At the end of last year, it was assumed that Congress was going to effectively keep the 2009 estate tax rules in play and we would all know where we stood for 2010. But more than a quarter of the way through 2010, Congress has yet to even address the issue, leaving a number of estate and tax planning matters in question.
“There are tax opportunities and pitfalls that we’re faced with, and people need to address these issues today,” says Thomas J. Sigmund, a director with Kegler, Brown, Hill & Ritter. “They shouldn’t be sitting back waiting for Congress to do something.”
Smart Business discussed with Sigmund the importance of not missing out on planning opportunities in the midst of this complex environment.
What is the current status of estate tax law?
The status could be summarized as turmoil. Since the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax law landscape changed considerably. The federal estate tax exemption increased from what was then $675,000 to $3.5 million in 2009. We all knew that, come 2010, we would have a repeal of estate taxes for one year with carry-over basis and then the regimen that we had in 2002 would come back into play in 2011, meaning that the exemption would drop down to $1 million, and many of the same rules we had before would apply, including stepped-up basis. However, everyone expected Congress to take action to reinstate estate taxes for 2010; no one thought we’d actually be faced with repeal for any period of time.
What is Congress debating?
There is speculation that, more likely than not, the 2009 rules will come into play retroactive to January 1, 2010. But let’s face it; we’ve had a lot of people die between Jan. 1 and today. If members of Congress were to try to reinstate the 2009 laws retroactively, they would be telling these estates that even though there were no estate taxes when the person died, there are now. They would likely face a constitutional challenge if they did that.
Congress is debating whether or not to allow Grantor Retained Annuity Trusts (GRATs) with terms that are less than 10 years. Normally, we utilize GRATs with two-year terms, rolling assets in and out of these GRATs to effectuate maximum wealth transfer without gift taxes.
They’re also talking about portability of exemptions between spouses and eliminating discount planning when putting assets into a family partnership.
I don’t think Congress is going to come back with a grandiose piece of legislation that covers all of those things. More than likely their first task is to deal with this repeal in 2010, and either fix it going forward or fix it retroactively. However, it is also possible in this political climate that Congress will do nothing in 2010 and just let the law play out.
What opportunities should people be taking advantage of now?
There are some great opportunities out there for the larger estates if they want to be aggressive.
Since there’s no generation-skipping transfer tax as we speak right now, a direct transfer of unlimited amounts to a grandchild will not be subject to this tax, albeit subject to gift taxes if the transfer exceeds $1 million.
If you transfer property in excess of $1 million to somebody this year, the tax rate is only 35 percent, which is a far cry from the estate tax rate that was in place in 2009, which was 45 percent. It’s a further far cry from the 55 percent that’s likely to be in place in 2011 if Congress doesn’t change the law. So there’s an opportunity to make some tax effective gifts this year. The risk is that Congress could reinstate generation-skipping transfer taxes retroactive to January 1, 2010 and reinstate the higher gift tax rate retroactively as well. However, for the most part, taxable gifts might still be a good plan to effectuate. If done properly, the taxpayer could actually straddle the fence waiting for what Congress does and make elections to effectuate or not effectuate a gift.
Finally, discounted gifts with use of family partnerships should be explored.
What pitfalls should people be aware of?
The worst-case scenario that we’ve seen is with clients in a second marriage who decide to leave the exemption amount to their children and the balance of their estate to the spouse. The thinking is that they won’t have to pay any estate taxes on the property that went to their children and on the property that was in the trust for the second spouse through a combination of using their exemption and the marital deduction. But if you look at that document today, depending on how it’s drafted, it could be interpreted to say that all their property is going to the children and nothing is to be left to the spouse. It may very well say, ‘Transfer to my children what can be transferred without any estate taxes being associated with the transfer,’ and in 2010 that would mean everything.
What should be done now?
Sit down with your tax adviser right now to revisit your documents and make sure they will work as you’ve intended them to, and make sure that your estate and your estate planning documents are in good order to maximize the tax savings that can potentially be had if death occurs in 2010. Even the administration of a decedent’s estate for the period of time that we have this repeal may have to be addressed differently.
Thomas J. Sigmund is a director with Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5462 or email@example.com.
A component of the health care overhaul discussion includes a concerted effort on the part of the federal government to encourage the adoption of electronic health records and the exchange of health care information among providers, payers and throughout the health care field.
“Essentially, health information technology involves having those entities become interoperable thereby allowing for the exchange of health information regarding patients, the exchange of population health information that may be occurring in a particular area and allowing the entities involved to more effectively care for patients,” says Jeff Porter, co-chair of the Health Care Technology Practice at Kegler, Brown, Hill & Ritter.
A lot of people liken health information technology to the automation of banking that occurred with the introduction of the ATM.
Smart Business learned more from Porter about the role of health information technology in health care reform and the challenges involved in its adoption and active use.
Why should a company implement health care information technology?
