail and increased consistency with OECD Guidelines.
Some of the noteworthy changes to the Russian transfer pricing regulations include:
- The introduction of the arm’s-length principle as the standard for analyzing intercompany transactions
- Augmentation of the number of accepted transfer pricing methodologies
- A reduction in the list of transaction types subject to Russian transfer pricing regulations
- An expanded definition of the term “related parties,” including an increase in the direct or indirect ownership threshold from 20 percent to 25 percent
- Elimination of the safe harbor that previously allowed controlled prices to deviate by up to 20 percent from current arm’s-length market prices
- An expanded list of approved sources from which data may be obtained for purposes of determining an arm’s-length transfer price
Also outlined in the 2012 regulations is the transfer pricing documentation requirements. Taxpayers will be required to prepare transfer documentation for related-party transactions in which the total income received by the taxpayer from all controlled transactions with the same related party exceeds RUB 100 million (USD $3.6 million) in 2012 and RUB 80 million (USD $2.9 million) in 2013. After 2013, documentation will be required for all related-party transactions.
The 2012 regulations also include details about penalties for Russian taxpayers who underpay taxes due to the use of non-arm’s-length transfer prices. However, the penalties will not go into effect until 2014. Between 2014 and 2016, a penalty of 20 percent of the additional tax payable may be imposed on noncompliant taxpayers. Beginning in 2017 and moving forward, the penalty will be increased to 40 percent of the additional tax payable.
Turkey: Documentation Requirements Increased
In November 2010, the Turkish Tax Authority (TTA) published guidelines that further clarify transfer pricing subjects covered in Article 13 of the Turkish Corporate Income Tax Law.
In 2007, the TTA published the General Communiqué Regarding Disguised Income Distribution via Transfer Pricing, which provided details and clarification of Turkey’s formal transfer pricing rules located in Article 13 of the Turkish Corporate Income Tax Law. The November 2010 publication by the TTA contained guidelines further clarifying subjects covered in the transfer pricing communiqué and outlining Turkey’s transfer pricing documentation requirements in greater detail.
The TTA’s guidelines maintain Turkish taxpayers should prepare transfer pricing documentation on an annual basis, covering all intercompany transactions regardless of materiality. The 2010 guidelines place further emphasis on the TTA’s preference for the use of internal comparables to determine an arm’s-length transfer price. However, for situations requiring third-party comparable searches, the TTA has indicated it may further investigate taxpayers with transfer pricing report draft dates substantially differs from the documented performance date of any comparable searches.
The guidelines also provide a sample transfer pricing report outlining what information should be included in each section of a complete transfer pricing report. To avoid future conflicts with taxpayers, the TTA has indicated it would like taxpayers to strictly follow the format of the provided sample transfer report when assembling their own documentation.
United Kingdom: OECD Guideline Revisions Formally Adopted into Law
Her Majesty’s Revenue and Customs (HMRC) has issued a briefing about proposed revisions of its transfer pricing rules found in Schedule 28AA to the Income and Corporation Taxes Act 1988 (for accounting periods ending on or after July 1, 1999). As the OECD Guidelines were modified and finalized in July 2010, the HMRC wants to synchronize its transfer pricing rules with the 2010 revised OECD Guidelines. This should help mitigate double taxation risk for businesses with cross-border activities.
HMRC also is examining its stance on taxation of high-technology intangible property (IP) and its link to research and development. In particular, it has the idea of creating a Patent Box tax regime to locate high-technology jobs and IP in the U.K. In 2011, the HMRC consulted with corporations and other stakeholders for input on this idea.
United States: Recent IRS Transfer Pricing Developments
The IRS has continued efforts to enhance its international tax capabilities, with specific efforts to bolster its transfer pricing enforcement capability. The IRS intends to more effectively identify, examine and resolve transfer pricing cases through the recent reorganization of the Large & Mid-Sized Business (LMSB) division, the hiring of additional technical transfer pricing personnel and the addition of a transfer pricing director. With the expected increase in transfer pricing-focused audits, taxpayers increasingly will benefit from sensible transfer pricing documentation to justify their intercompany pricing.
In October 2010, the IRS reorganized the LMSB division into the Large Business & International (LB&I) division, signifying renewed attempts to integrate and coordinate international tax compliance efforts. The IRS’ international subdivision will add nearly 900 employees, including examiners, transfer pricing economists and technical staff, to the 600 employees in place at the end of 2010. New Transfer Pricing Director Samuel Maruca has been tasked with developing and managing the international subdivision’s transfer pricing strategy, training initiatives and operating policies, as well as the soon-to-be combined Advance Pricing Agreement (APA) and Competent Authority programs. To better coordinate the efforts of the transfer pricing national office and the field, the LB&I division intends to create a transfer pricing advisory group organized geographically, comprising 40 to 60 personnel.
According to Michael Danilack, the IRS Deputy Commissioner (International), there will be an enhanced focus on intercompany transactions of foreign-controlled U.S. corporations and U.S. branches of foreign corporations. With Japan reducing its statutory tax rate, the U.S. will soon have the highest statutory tax rate in the world, and the IRS will be dedicating resources to challenge intercompany transactions that avoid U.S. tax by inappropriately shifting income back to the taxpayer’s home country.
In 2010, Vietnam issued new transfer pricing guidelines outlined in Circular 66 (2010) to replace Circular 117 (2005), as a part of an initiative to enforce Vietnam’s transfer pricing regulations. Circular 66 introduced several changes that strengthened the country’s transfer pricing requirements. During 2011, the Vietnamese General Department of Taxation (VGDT) issued a report citing significant gains in tax revenues due to the release of the 2010 transfer pricing rules and increased audits resulting in transfer pricing assessments. The VGDT also announced it will conduct further audits of the 2008 to 2010 tax years; companies with losses or low profits automatically will be audited.