To make health information more portable and accessible. For example, the government, through Medicare and Medicaid, provides grants to give reimbursements to physicians to adopt electronic health or medical records that would be maintained for patients within a physician’s office. Those physicians are required to use those records meaningfully. A meaningful use standard is currently being developed at the Department of Health and Human Services and Centers for Medicare and Medicaid Services.
There are many vendors out there right now who are trying to encourage consumers to, either through an insurance provider or on their own, utilize a personal health record. It involves recording information about their health conditions, including downloading information from devices whether it be a glucometer or taking their blood pressure as a way to engage the consumer and make them more responsible for their health.
Overarching everything else is the idea of health information exchange. The government is seeking to help states develop the ability to exchange health care information, not only within the state but also with the federal government. Take, for instance, what we’re seeing with H1N1. Getting information regarding the illness from a particular state to the federal authorities can help the government determine if they need more vaccines in a certain place, or find out if there’s a bigger outbreak in a particular area.
What are the advantages of health information technology?
There are many advantages, though it’s hard to quantify in monetary terms. One study concluded that, through the adoption of health information technology, we could expect to save $80 billion.
From a patient standpoint, the ultimate goal is to improve the quality of care that’s available. From the perspective of dealing with hospitals and providers from a monetary savings standpoint, what we’re looking at is reducing the amount of unnecessary testing and improving the ability of physicians, through e-prescribing, to prescribe medicines that are both effective and cost-effective for a consumer. You’re looking at trying to reduce waiting times, even in emergency rooms. Somebody with an electronic medical record will be able to be treated with increased efficiency.
What are the challenges of adopting broader health information technology?
The incentives that are out there for the adoption of electronic medical records only address Medicare and Medicaid providers. There are obviously going to be specialists out there that may not receive Medicare and Medicaid reimbursement, so the goal is to get everybody together in this process. That’s going to be one of the challenges.
Speaking from concerns about privacy and ownership of data, you’ve got a multitude of issues. The recent American Recovery and Reinvestment Act included the HITECH Act, which is essentially providing for the previously mentioned incentives for health information technology. It also addressed changes to HIPAA (Health Insurance Portability and Accountability Act), because originally HIPAA wasn’t really geared toward dealing with the issues that we might be seeing concerning the exchange of information.
Laboratories and facilities conducting testing on patients will also be impacted. The whole idea is to be as inclusive as possible with getting entities into an information exchange. There will be issues with state and federal law about who laboratories can release results to.
What can consumers and businesses expect going forward?
Health care costs are one of businesses’ major expenses for their employees. What we can expect from health information technology is greater efficiency, an emphasis on wellness programs and getting people involved in their own health care. Part of the meaningful use standards that the federal government is currently considering is an emphasis on doctors being able to consult with patients in new ways, whether it be through telemedicine or a system whereby patients can discuss matters with their doctors via secure e-mail. Another goal is to allow patients to be able to download information to a personal health record so that records can be more portable.
Speaking from the perspective of the legal industry, I think you’re going to see more and more issues arising with having to address agreements between providers. You’ll see disputes between the provider of an electronic health or medical record and the people who have purchased that record or program, disputes among people who are involved in health information exchange, as well as concerns about privacy involving HIPAA.
Jeff Porter is co-chair of the Health Care Technology Practice at Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5418 or firstname.lastname@example.org.
When a legal dispute arises, often a business owner’s first inclination is to declare war, i.e., file a lawsuit and engage in protracted litigation. However, that impulse should be resisted, says Adam Rome, attorney in the Litigation Practice Group and the Restructuring & Insolvency Services Group at Levenfeld Pearlstein, LLC.
“Litigation should always be a last resort,” Rome says. “Too many times a complaint is filed without determining a clear goal. A number of factors must be analyzed before making a decision about the proper course of action.”
Smart Business spoke with Rome about how to approach a dispute to achieve your desired outcome while keeping your expectations in check.
What are the first things to consider when a dispute arises?
Clearly, a major concern to a business in determining whether to engage in litigation is cost. However, cost cannot be the only factor analyzed. A business, with the help from its trusted business adviser or lawyer, must analyze the probability of its success. Success is defined by the client, which is why it is so vital to set a clear goal before filing a complaint.
After determining its goal, a company must consider all of its options. Not all options are based on the filing of a lawsuit. Savvy lawyers and businesspeople can, and should, get creative. Options are based on leverage. A business can use its leverage to obtain a successful result, without participating in an expensive lawsuit. If a company has little or no leverage, filing a complaint is a quick way to create it.
A business must also understand that a lawsuit is time-consuming. A company is going to have to use its resources responding to discovery requests, sitting for depositions and engaging in litigation strategy, which is time taken away from running the business.