As part of the compliance initiative, the VGDT also issued surveys asking taxpayers to provide certain company data for 2006–2010, including financial indicators, transaction descriptions and transaction volumes. In addition, the VGDT inquired about the location of these related parties, transfer pricing methods adopted in connection with the surveyed transactions and each company’s compliance procedures implemented after the introduction of Circular 66.
To learn more about transfer pricing solutions or to discuss your company’s current transfer pricing positions, please contact Will James (firstname.lastname@example.org), David Whitmer (email@example.com) or your BKD advisor.
Article reprinted with permission from BKD, LLP, bkd.com. All rights reserved.
There is a wide variety of opinion on what makes a solid business website, and what a business should expect to pay for one. “The evolving formats and functionalities in a Web presence can parallel a businesses’ growth from a small start up to a mega-corporation,” says Kevin Hourigan, President and CEO of Web design, Web development and online marketing agency, Bayshore Solutions, “A business’ needs will drive the complexity required for its website, and the budget to support it. But the key question to ask is ‘What is it costing your business to not have a web presence on par with the expectations of your target customers?’”
Smart Business spoke with Kevin about how to right-size your website expectations for your Web budget.
How much do I really need to spend on my website?
The real question to ask is: “What could the ‘right’ website produce over and above my current website. If the answer is anything more that what you currently have, then you need to ensure that your website is developed in a manner that delivers the right digital results to help your business succeed now and as your business grows.
What’s the difference between a $10, $25k and a $50K website?
In a nutshell, as a price point on a website increases, so does feature functionality, control and strategic readiness. Features include user interface items like site search, navigation options, applications integration to CRM, inventory management, marketing automation platforms, etc., financial transactions processing, and capacity for content variety (images, sound, video, downloads, etc.).
Control items include how easy it is to access and edit your website and interface with the information flow it holds. Hosting and IT access, a web content management system (CRM), SEO access, and data collection and export or synchronization with integrated applications are examples of these.
Strategic readiness of a website includes: dedicated aesthetics that enhance your brand, SEO friendliness of the site structure, interconnectivity with your other marketing initiatives, and flexibility of your website to scale as your business needs develop (for example: if you need it to, can the site handle 10 orders in May, 10 thousand in June and 10 million by July?).
There are many relatively lower price point “template” website packages that a business can use, but this will be within a specific set of limited parameters in all of the above areas. For small business start-ups these often might be a good initial choice for a first website. With their low costs, they are affordable for small businesses and can act as a “billboard” for their company in its initial start up stage.
As companies grow, so do their customers’ expectations of the businesses’ Web presence. These expectations call for an online experience well beyond what most templates can cater to. This is where companies must rely on specific, design elements exclusive to a brand, more dedicated control of technology, and the ability to access, edit and scale become necessary as a business grows. At this point the templated web designs become like a toddler sized suit on a teenager. They just cannot give your business the best fit or professional presentation. Some businesses take time to reach this need-level. Others, in order to compete, need to accommodate an enterprise scale with their first website.
As your business grows and needs more than an elementary web design, the investment required increases in order to support custom programming, allow ecommerce and application integration, ensure the level of professionalism in user-interface and administrative functionality, as well as offer the features and integrity of a higher caliber website. It is not uncommon for a website that is developed for enterprise business results to require a starting investment in the tens of thousands to multiples of six figures.
The focus needs to be on the return you are expecting for your web investment. If your website and the results it brings are strategic to your business, then that website needs to be developed, maintained and supported accordingly.
How can I get the most for my money with my business website?
Here is a quick checklist of things to look for and consider when shopping for a website design or development partner:
- First and foremost, determine your goals and results expectations of your website. Use these in a measurable way to gage the promises and the performance of potential and ongoing web partners.
- Use an experienced professional. Relatives and friends that aren’t tenured web professionals typically don’t deliver the results your business needs.
- Ask for Case Studies. Portfolio examples alone of ‘Wow’ imagery and impressive visual design are one thing. Tangible improved results to the business are the true measure of great design.
- Ask what ongoing SEO-readiness is part of their normal website build process. Are they aligned to building a site equipped for you to market it successfully after it is launched?
- Ask for details on website hosting requirements and access. What are the downtime risks and recovery processes?
- See a live demo of the site’s administrative editing and access proposed by potential web partners. How easy and quickly can you (not them) make changes, and what kinds of changes additions etc., can you make?
- Compare apples to apples, and understand the options. This can be a complex process, and often a great approach is using a ‘consulting’ engagement to determine the best scope and needs for your website. It can save you a lot down the road by helping you make fully informed decisions and asking the right questions at the start.
These insights will help you make the right-sized investment in your Web presence best suited to deliver ongoing success to your business.
<< For a snapshot of Bayshore Solutions Web marketing methodology, visit: http://www.bayshoresolutions.com/about-bayshore-solutions/methodology.aspx
Kevin Hourigan is the president and CEO of Bayshore Solutions. Reach him at (877) 535-4578 or www.BayshoreSolutions.com.
Does the idea of implementing or upgrading your HR system(s) worry you? If it does, you certainly are not alone. Most business leaders either have been a part of or have heard horror stories of cost overruns, missed deadlines and failure to realize the promised benefits when implementing a new system.
But the reality is that contemporary HR business systems play an irreplaceable role in the efficiency of business operations, and it’s something that businesses should consider, says Jim Torrence, practice leader of the Human Resource Management Systems Group at Sequent, Inc.