A business should also weigh the impact of its lawsuit in the business community. Filing a suit will have a negative impact on the entity or individual being sued. Therefore, if this customer produces a large revenue stream for your business, it may not make economic sense to sue the customer over an issue that may have a less disruptive solution. A company should also determine whether a lawsuit could negatively impact its relationships with other clients or potential customers.
When is litigation inevitable?
If you are a defendant, litigation is usually inevitable. In contrast, filing a complaint is inevitable only after all other options have been exhausted, and it has been determined that the business cannot survive without achieving a successful result.
Furthermore, litigation makes sense when the amount of money in dispute justifies the cost of litigation. In contrast, there are situations when a business needs to make a public statement to deter future malfeasance from either within or outside the company. Sending a message can be a valid goal that has no direct monetary value. For example, a business may need to file suit against an employee who violated a noncompete agreement. This lets everyone at the company know that employment agreements will be enforced.
When should mediation come into play?
Mediation is a tool used within litigation. Mediation is a powerful device. It can be extremely beneficial when your opponent has deeper pockets. For the most part, mediation must be mutually agreed upon. Leverage is key when trying to convince your opponent that mediation is the best result. It is up to the lawyer to determine what leverage to apply, and how.
Mediation is not binding and should therefore not be treated like a mini-trial. The goal of mediation is not to convince the mediator that the business has a superior argument. It is important to persuade the mediator, but the goal is to convince the principal of the other company that it is in his or her company’s best interest to settle the case at the terms you suggest, rather than having to spend additional time and money.
Mediation is a skill. If one’s mediation style is too aggressive, there is a risk that your opponent may become defensive and/or angry, which could cause your opponent to litigate harder.
When is it best to walk away from a dispute?
Let me be clear, walking away does not mean forgetting about the dispute. It simply means that litigation may not be the best option. It means that sometimes you need to be creative.
If litigation is not economically feasible, business deals need to be, and should be, worked out. For example, depending on the circumstances, discounts can be provided on future deals, an exclusivity agreement can be worked out or payment schedules devised. Successful results can be achieved without involving the court system.
Some businesses file suit when there is no financial or noneconomic upside. For example, a former employee stole your customer list, but this list is not vital to your business. To file suit to enjoin your former employee from using this list may cost a significant amount of money. Again, if the lawsuit lacks financial and/or noneconomical impact for your respective company, a company should consider walking away.
Adam B. Rome is an attorney in the Litigation Practice Group and the Restructuring & Insolvency Services Group at Levenfeld Pearlstein, LLC. Reach him at (312) 476-7585 or email@example.com.
With the growing concern over market stability and its effect on both short- and long-term investments, future students and their families have become more tentative about adding to their college funds. And those who are still actively saving are looking for a more effective and straightforward strategy.
“As college costs continue to increase, many are looking for smarter ways to save. Currently, the most popular product available is the 529 plan,” says Mark Anderson, a director in the Tax Strategies Group at Kreischer Miller. “These plans function simply, and the best part is that getting involved in one is easy for most families.”
Smart Business spoke with Anderson about how 529 plans compare to other education savings options and how to avoid the tax consequences of paying for a loved one’s education.
How do 529 plans differ from other educational incentive options?
529 plans are more sophisticated than some of the other education credits and tuition deductions available to taxpayers and offer a variety of unique benefits not found in other education savings options. Traditional education credits act to reduce your tax liability, preventing you from receiving a tax refund if you have no liability. In addition, education credits are reduced when adjusted gross income exceeds certain amounts. For 2009, the phaseout begins at $50,000 for single taxpayers and at $100,000 for joint filers.
529 plans are not subject to income limitations and can be utilized by all taxpayers. While there is no tax deduction or credit for amounts contributed to a 529 plan, the investment income and/or increase in the plan’s underlying value are not taxable as long as the funds are used for education expenses.
Other educational savings options carry far more limitations to how the funds may be spent, making them less desirable alternatives. 529 plans are also universally available to families in all tax brackets, making them attractive to both higher- and lower-income families.
How are 529 plans structured?
Typically, there are two main types of plans — prepaid plans and investment plans. Prepaid plans, also known as state plans, are set up by a state or political subdivision. Benefactors may buy credits in today’s dollars, allowing the beneficiary to use them to pay for credits in the future. They may also be arranged as an investment plan with a related investment account. Depending on how the plan is invested, it will produce investment gains.
All of these options provide funds for tuition and fees, as well as books, supplies, and room and board for half-time students. Computer equipment and Internet access are now also considered qualifying expenses.
What are the gift tax implications for donors?
An individual may contribute up to $65,000 at one time to a 529 plan without incurring gift tax by claiming a pro-rata gift tax exclusion of $13,000 a year over each of the next five years. If a donor chooses to contribute more than $65,000, the additional funds would be considered a taxable gift and may subject the donor to gift tax.
Donors who are considering funding educational expenses for students currently attending college should be aware of the general educational expense gift tax exclusion, as well. Under this provision, an individual is entitled to an unlimited exclusion from gift tax for another individual’s school tuition if the payment is made directly to a college or a university; this exclusion is in addition to the annual exclusion.
Are there other benefits or limitations to 529 plans?
You may not contribute stocks, securities or any other type of property into a 529 plan; this is a cash-only endeavor. However, the current market situation may work to your advantage when considering college savings.
If you have other capital gains, you can liquidate investments that may have lowered in value and contribute the cash, tax free, to a 529 plan. This would trigger a capital loss that you could use to offset other income.
Another benefit of 529 plans is that they are transferable from student to student. In the event that the initial beneficiary is unable to use all of the funds in the account, the remaining funds may be transferred to a second beneficiary.
One major limitation does exist, however. When purchasing tuition credits in a state plan or arranging the funds in an investment account, neither the donor nor the beneficiary may participate in the decisions to change the investments more than once a year.
With the drop in the market last year, and growing concern over being locked into plummeting investments, a special exception has been created for 2009 and changes will be granted twice this year.
What else does someone considering investing in a 529 plan need to know?
Most of the people who administer 529 plans do a good job of communicating the variety of investment options, but you have to make sure that the college or institution you’re considering is eligible.
Investors should also be diligent in reviewing the enrollment and maintenance fees for these accounts, as well. The Web site savingforcollege.com reviews the state tax benefits on a state-by-state and plan-by-plan basis. It also does a good job of comparing the enrollment fees and investment fees. A wealth of information is available both online and from your financial adviser.
Mark Anderson is a director in the Tax Strategies Group at Kreischer Miller. Reach him at (215) 441-4600 or firstname.lastname@example.org.
No employer wants to suspect his or her employees of dishonesty. But the fact remains that payroll fraud could happen at any organization.
And without the proper controls in place to keep tabs on the payroll process, companies are leaving themselves vulnerable to everything from “ghost employees” to falsified hours and salary schemes.
“Aside from damage to a company’s reputation and the embarrassment, the main issue is the depleted assets, which could be quite substantial,” says Rob Wilson, president of Employco Group Inc., a division of The Wilson Companies. “In some cases, it could even cause bankruptcy.”
Smart Business spoke with Wilson about how to prevent payroll fraud from happening at your company.
How does payroll fraud happen?
It happens when unscrupulous individuals are allowed to have access to the company processes that generate payment transactions or company assets, and they’re able to do this without proper managerial oversight or controls in place to limit their access.
In many cases, it depends on the size of the company and whether it has the ability to hire people who are specialized in certain departments. In smaller companies, you may have one clerical person who is doing everything from answering the phones to doing payroll and accounting. Each company is unique in that respect.
When you downsize, it creates a situation where you might have had good controls in place, but because you’re eliminating people who had segregated duties, you now only have one person where you once had three. You can create a new exposure for yourself.
How can companies approach their payroll processes to prevent fraud?
One tactic is to establish segregation of duties, where the people preparing the payroll are independent of other payroll and personnel duties, such as the timekeeping, distribution of checks and hiring.
Also, you want to restrict access to other payroll data and actual cash. And the payroll accounting should be separated from the general ledger function.
One useful tool is Positive Pay. Basically, you send a file to your bank that lists out all the checks that you’re cutting that day, and when someone presents a check to your bank for payment, it compares that to the file that you sent to make sure that the dollar amount, the person’s name, the date, etc., are the same.
That eliminates the risk when someone takes a company’s payroll check, scans it into a computer and generates a whole set of checks with the owner’s signature on the bottom.
Companies should also restrict access to their blank payroll stock. And if you use a facsimile signature plate, you want to restrict the number of people who have access to that.
Also, require employees with payroll responsibilities to take vacations and have somebody else step in to do their job. That way, if there are any irregularities in the way that person does payroll, it comes to light at that point.
Other things you can do to prevent fraud:
- Limit access to computerized payroll records.
- Audit your pre-numbered checks to make sure all checks that haven’t been used are still accounted for and are in sequence.
- Have complete documentation of procedures regarding changes in employment, including additions, terminations, salary and wage rates, payroll deductions, authorizations and approvals.
- Make sure there are adequate authorization and approval procedures regarding vacations, holidays and sick leave.
- Ensure prompt reporting of personnel data changes, adequate time-keeping and attendance records, and comparison of current records with prior history. Investigate any significant changes.
- Before distributing checks, make sure that all transactions are authorized and match originating reports, that all pay and deduction rates have been authorized, and that paychecks agree with payroll records.
- Especially in a larger company, when you pass out the checks, have employees sign that they received that check. You might even want to ask for the person’s I.D.
- Be sure that your employee dishonesty insurance limits are adequate to cover any assets that may be embezzled by employees.
How can using a payroll service ensure stronger protections?
The payroll service becomes an extension of your payroll department. Especially if you’re winding down the number of employees that you have, it helps to create more of a segregation of duties. It can be used to complement the accounting function while also guaranteeing the independence of the payroll and personnel duties.