“A business owner who delays a technology upgrade may be depriving the business of efficiencies that would increase profits,” says Torrence. “Worse yet, a competitor that is an early adopter of powerful technology may leapfrog over you and gain a significant advantage in the marketplace.”
Smart Business spoke with Torrence about how to automate your integrated resources/payroll, 401(k) planning, time and attendance, learning management systems or performance management systems to gain an advantage for your business.
If a business is considering implementing an HR system or upgrading its current one, where should it start?
First, businesses need to be aware of some of the classic pitfalls that doom many system implementations. Too many companies proceed with a lack of methodology. The project management process should be defined early on to ensure a happy ending. System selection and implementation become more difficult, time-consuming and expensive if you don’t have a methodology guiding this complex undertaking.
System implementations often require cross-functional teams to work together closely, with several departments supplying resources to the project. This makes it especially important to have a sound methodology in place so that these matrixes operate as efficiently as possible.
The methodology should include how changes will be tested and rolled out, and how various versions of software are managed. Failure to do this blocking and tackling can torpedo your project, or ensure that it can never be properly supported post implementation.
A second pitfall that companies fall into is thinking of implementation as an IT project, rather than as a business project. Once you’ve made the decision that a systems upgrade is necessary, you can’t just assign the project to someone and then walk away. The new system has to support the business operations and help advance the strategy of the company, which means that IT cannot be working in a vacuum. An executive sponsor, such as the owner, president, CEO or COO of the company, should actively provide high-level oversight and support to the project team from start to finish.
What are some other pitfalls businesses face?
Too many companies work backward from an implementation date. Many project plans are determined by an ambitious project leader choosing an aggressive date and circling it on the calendar, with the expectation that it will be completed by that date.
As a result, all implementation requirements and timelines are then worked against this date. While this sounds good in theory, this approach often puts extreme pressure on implementation teams throughout the process. Instead of dictating timelines, the implementation teams should be involved in the process and questioned prior to implementation to determine what timelines are appropriate. That way, you don’t end up cutting a lot of corners so that you can quickly implement a system that doesn’t really support the business.
Adopting inflexible timetables can also cause an implementation to falter. Many projects fail because project managers and executive sponsors develop an emotional attachment to the deployment date. And if bonuses are tied to completion dates, the project managers will be tempted to sacrifice functionality in order to go live on the magic date to earn those bonuses.
If business priorities have changed over the course of the project, the right business decision may be to delay a project. The motto should be ‘Do it right,’ not ‘Do or die.’ Trying to fix a botched implementation after it has gone live causes pain throughout the organization, which can possibly last for years.
How can failing to take people into account cause the project to fail?
It’s easy to be so focused on the system changes that you forget the human element of implementation. With system changes come procedural changes for your employees, so don’t forget to include them in the implementation.
By appointing a team of well-respected employees to help lead the change, you can boost morale and, ultimately, the success of the project. Those employees, along with the company’s leaders and managers, should not only communicate the timing, goals and strategies surrounding the project, but they should also be change agents who help create positive buzz in the workplace around the changes.
Botched system implementations are unforgiving to your business and to your employees’ careers. Downtime, decreased efficiency and deteriorating internal/external customer service can be especially detrimental to a small or rapidly growing business.
By avoiding these pitfalls, you can significantly increase your probability of having a successful HR business system implementation.
Jim Torrence is practice leader of the Human Resource Management Systems Group at Sequent, Inc. Reach him at (888) 456-3627 or JTorrence@sequent.biz.
Establishing an efficient accounts receivable process is a critical step for most businesses, which can necessitate a major balancing act, says Jennifer Hall, senior vice president, middle market sales director, Commercial Deposits & Treasury Management, Associated Bank.
“You and your customer likely have different goals,” says Hall. “You want to receive payment as quickly as possible for the products and services you’ve delivered. Your customer, on the other hand, wants to delay payment as long as possible. You need to come up with solutions that are acceptable to valuable customers while minimizing the time you have to wait for payment and the risk of nonpayment.”
Smart Business spoke with Hall about how to strike a balance when it comes to accounts receivable.
Why is developing an efficient accounts receivable process so important?
How quickly receivables are paid directly affects your cash flow, and properly balanced cash flow is essential for stability. The faster you can collect outstanding receivables, the faster the cash can be spent to meet payroll and other expenses, pursue expansion and investment goals, or enhance company profits.
Collection delinquencies make it difficult to forecast cash flow and may mean the business has to create a bigger cash cushion than it otherwise would in order to deal with slow payments and still meet its obligations.
How can a business evaluate its risks?
First, run credit checks so that you can set up payment terms accordingly. A customer with less-than-stellar credit may need to pay more up front, whereas a reliable customer may earn an extended payment arrangement.
Second, anticipate and prevent late payments. Automatically monitor your receivables aging. Are there customers whose payments routinely lag? Do you have a goal for new customer collection periods? Perhaps you could negotiate discounts for early payment or institute a down payment plan so some cash comes in early. With new customers, set expectations for credit and collection terms up front and act swiftly to collect when a payment is past due.
Monitoring your accounts receivables closely allows you to quickly identify trends in payment behavior. If a customer routinely pays on time but has had months of late payments, this could be a red flag. Perhaps it is in financial trouble or is losing confidence in you as a supplier. Either way, it merits a call to see if there are steps that could prevent future problems.
Third, spread the risk. If your business is dependent on the payment timeliness of a few large clients, you are at greater risk than if receivables are more evenly spread across many smaller ones. If one large trading partner goes bankrupt or develops erratic payment habits, your ability to predict and efficiently manage your cash flows may be significantly affected.