When the payroll checks are drawn by a payroll service, in many cases, that checking account is owned by the payroll service, so any fraudulent checks against the account would be a concern for the payroll service, not the client.
What you’re buying into is a system of controls and processes, which is especially useful for smaller companies that don’t have the wherewithal to get involved in all the new technology needed to safeguard their assets.
Also, with a payroll service, you’re paying probably a fraction of the cost that you would pay if you implemented all these systems and the necessary personnel on your own.
ROB WILSON is president of Employco Group Inc., a division of The Wilson Companies, which handles human resources outsourcing, staffing and insurance for 400 small and medium-sized Midwest companies. Reach him at (630) 286-7345 or email@example.com.
Electronic management of patient information has become the standard for the health care industry. The overwhelming process of implementing software integration and identifying hardware requirements, all while meeting regulatory compliance, has stretched the capabilities of health care institutions’ IT staffs to their limits.
“Systems need to be carefully reviewed and analyzed, because there’s a lot of pressing requirements that are placed on these health care institutions that they have to conform to,” says Ed Kenty, president and CEO of Park Place International.
Smart Business learned more from Kenty about what is required of the health care industry and what a third-party provider can do to help navigate the maze of integration.
What are integration services?
In health care, it’s a total solution we call the Meditech platform. Meditech is a middle-market health care ERP (enterprise resource planning) system, so it’s really a software solution. Meditech is integrated with new hardware and storage and provides a full end-to-end solution to hospitals. It’s become a pretty large enterprise now, with the Obama administration and some of the funding that’s being released to these hospitals. They’re one of the few verticals that are continuing to buy new hardware and new solutions.
How does integration advance the health care industry?
A basic patient ERP application will tell patients and providers everything they need to know, from lab results and medications to diagnoses and radiology. All of these things can be integrated into a solution and move freely. The days of taking your X-rays in a big envelope to another doctor are gone. They move all of these things electronically now and in real time, which accelerates the diagnostics process.
Why is it important for health care institutions to have these systems in place?
With compliance issues, protection of patient information and disaster recovery are pressing concerns. Health care is still a very lucrative business, and there are increased requirements on hardware and software solutions to keep pace.
Today, health care organizations are implementing very advanced clinical functions. It takes them further and further away from paper — they’re going green like the rest of us. In many cases, doctors’ offices and satellite facilities and hospitals are totally paperless. And these types of solutions can support that process. It poses a lot of challenges for health care IT professionals to keep pace with this compliance; data integrity, confidence in their backups and disaster recovery strategies are all a tremendous burden for this industry to bear.
Health care institutions are turning to providers who are experienced in implementing redundant hardware solutions, virtualization programs and other forms of backup, so they can have the confidence that they can recover from a hardware failure if they should have a power surge or they can restore their data in the event of a disaster. Because it’s not like the financial vertical where you’re dealing with dollars and cents — we’re actually talking about mortality rates now.
What main obstacles do health care institutions face with integration?
Health care information systems to begin with are very complicated, in part because of the number of stakeholders involved in the decision. There are budgetary decisions that have to be made, there are performance initiatives that tie to new software, and there are regulatory factors like HIPAA and even the American Recovery and Reinvestment Act (ARRA). So in today’s environment, these organizations have to create a clear picture of what their capital spend budgets are, what they can buy and what they can defer to a later date.
After these implementations are done, it’s all an IT staff can do to keep their end users, their doctors — everyone associated with these complex environments — up and running across the whole enterprise. Health care institutions in really rural communities don’t have the IT staff to keep track of all this. So they need to partner with somebody that can guide them through this process. There are even large metropolitan area hospitals that will still use integration partners because they just simply don’t have the resources to take on new projects. Their dedicated IT resources are overwhelmed trying to keep pace with what’s going on in their organization, let alone taking on new projects. So whether you’re a large organization or a small rural community hospital, chances are you need an integration partner who understands all of these requirements and can understand your business and software needs before coming in to implement a solution.
How does a third-party provider help?
A third-party provider can take a 360-degree view of the needs in the data center. Some clients want to upgrade hardware to meet newer, enhanced software performance requirements in their organization. Others may need a way to preserve their capital so they can defer hardware investments. Some applications need to be refreshed and maintained. Oftentimes a blend is required. A third-party provider has the tools to evaluate the environment and offer effective solutions. Some of the offerings include server virtualization, which will mean lower heating and cooling requirements, less of a footprint in the data center, less space required, and more powerful servers, as well as post-warranty maintenance, advanced backup, SAN technology assessments and implementation.
An effective, neutral provider has the experience and certified professional resources to help implement these projects with industry-recognized best practices.
Ed Kenty is the president and CEO of Park Place International. Reach him at (800) 931-3366 or firstname.lastname@example.org.