Another risk occurs when you are a supplier to a major corporation with the clout to demand payment terms that involve not only deep discounting but also significantly extended payment timelines. Factor these payment arrangements into your cash flow planning.
How can a business manage its orders and minimize it receivables conversion cycle
Make it easy to buy. Ordering should be quick, easy and accurate. Expedite the purchasing process. Also provide immediate payment options and offer phone assistance. Having someone to answer questions can increase your order completion rate, and customer service representatives can suggest complementary products, resulting in incremental sales. Also discourage orders via traditional mail, which increases the receivables cycle. Finally, provide timely product shipments or service completion. The timely conversion of orders to cash can be sabotaged by internal inefficiencies or lack of precise knowledge of production metrics. Defining and measuring important targets allows you to prevent critical product or service shortages.
How can a company streamline receivables?
Strive to invoice within 24 hours of shipment because the customer won’t begin the payment process until the invoice is received.
Make invoices simple. They typically go to the accounting group, so superfluous information is a waste of time and money and can confuse the main point — the amount due. To speed payment, make it easy for the customer. Here are some treasury management products and services that may help.
* Electronic payments and deposit. Reducing paper transactions can speed payment. By using electronic solutions such as automated clearinghouse (ACH), wire payments and credit cards, the time between delivery of the product or service and payment is minimized.
* Lockbox services. For businesses that receive a large number of check payments or large dollar check payments, lockbox services can streamline the process and reduce the time from check receipt to deposit. Checks are sent directly to a remittance address owned by the bank and retrieved multiple times each day to expedite payment processing, minimizing mail, processing and information float while maximizing funds availability.
* Remote deposit capture. This accelerates paper check deposits into your business account. Scan checks at your location to create a digital file that is sent to the bank over a secure Internet connection. This reduces mail and check float and allows you to export data directly into your accounts receivable system.
* Online information reporting. Simple report statements, CD-ROMs containing lockbox images, both data and image transmission files that can be uploaded into your accounts receivable or ERP systems, and online and Web-based information delivery services can provide timely and convenient access to your account information.
No matter how healthy your sales, an inefficient or ineffective accounts receivable process can hinder growth. A treasury management expert can evaluate your receivables needs and suggest cash management solutions to streamline receivables processes and improve cash flow.
Associated Bank, N.A., is a Member FDIC and Associated Banc-Corp.
Jennifer Hall is senior vice president at Associated Bank. Reach her at (312) 565-5275 or Jennifer.Hall@associatedbank.com.
Patents, trademarks, copyrights and trade secrets, or intellectual property (IP), have become an increasingly important asset for today’s businesses. In particular, IP provides strategic and financial advantages against competitors in the form of improved business and/or manufacturing processes and new product technology or designs.
The U.S. Patent and Trademark Office (USPTO) indicated the number of patents granted in 2011 (247,713) was the largest since 1963, and as of 2011, there were 1.75 million active trademark registrations. Further, the U.S. Copyright Office indicated that between 1790 and 2009, approximately 33.65 million copyrights were registered.
“While we have seen the number of patent grants and the volume of trademark and copyright registrations increase, in my experience, companies are not appropriately identifying and managing their IP,” says Andrea Gonzalez, CPA, a senior manager at Cendrowski Corporate Advisors. “As a result, companies are missing valuable strategic and economic opportunities.”
Smart Business spoke with Gonzalez about the necessity for companies to identify and manage their IP.
Why it is important for a company to identify its IP?
It is important for a variety of reasons; in particular, it allows a company to fully understand its IP portfolio. Once a company identifies its IP portfolio, it is able to determine the development stage of in-process IP; determine the ongoing cost of its IP development, including whether the company should continue to fund development; assess and critically review the IP’s continuing value to the company; identify potential licensing in/out opportunities; identify potential IP purchasing needs or sales of nonperforming IP; comply with financial reporting requirements; and monitor for potential misappropriation or infringement of its IP.
How can a company identify and manage its IP?
A company can start by implementing a formal process of identifying and managing all IP assets within the company on an annual basis. The first step is to establish a standardized method for identifying specific IP by department or functional area, by the type of IP (e.g., patents, copyrights) and by the type of product it relates to or the process for which it applies. The categories of identification can vary by company depending on the depth and variety of IP assets.
The second step is to implement the formal IP identification process. The implementation begins by interviewing various employees. Employee interviews enable a company to identify all of its in-process and established IP and appropriately categorize by department, type and product/process.
Once all IP is identified and categorized, the company can easily manage its IP portfolio. Specifically, it can perform annual audits of its IP portfolio either internally or via outside IP consultants and implement computerized or automated audits. The audits enable a company to monitor the current status of in-process IP; estimate the useful life and use of its IP; determine its value for purposes of financial reporting, insurance or collateral; and identify potential business opportunities (e.g., licensing in/out, sales, purchases), among other items.
Don’t a company’s financial statement auditors perform this function?
Not necessarily. If IP is self-created, the costs of creating the property are expensed rather than capitalized. As such, there may not be an asset included in the balance sheet for the IP.
Is it also important for a company to safeguard its IP?
Safeguarding a company’s IP is important to maintaining the economic and business benefits previously discussed. It has also become increasingly important because the accessibility of information has never been easier than it is today.
Further, there is an increasing availability of tools capable of obtaining information maintained in electronic environments. Therefore, it is crucial for a company to identify its various forms of IP and work to not only implement appropriate internal security measures but to also work with their legal counsel to ensure the appropriate IP protection afforded under U.S. laws are in place to protect the company’s IP assets. Enterprise risk management extends to IP, as well as ‘hard’ assets.
What if a company suspects its IP rights have been infringed or stolen?
The first step is to contact legal counsel. If legal counsel determines there is an alleged infringement or misappropriation, financial and accounting professionals can be retained to determine the economic damages that may have resulted from the alleged unlawful acts prior to or after a formal complaint is filed with the court.
How are damages quantified if a company believes its IP has been infringed or misappropriated?
There are a number of different methods forensic accountants and valuation analysts use to quantify IP damages. Bearing in mind damage remedies available under the law vary based on the type of IP allegedly infringed or misappropriated, damages may be quantified by estimating a reasonable royalty rate, quantifying the profits the IP inventor would have earned but for the alleged infringement, or by quantifying the unjust enrichment the infringer earned as a result of their alleged misappropriation or infringement.
Andrea Gonzalez, CPA, is a senior manager at Cendrowski Corporate Advisors. Reach her at firstname.lastname@example.org.
The largest and fastest growing career and talent management partnership, Careers Partners International (CPI) is a global talent management organization comprised of 70 partners with 1,500 consultants operating in over 200 locations across 35 countries. As a CPI partner, CPI Houston offers local expertise and a global reach to companies large and small.
For over 25 years, CPI Houston has been helping Fortune 500 and many smaller companies optimize their bottom lines through talent acquisition, development and transition services. In contrast to other firms that provide off-the-shelf programs, CPI’s approach customizes talent management solutions for improved results.
Smart Business sat down with Sheryl Dawson, Executive Partner with CPI Houston and Talent Strategies Group, a Division of CPI Houston, to learn more.
What are some of your biggest business challenges?
Having been in business for over 25 years, I have found that one of the toughest challenges has been navigating the changing landscape of our business, especially during difficult economic times. Talent management consulting has undergone dramatic shifts with the impact of changing workforce demographics, globalization and technology. Expanding and altering our various practices to respond to the needs of our client companies in acquiring, accessing, developing, retaining and transitioning talent has been an ongoing process.
Strategies employed to address these challenges include:
- Becoming a partner in the fastest growing global talent management consulting organization in the world with over 200 locations in 35 countries.
- Building a team of top coaching and consulting talent to deliver best-in-class services.
- Partnering with innovative talent management technology companies to support our clients’ talent strategies with top rated products.
- Developing innovative solutions to “right now” challenges our clients face.
- Partnering with our clients to ensure their business needs, unique requirements and challenges are met and expectations exceeded.
- Remaining vigilant to developing economic, business and talent management trends that impact both our clients’ and our business, then adapting accordingly to ensure a competitive advantage.
Finally, we have created our brands to best reflect our values of integrity, high quality, commitment to our clients and optimal results. Demonstrating our value proposition to clients is an everyday goal.
How do you drive innovation?
Innovation is the life blood of any successful organization and it is a passion of mine. We are known for creating custom solutions for our clients using a blend of traditional and technology-driven learning and development resources. While innovating is serious business, for us it is also fun! I recall years ago, long before cloud technology, that we developed a “virtual” outplacement solution to complement our highly personalized programs. Today while major outplacement competitors have adapted technology as the primary delivery mode, substituting personal coaching with virtual online tools, CPI retains a coach-centric model of delivery that combines the best of both approaches.
In all aspects of talent management, we partner with organizations that are leaders in SAAS solutions such as SuccessFactors and Orca Eyes. We also utilize Harrison Assessments, a best-in-class assessment for the entire talent management cycle from recruiting to development and succession planning. Our forte is identifying and creating the best solutions and applying them to our clients’ unique requirements for optimal results.
What is a lesson you've learned in business?
One of the lessons I have personally learned is that I cannot be “best” at everything. It truly takes a team to deliver the best solutions. One of my greatest privileges in consulting is the opportunity to work with highly talented consultants and coaches. The old adage that our most important resource is our people is by far the greatest truth for a consulting firm. Without our experienced coaches, consultants and trainers, we have little to offer. Even our technology solutions are developed by extremely experienced and talented people. Over the years, I have focused on developing a network of highly talented consultants and creating an environment in which they can do what they love and what they do best. Having the right talent, at the right time, with the right solution for the right client is what I do best. Rather than trying to be all things to all people, I partner, collaborate and innovate to present the right solution with the right delivery team to achieve our clients’ goals.
How has your organization impacted your community and regional economy?
Our impact on the community and regional economy has been significant over the years. As a talent management consulting organization, our business is people. We directly impact the lives not only of those employees whom we personally coach, but their families and their entire organizations as well. We help our clients find new jobs and careers, advance their careers and become better leaders. We help organizations develop talent management strategies that optimize their engagement and retention. We help communities by enabling their population to find their passions, achieve their career goals, provide for their families, become more productive employees and entrepreneurs, and improve their leadership capacity. That adds up to an immeasurable contribution for over 25 years.
How do you provide value to your clients?
Our value proposition is constantly changing and adapting to our clients’ needs, requirements and business goals. What sets us apart is our commitment to adding value at each step of the consulting engagement. From identifying needs, to assessing solution alternatives, to delivery, we seek to differentiate our services and products with strong relationships of trust, innovative solutions, high quality delivery, and measurable results. We take pride in our long term client relationships and repeat business.
How do you go "above and beyond" for clients?
Going above and beyond is not merely a slogan for us — it is a commitment. Our philosophy of customer service is that we want our customers to be our best “sales force.” We deliver every assignment with the goal of having every client be willing to recommend us to their closest colleague or friend. We guarantee our performance will warrant the trust and confidence placed in our extraordinary team. It is great to get a generic reference, but when we receive a direct referral we know we have gone above and beyond for our client and that is the best reward for a project well done.