In January of 2009, more than 560,000 U.S. jobs were slashed. Companies in nearly every industry have had to cut back on labor costs, typically their most expensive line item. But when remaining employees are stretched to their limit, it soon becomes clear to management that, even in a downsized company, the work still needs to be performed by someone with the right skill set. For many businesses, temporary employees are the answer to cutting costs without hurting the bottom line.
“During this downturn, many large companies are turning to staffing firms for temporary workers,” says Rob Wilson, president of Employco Group, a division of The Wilson Companies. “They’re supplementing their work force without the additional cost of benefits and other expenses that go along with permanent employees.”
Smart Business asked Wilson about the advantages of working with a staffing firm to bring in temporary workers in tough times.
Is now a good time to partner with a staffing firm?
Absolutely. The market has changed and so has the temporary staffing trend. For example, Carlisle Staffing, a division of The Wilson Companies, does a fair amount of temporary placement for myriad companies in the traditional sense of cyclical work; if a warehouse has an influx of goods and now needs extra employees that is a short-term fix. But what we’ve been seeing quite a bit in this economic environment are publicly traded companies and other large privately held national companies working with staffing firms after layoffs. Once they save through trimming wages and eliminating the vacation time, holiday pay, sick time, health insurance and 401(k) match expenses that go along with those employees, they often find that they have eliminated too many jobs to function efficiently. Savvy companies are turning to staffing firms to fill the gap.
Besides the reduction in benefits expenses, what are other advantages of using temporary staff?
You get a lot more flexibility with a temporary employee do you need the person 30 hours a week or 50? You couldn’t really do that with your employee base before. When working with a staffing firm, if you don’t like the person sent to you, you can just call for a replacement and continue to do so until you find the perfect match for the position.
There are many quality people in this market who are willing to work for less than their previous salary. In some cases, you many end up hiring your old employees back through the agency on a temporary basis, but this time without the added costs for vacation time or benefits. There is always the option to rehire them back as permanent employees when your company is in the financial position to do so.
How else can staffing firms save time and money?
Hiring an employee at $16 an hour from a staffing firm with a 40 percent mark-up would end up costing around $22.40 an hour or $44,800 for a 50-week year at 40 hours a week without paid holidays or vacation. If a company were to hire that same employee on its own, after adding in taxes, workers’ compensation premiums, FICA, health insurance and other employee costs, that $16 becomes $19.20, which is $44,936 a year. Even though it might appear to be more cost-effective to hire the individual on your own, consider the fact that you now also have flexibility on the number of hours worked per week. In such a competitive market the person who wanted $16 an hour might work for $15 instead temporary employees become part of a cost-effective strategy.
In addition, since the staffing firm handles all the recruiting and interviewing, those expenses can be eliminated and you are provided with multiple candidates from which you can select the most qualified. Further, if a temp doesn’t report for work, you can just call the agency for a same-day replacement, which results in minimal lost time. If you are pleased with the employee but can’t afford to hire him or her until the market recovers, chances are by then the employee has been with you through the agency long enough that the conversion fee is either waived or very minimal.
Staffing firms will also handle I-9 immigration requirements as well as all other compliance issues. Where most firms only require two forms of ID, reputable staffing firms will require three forms of ID and absorb all the costs associated with background checks and drug testing, if required by the client.
Is there a downside of using temporary employees?
Companies should make sure to check the agency’s references and make sure it provides quality employees for their job assignments. A staffing firm should test all prospective employees and, especially in this marketplace, look for workers’ comp fraud and other areas of potential fraud. In the case of the workers’ comp claim, you have to pay temp employees as if they were full-time-like employees. So you want to make sure the staffing firm has a good recruiting department, and that it has proper insurance coverage.
ROB WILSON is president of The Wilson Companies, which handles human resources outsourcing, staffing and insurance for 400 small and medium-sized Midwest companies. Reach him at (630) 286-7345 or email@example.com.
The time to renew health benefits plans is upon many businesses. With all the cutbacks and troubling economic news employers have had to contend with lately, the option of varied benefits choices is a welcome one. The variety of plan structures and additional programs that exist allow employers and their employees to take greater control of a system where costs have historically been experiencing double-digit increases for some time now.
“When business owners face a health benefits renewal with an increase of 10 percent, even 20 percent, what can they do?” says Rob Wilson, president of Employco Group. “Neither the business owner nor the employees have discretionary dollars for that now.”
Smart Business asked Wilson about ways to lessen the impact of rising benefits costs by offering employees more choices.
How can business owners approach open enrollment season?
Employers can decide to absorb premium increases if they’re in the financial position to do so. If there’s absolutely no room in the budget for an increase in premium, they may consider passing it along to the employee. Another consideration may be to split the increase between the employer and employee so both parties can shoulder the burden.
Employers can also quote other insurance carriers. It is typical in the industry for carriers to have different sales strategies, depending on where they are in the business cycle. Premiums may be higher at certain times to increase revenue and lower at other times to obtain more market share. Since each carrier has its own approach, it may be possible to find the same coverage at lower premiums if you take the time to look. It is a good idea to compare rates with different carriers at least once a year.
What are different plan structures to consider?
It’s always beneficial to consider different plan structures whether you’re staying with the same carrier or switching. Do a comparison between a preferred provider organization (PPO) plan and a health maintenance organization (HMO) plan or consider offering both.
Conduct a thorough evaluation between plans in terms of co-pay, deductible, co-insurance, prescription drug card and pick the plan that’s best suited for your group and budget. You may be able to significantly reduce your premiums by increasing your deductible, co-pay, co-insurance and/or prescription drug card.
Keep in mind employers have the option to review their policies every year before renewal so changes are not permanent and may just be for the upcoming year
Aside from the traditional PPO and HMO plans, are there other nonconventional options that can be considered?
The health savings account (HSA) is becoming more popular. It’s a high-deductible plan, so typically the premium would be lower. Other benefits of HSAs are:
- Tax deductions when individuals contribute;
- Tax-free withdraws for qualified medical expenses;
- Portability — the account belongs to the individual.
Another option to help employees with health-related expenses is a flexible spending account (FSA). An FSA account allows employees to put away pretax dollars that can be applied toward employee-chosen medical expenses such as premiums, co-pays, deductibles, prescriptions, over-the-counter medicines or even day care.
For example, if your employees pay $500 toward health care premiums, deductibles, etc., using an FSA, they can use pretax dollars instead of after tax dollars. That equates to a tax savings of $178 for every $500 of premiums paid.
Are there options specifically for small businesses?
Small to midsize businesses may choose to look into industry associations or partnerships with human resource organizations (HRO). By joining an HRO, businesses that might otherwise be too small to obtain competitive pricing can now get the same buying power as bigger companies. When an employer joins an HRO and bands together with all the other companies comparable in size, the number of the group increases exponentially to hundreds or thousands of employees. The buying power now lies in the hands of a much bigger pool, which, to insurance carriers, is more attractive. The pricing may be more competitive through an HRO than on a stand-alone basis since the insurance is bought in volume at a reduced rate.
How should employers communicate with employees about plan changes?
Employers need to communicate honestly with their employees during open enrollment time, especially if there will be changes in the benefits plans. If, due to the decrease in revenue, the existing PPO plan has to be changed to a HMO plan or the deductible increased, reassure the staff that these changes may not be permanent.
ROB WILSON is president of Employco Group (www.employco.com), a division of The Wilson Companies. Employco handles human resources outsourcing for 400 small and medium-sized Midwest companies. Reach him at (630) 286-7345 or firstname.lastname@example.org.
When economic times are slow, it’s hard not to focus strictly on your bottom line. Whether it’s buying product at a reduced price or taking advantage of a larger talent pool, there are a number of best practices that can help ensure that, once businesses do come out of the downturn, they are in a position to tackle the market head-on.
“Businesses must have a sober look at where they are now in the downturn, a realistic look at how long they think they can survive and, if they’re clear about what they think is going to happen, a coherent plan of action for when they come out of it,” says Mike Leach, senior vice president at Employco Group. “It’s those people who are prepared to hit the ground running in the inevitable upturn that capture more market share.”
Smart Business asked Leach about wise management moves to make in a lagging economy.
What are the mistakes that business owners make when the economy is slow?
The biggest mistake is not planning for the future. Companies have to forecast and think, ‘How can we get through this and better manage the process so when the upswing does come we’re five steps ahead of the competition?’ Focus on retaining your best talent. Take a look at what your benefits are, both hard and soft, and how you compare to the competition. Whether it’s a flexible work-place or health insurance, you need to look at what you offer and fine-tune those offerings so that your best talent doesn’t get recruited away.
Something that you should be doing if you’re not already is communicating with your employees — and not just with your upper management but on all levels — to share your vision of what’s happening now and in the future and try to paint the picture of how you’re going to survive the downturn. If you’re losing market share and struggling, people may be worrying.
How should the work force be managed differently?
Do a skills assessment of your staff to see what skill level they have and what skill level they would need to either help you during the downturn or be an even greater asset when the upturn comes. Here you have the opportunity for cross-training that lets employees gain expertise in other areas. You can figure out what you need in the future and whether your people have the skill level to make that happen and, if they don’t, what type of training can get them there.
For example, if someone has better knowledge of a certain product, take the opportunity to train that person in another product. Or take someone that’s in the client service area — it might be a good opportunity to work on some of his or her sales skills so that when the turn happens that person can actually help you out on sales. Or maybe service is very important to your organization and you don’t want to lose any clients. Some of those salespeople could help you on the service side.
What should companies keep in mind when hiring in a downturn?