Providing a quality security service is what Reynolds Protection has sought out to do the past five years.
An agency based in Dallas, we service the entire state with security officers, armed guards and personal protection officers. Also known as bodyguards, those more familiar with the industry say “executive protection.” Across the great state of Texas, you will spot our employees in places such as high-rise lobbies, banks, medical clinics and even guarding million-dollar homes. Our clientele ranges from Fortune 500 companies to small mom-and-pop store fronts.
All of our licensing, schooling and training is given and governed by the Department of Public Safety’s Private Security Bureau. Given the serious nature of our business, the PSB and DPS closely monitor our employees, training and business practices. Every single guard at Reynolds Protection is a licensed and approved officer by the DPS & PSB. They have all had excellent training, testing and passing scores by advanced security schools and given their DPS credentials.
Protecting the executive
If you’re a prominent executive worth a substantial amount of money, we promise you that right now as you read this article, there is a professional criminal in your town who keeps notes on you, your kids, your wife, your cars, your nannies, etc. They have your daily routines memorized. They know where your kids go to school, where your wife likes to shop and eat lunch with her friends. They would love nothing more than to pounce on your family for their financial gain.
But kidnappings and theft are not the only dangers! Anger and retaliation are also a constant concern for today’s executive. The high-level executive is forced to make decisions that could spark media attention or make decisions that may result in people losing jobs. It only takes one disgruntled person finding the one unlocked door or one unsecured entrance to end your life.
Becoming one of Texas’ best fastest-growing security firms — with more than 100 employees and executive protection clientele ranging from CEOs, foreign dignitaries and nearly 100 celebrities. No doubt you’ve seen our guys on the news and didn’t know it was us.
Henderson, Kentucky. Meridan, Mississippi. Wakefield, Massachusetts. These are just a few of the painful reminders of deadly violence in the workplace. We’ve all heard these horror stories about disgruntled employees getting fired from their job and then coming back to shoot their boss and co-workers. The sad part is, these situations could have been avoided if proper security measures were taken.
This is where Reynolds Protection steps in. Our entire crew has been trained in these situations and are all Level 4 Protection Officers, commissioned by the state. With such large corporations laying people off in cities like Austin, Dallas and Houston, it’s really no surprise that this has become the majority of our job assignments lately. Don’t take any chances with you and your employees’ well-being.
Remember, when you realize that you need security quickly, it’s usually too late.
Chad Reynolds entered the security industry at a young age as a gaming commission officer, assigned to the fast-paced world of the casino industry. His role at the casino was like something you’d see in a Hollywood movie, such as escorting high-roller entourages into the Main Cage to the likes of delivering chained cases filled with money to Soft Count.
When Chad and his wife Christy moved to Dallas, they started Reynolds Protection. At first, their goals were small and simply wanted their own business license so Chad could operate as a freelance bodyguard. They never would have guessed that it would turn into what is now one of Texas’ best and fastest-growing security firms — with more than 100 employees and executive protection clientele ranging from CEOs, foreign dignitaries and nearly 100 celebrities.
His licensing and certifications are currently held through Texas’ Department of Public Safety. His original security training was in Mississippi by a private security team. He has since continued his training by the Private Security Bureau and ASIS.
You can reach Reynolds Protection at (214) 614-8181 or www.ReynoldsProtection.com.
How do you know which companies have the credentials to serve your business needs?
In a variety of industries there are standards that can be used as a benchmark. The average consumer may not understand the behind-the-scene factors that go into setting the standard; however, the consumer does understand the meaning and intent of the third-party oversight of a specific segment. This is well established in consumer products and medicine, but the service industry is another matter, says William F. Hutter, CEO of Sequent Inc.
“Can anyone be an attorney? No, there are licensing rules,” says Hutter. “Would you do business with a bank that is not insured by the FDIC? Hopefully not. How many legitimate health care providers do not have Joint Commission Certification? None, because the standard is a requirement of doing business. Would you use a non-FDA approved medication? Of course not, because it could be dangerous.”
Yet, well-intentioned companies with smart leadership tend to forge ahead with an outsourcing decision without understanding what standards they can use to measure the credibility of an outsourcing company. Too often, the price seems attractive, but it might be too good to be true. This emerging industry of HR outsourcing is full of minefields for the casual consumer. This is really the ultimate example of getting what you pay for.
Smart Business spoke with Hutter about understanding the standards of outsourcing.
What is driving outsourcing, and what is the liability of doing so?
Ever-increasing government compliance demands are causing companies to consider outsourcing their noncore functions such as human resources, payroll processing and 401(k) administration. These functions do not drive revenue or growth, but are part of the required infrastructure for almost any business with employees. These backroom functions consume dollars and time, while exposing business owners, managers and HR people to extraordinary personal liabilities.
Outsourcing is understandable and makes sense, because it can reduce your costs by saving time and headaches. But what about the liability associated with managing the business of being an employer? If there is secondary liability for the actions of a third-party outsourcer, what due diligence should a company conduct before outsourcing certain fiduciary functions?
What questions should a company be asking of a potential outsourcing partner?
Fortunately, there is a standard set of due diligence questions that can be asked of any company providing the service. One of the most common types of outsourcing is payroll. Another concept can provide a comprehensive package of HR services to small and mid-sized businesses for reasonable pricing. Professional Employer Organizations can vary greatly in expertise and philosophical approach; therefore, it is difficult to know how to select the best fit for your company.
Getting the answers to the questions below can help any company that is considering outsourcing its HR functions to a PEO.
* Have you visited the PEO offices to look under the covers?
* What are the professional affiliations of the company?
* Is the PEO a member of NAPEO?
* Does the PEO offer employment practices liability insurance, which covers its clients and managers?
* Is the PEO self-insured for workers’ compensation? If yes, how does it reserve for future liabilities?
* Is the PEO a member of the Certification Institute for Workers’ Compensation Best Practices?
* Is it accredited by the Employer Service Assurance Corp.? (www.esacorp.org)
* Does the PEO protect you from secondary tax liability?
* Does the company audit financial statements?
* Is the PEO able to secure fiduciary liability insurance coverage to protect trusted money such as retirement plan funds?
* Who is the plan sponsor for health insurance?
* What protections does the PEO have against one of its customers not making payroll?
* How does it protect confidential data?
* What are the back-up systems for technology?
* Does the PEO have senior HR staff to assist you in a time of need?
* What is its staff-to-customer ratio?
* Does it provide defense coverage in case of an employment-related legal action?
Are there third-party standards that a business should take into consideration?
Yes, there are standards established by third parties for the emerging HR outsourcing industry that can be relied on. One of the most important is Employer Service Assurance Corp. ESAC is an independent, nonprofit organization that administers an accreditation program for the PEO industry to verify compliance with government regulations and industry standards.
The performance of key employer responsibilities by accredited PEOs is backed by bonds, providing financial assurance for clients, worksite employees, insurers and regulatory authorities.
ESAC-accredited PEOs submit audited financial statements and quarterly independent CPA verification of payment of taxes, benefit contributions and insurance premiums. Assurance is provided through $1 million surety bonds held on behalf of each ESAC-accredited PEO, plus a $10 million excess bond covering all program participants.
The key to establishing a successful HR outsourcing relationship is built on a few fundamental considerations.
* Find the best fit for your company.
* Price is important but should not be the determining factor.
* Trust and confidence in your service provider are very important.
* Verify the company credentials.
* Visit the service provider’s local office to look under the covers.
William F. Hutter is CEO of Sequent Inc. Reach him at (888) 456-3627 or WHutter@sequent.biz.
The cost of providing health benefits to employees continues to be a burden for many employers that are already struggling with tight finances. Now, more than ever, offering competitive benefits is an important tool for companies seeking to recruit and retain employees, but it is becoming more difficult, as health benefits often account for one of the top three expenses for a business.
As a result, balancing value for employees with cost management can be a challenge, says Joanne Tegethoff, account executive with JRG Advisors, the management company of ChamberChoice.
“As the cost of benefits continue to rise, employers are looking for ways to manage those costs while still remaining an attractive employer of choice,” says Tegethoff.
Smart Business spoke with Tegethoff about some strategies that businesses can employ to offer competitive benefits without causing an undue burden.
What strategies should employers consider?
Voluntary benefits provide a venue for businesses to offer value to employees without increasing their costs for providing benefits. Voluntary benefits allow a company’s employees to purchase insurance and benefit products based on their own personal needs, through the convenience of payroll deductions. And most of these benefits are available on a pre-tax basis to employees.
Employers should consider offering a High Deductible Health Plan (HDHP), in conjunction with a medical savings account such as a Health Savings Account (HSA), as their primary health plan, or as an alternative option. HDHP options include up-front deductibles that must be satisfied before services are covered — minimum HDHP deductibles for 2012 are $1,200 for individual coverage and $2,400 for family coverage. The large deductible results in lower premiums than a traditional health plan, encouraging employees to become more educated consumers by better understanding how health care works.
The reasoning is that if health care consumers — your employees — are spending their own money for care, then they are more likely to question that care and not blindly accept procedures such as unnecessary tests. The system encourages them to do so because, until they reach the higher annual deductible, the cost is coming directly out of their pockets.
Can dependent eligibility audits help curb costs?
It is crucial to conduct dependent eligibility audits to ensure that everyone receiving benefits through your plan is eligible to do so. Most employers have policies and procedures in place that outline plan eligibility for their employees and dependents. If someone is on the plan who is not eligible for benefits, the employer is losing money by paying for their care. By conducting eligibility audits and enforcing policies, employers can ensure that everyone who is on the plan should be.
How can employers make employees better consumers of health care?
Provide education that encourages employees to become smarter health care consumers and take responsibility for their health care costs. Structure your policy in such a way that employees are paying more for more expensive services. For example, show them the costs of visiting the emergency room versus a visit to a doctor’s office or to an urgent care center. Also encourage them to purchase generic drugs rather than brand name when available, and show them the cost benefits of doing so.
Finally, educate them about using mail order prescription refill services, and questioning physicians about treatment options and costs.
What other steps can employers take?
Develop and implement a wellness program. Focus on healthy, sustainable lifestyle changes that employees can make. Emphasize that you are concerned for their health and well-being, and show them how being healthier can both improve their lives and help lower their health care costs, as a healthier work force will ultimately lead to lower health care costs for all.
Offering financial incentives for participation, such as gift cards and reduced health care premiums, can encourage employees to participate. In addition, support from upper management for wellness and employee education is critical. Employee health affects productivity and overall financial performance, so it is in your company’s best interest to encourage employee health and wellness. And a little prevention can go a long way.
How can employers address chronic illnesses?
Implement a disease management program for employees with chronic illness, such as diabetes and high blood pressure. These programs typically include health screenings, blood tests and more frequent check-ups, and many insurers offer these services free of charge or for a minimal fee to encourage healthier behaviors.