The fact is that companies want to retain their best people. They’re hoping just to lose their least productive or least experienced. So there are highly skilled people available out there, but you have to be able to cut through the rest to find the ones that are right for you. You have to ascertain if candidates are unemployed because they got stuck in a down economy and their company went out of business or if they are unemployed because their company let the weakest go. You serve yourself well by doing strategic recruiting to make sure that you’re really targeting the skill sets that you need.
For example, in the banking and mortgage industry, there are a lot of good people out of work, and they may not necessarily have the product knowledge you’re looking for, but they do have the skill level you’re looking for. For example, they’re persuasive or have great presentation skills. A lot of those talents are transferable.
Is this a good time to outsource?
In a downturn, you may not have the people with the skill level you need, but you could go outside the company to others that are more specialized. Often you can get better services and pay less by outsourcing. You don’t have the cost of a full-time employee, you don’t have to pay for benefits, and you get better results. So companies can outsource wherever possible and use that savings to cover increased expenses or as they look to the future to potentially hire another salesperson or put the money in R&D or wherever it’s needed.
MIKE LEACH is senior vice president, Employco Group (www.Employco.com), a division of The Wilson Companies. Employco handles human resource outsourcing for 400 small and medium-sized Midwest companies. Reach him at (630) 286-7357 or mleach@Employco.com.
Keeping insurance costs to a minimum can be a challenge. One way to reduce long-term cost is by using the proper indemnification and insurance language in business contracts. By doing so, companies can limit their liability when working with outside parties and improve their risk to loss. Having strong contract administrative controls and a good loss picture ultimately leads to lower insurance premiums.
“Whenever there are two parties to a transaction you want to transfer your risk of loss (claims for bodily injuries, property damage, environmental loss, etc.) to the other party if you can,” says John Kurtz, vice president of The Graham Company. “By doing that you’re forcing the other party to assume liability.”
Smart Business asked Kurtz for more on how to take advantage of contractual risk transfer.
How does contractual risk transfer work?
It protects the company when you’re under contract by transferring responsibility for claims and loss and damages to the other party. So to the extent that you can transfer that risk to another party, you’re not responsible for it.
Can this be used in all forms of contracts?
In construction, it can be a subcontract or the contract that a construction manager has with an owner. Outside of construction, it could be a contract that you have with a major vendor, a major customer, a party in the product distribution chain or a financial institution. It could even be with a party sponsoring a special event.
Depending on which side of the transaction you’re on, you look to transfer that risk through contractual risk transfer anywhere you can. There are times when you may not have leverage in a transaction to transfer that risk, but at a minimum in those situations, you don’t want to be indemnifying the other party for their negligent acts.
Do companies still need insurance?
Regardless of whether you’re able to transfer the risk or not, you need to have insurance for the risk you assume. You’re going to have contractual liability insurance. But you still want to transfer the risk even if you have the insurance because it protects your loss experience. If your insurance company had to step up and pay a claim for a risk that you weren’t able to transfer to another party, you have that claim as part of your loss experience. If you’re able to transfer it, the broker is in a better position to negotiate lower premiums, and then also generate more interest among the insurance companies because you have strong contract administration in place and a favorable loss picture.
What should be included in a contract for effective risk transfer?
The business owner is going to want to have strong indemnification language shifting responsibility for claims and losses to the other party. So, again, even if you do not have the leverage in the transaction, you don’t want to indemnify the other party for their negligent acts. The most you want to be responsible for in that situation is your own negligence. If you have leverage in the transaction, you look to get that party to pick up as much as possible, including your negligence.
Who’s going to benefit the most in contractual risk transfer?
The party that benefits the most is clearly the party that’s able to transfer the most risk. It’s not a one-way street. I could sell you a product, and I might want indemnification and additional insured coverage from you. And you might say, ‘Why? I’m buying your product.’ The reason is that you’re going to buy my product and then make alterations to it and then re-sell it. So I want indemnification for that because I know you are going to make changes to my product. So there are all kinds of scenarios. Your broker needs to understand the nature of the transaction, how much leverage you have and how your policy coverage is structured.
What else should owners do to protect themselves when using contracts?
The other thing that the business owner wants in addition to the strong indemnification language is to be listed on the other party’s insurance as an additional insured on a primary and non-contributory basis.
There are two avenues for transferring the risk the one is the indemnification language, and that transfers the risk to the other party. If you are sued, you point to the indemnification language that’s working in your favor. And then you show that you’re also listed as an additional insured so your coverage is also on that policy. Those are the two avenues of recovery under the other party’s insurance.
What else should a business owner understand before signing a contract?
The smart buyer has his broker look at anything before he signs it or before developing any subcontract language that he plans to use on a regular basis. Because in many cases it’s a couple of sentences or even a couple of words that can make a dramatic difference.
JOHN KURTZ is vice president of The Graham Company. Reach him at (215)701-5237 or email@example.com.