Also encourage employees to receive routine preventive examinations, including screenings and check-ups. The goal is to keep healthy employees healthy and ensure that those who are at risk or who have medical conditions are receiving the appropriate care. And many employers host onsite health fairs and conduct onsite screenings or health clinics in conjunction with the insurer, which provides the company-sponsored health benefits.
Finally, offering customized benefit statements that show employees how much you pay for health care costs can be eye-opening. Cost transparency can lead to employees making more economical decisions about their health, along with an increased appreciation of benefits provided by their employer.
Talk with your adviser to learn how to begin making these cost containment strategies part of your long-term employee benefits strategy.
Joanne Tegethoff is an account executive with JRG Advisors, the management company of ChamberChoice. Reach her at (412) 456-7233 or email@example.com.
There’s great hope on the coronary heart disease front with more options for diagnosis, treatment and recovery than ever before. Two-thirds of adults survive the disease — 27 percent higher than a decade ago — and impressive new technologies and techniques show tremendous promise.
Progress is impressive and risk factors well known, yet more Americans continue to die from coronary heart disease than any disease. While hereditary factors play a role, unhealthy lifestyle choices remain a significant culprit.
To learn more, Smart Business turned to Steven Schiff, M.D., prominent cardiologist and medical director of invasive cardiology at Orange Coast Memorial Medical Center; and David Perkowski, M.D., the medical director of cardiac surgery at Saddleback Memorial Medical Center, who pioneered and has performed over 1,500 ‘beating heart’ surgeries.
How do heart attack symptoms vary among men and women?
For women — who die of heart disease more than men — symptoms can be so subtle patients may not suspect they’re in trouble. Symptoms may include nausea, dizziness, uncomfortable pressure, tightness or heaviness in the chest that doesn’t go away quickly; cold sweats or pounding heart; pain radiating up the shoulders or neck or down the arms or back; difficulty breathing; and/or shortness of breath. Because symptoms experienced by women tend to be more variable and less typical, care must be taken to consider the diagnosis of a heart attack or blocked arteries in female patients.
What risk factors are most prevalent?
Smoking, obesity, sedentary lifestyles and heavy consumption of saturated and trans fats are prevalent among many Americans. These negatively impact cholesterol counts and blood pressure levels and can cause dangerous plaque build-up in coronary arteries. Too often, children will mirror their parents’ unhealthy habits. With one in three California children and teens overweight, the elevated number of kids with risk factors for heart disease — high body-mass index, glucose intolerance, elevated blood pressure and high cholesterol — translates into higher risks of coronary heart disease as they become adults, making family fitness essential.
How can health risks be lowered?
Lowering cholesterol and treating high blood pressure can reduce the risk of dying of heart disease, having a non-fatal heart attack or needing heart bypass surgery or angioplasty. Preventive measures include maintaining an appropriate weight as well as eating foods low in cholesterol and fat. Reducing stress, controlling blood pressure and exercising regularly are important, as are regular check-ups, screenings and following a doctor’s advice.
What advances are available locally?
Orange County residents have access to world class heart care. Advanced and innovative diagnostic technologies, treatments and rehabilitation for heart disease are the norm at MemorialCare Heart & Vascular Institutes at our hospitals. These include open heart surgery, angioplasty, stenting and device implantation such as internal defibrillators and pacemakers. In addition, heart and vascular services offer catheter ablation, rehabilitation and centers for cardiac care for women. MemorialCare was the only West Coast health system to be listed among the 25 Best Health Systems for Overall Care and Heart Attack, Heart Failure and Surgical Care in Total Benchmark Solution’s Competition. We
are among just a few designated cardiac paramedic receiving centers in Orange County with emergency treatment times that beat the national average. And our hospitals are recognized for quality cardiac outcomes continually surpassing state and national standards.
Orange Coast Memorial is the area’s first hospital, and only a handful in the U.S., with a Hybrid Cardiovascular Interventional Suite. This advanced approach to heart care allows cardiac specialists to provide interventional treatments and surgery in one suite, reducing procedure time and stress on patients. We also offer angiography, angioplasty, bypass surgery or combinations of these in the Hybrid Suite. Our da Vinci robotic system offers breakthrough minimally invasive capabilities with greater surgical benefits.
Saddleback Memorial is a pioneer in off pump coronary artery bypass surgery, or ‘beating heart’ surgery, that is performed without stopping the heart, resulting in better preservation of heart function, reduced hospital stays and quick recoveries. We received American Heart Association’s Get With The Guidelines Heart Failure Gold Performance Award, honoring our attaining stringent guidelines for treating heart failure. Advances continue with a center that is dedicated to managing heart disease and other chronic conditions.
How can we create a healthier workplace?
A healthy lifestyle is your best defense against many diseases, and the workplace can help everyone achieve better health. MemorialCare offers programs and screenings, which include nutrition education, exercise tips and health activities, like break time walking groups. Ensuring the availability of fruits, vegetables and nutritious foods in vending machines and eating places also helps create healthy choices.
Memorialcare.com offers tools that help evaluate medical risks and health guides outlining heart attack symptoms, heart-healthy eating and women’s wellness. Our hospitals offer prevention programs and heart evaluations at worksites and other convenient locations.
Steven Schiff, M.D., is a cardiologist and medical director of invasive cardiology at Orange Coast Memorial Medical Center. David Perkowski, M.D., is medical director of cardiac surgery at Saddleback Memorial Medical Center. The not-for-profit MemorialCare Health System includes Long Beach Memorial Medical Center, Miller Children’s Hospital Long Beach, Community Hospital Long Beach, Orange Coast Memorial Medical Center in Fountain Valley and Saddleback Memorial Medical Center in Laguna Hills and San Clemente. For additional information on excellence in health care, please visit memorialcare.org.