Your contracts may contain risks you aren’t even aware of

If you haven’t recently reviewed your contracts, you may unknowingly be taking on responsibility for another party’s cybersecurity risk.

“If you’re signing contracts without legal review, or haven’t reviewed long-standing contracts, you’re likely carrying more liability than you think,” says Paul Hugenberg, III, CISSP, CRISC, CISA, principal, director of cybersecurity services at Rea & Associates. “Cybersecurity laws are quickly changing, and it’s incredibly important to know your industry. You need to have a clear understanding of your contracts and the risks they may be subjecting you to.”

Smart Business spoke with Hugenberg about understanding the cybersecurity risks contained in your contracts and how to avoid being held responsible for another party’s mistakes.

What clauses may be contained in contracts that could make a company liable for the actions of another business?

Entering into contracts is an everyday business activity, and their terms define what your duties are, what you’ll deliver and what your partner will pay for your services. In most contracts, you accept or assume that your partners accept liability for statutory or regulatory control for the data they will take possession of.

For example, in health care, a third-party vendor is held to similar HIPAA privacy standards over patient data as the health care provider. In that case, you need to ensure your business isn’t taking on all of the liability. If the contract language pushes all the responsibility onto you and the health care provider violates HIPAA, you may be liable, even though you didn’t necessarily do anything directly to put the data at risk.

In another example, if you’re buying a business, you’re often acquiring all of that company’s regulatory liability. Unfortunately, too many people fail to consider the cybersecurity liability exposure that is in that company’s contracts.

It is critical to clearly delineate who’s responsible for what.

Why is cybersecurity in business contracts a growing issue?

Most industries haven’t transitioned to the speed and velocity of cyber regulations, which are involved in almost every type of transaction. Templated contracts haven’t kept up with the changes. Every industry has data, and liability has shifted without people realizing it. Every contract needs to be reviewed annually for cybersecurity liability.

In addition, business owners — especially those of smaller businesses — are focused on turning out their product or offering their service, not on their cybersecurity risk. Companies are signing agreements that are not being vetted and they are not aware that they have taken on all of the liability of another business if there is a breach.

How can business owners protect themselves?

First, understand the laws and regulations around the space you’re operating in. Laws are constantly changing, and laws vary by state. Reach out to a specialist in your space, whether that’s an accounting firm or an attorney.

Then conduct an annual risk assessment. A specialist can uncover risks that aren’t on your radar when engaging third parties and isolate where the gaps are in cybersecurity liability. Ideally, this should be done before signing contracts, or at least before a problem arises. Too often, businesses do not review contracts until an issue arises.

It’s critical to immediately review all of your contracts for indemnification and liability clauses. You may be carrying more liability than you think, and it may be time to renegotiate.

And before you sign other agreements, have them reviewed by someone with knowledge of cyber security in contracts.

Insights Accounting is brought to you by Rea & Associates

How the pandemic has impacted how companies do business

With many companies experiencing a decrease in business, owners are looking for ways to decrease their expenditures.

“It’s important for companies to look at where they are now, not where they were a year ago,” says Sam Agresti, director at Brady Ware & Co. “Businesses need to examine every aspect of their operation and make adjustments in light of the pandemic.”

Smart Business spoke with Agresti about what to consider to survive in the midst of ever-changing conditions.

What environment are businesses currently facing?

Companies are facing are two very different situations. Many have lost revenue and are struggling. They have fixed overhead costs, but their volumes are down. And their employee counts are too high for their current situation.

Others have pivoted and are bringing in more revenue than they were previously. They’ve learned to be more efficient in their systems, their technology and their human capital.

In both situations they are at a fork in the road and must consider all of the metrics of their operations. When things are going well, it’s easy to increase spending without much thought.

Look at revenue per employee. How has that changed? Evaluate fixed costs such as rent and utilities. Do you need as much space?

You may not be able to change these things in the short term but they should be on your radar for the long term.

Then evaluate variable costs. Review contracts to determine if you may not need those products or services any more. And if you do, renegotiate those contracts where you are able.

Some companies are taking a central spending only policy, going through their expense structure to determine what is essential. For example, a business may have been considering an upgrade to its IT systems but now is pushing that off in favor of maintenance.

Organizations need to realign to adjust for how things have changed and optimize those things they can impact. Look outside your traditional products and services at different ways to make money. That may mean pivoting and exploring opportunities in new markets or diversifying.

How can an outside adviser help a business assess where it can right-size?

An adviser can help analyze a company analyze where it actually is today, vs. where it may still see itself from a year ago. That can be difficult for an insider who has been there for years to see clearly.

This is not the not the time to be shooting from hip. An adviser can help you be intentional about what you are doing and use data to make projections and benchmark expenses. That person can help you see opportunities you may not have considered and identify all possible outcomes.

A professional can also help identify business that is unprofitable. If it is not profitable, there may be a strategic reason to keep it, such as spreading overhead. But if a company is just trading dollars to keep people busy, it may be time to drop that account.

How does right-sizing impact a business’s culture?

A lot of bad cultures have been exposed during the pandemic. And if you’ve made personnel cuts, the people who are left may think the company is in trouble and jump ship. Be transparent and communicate daily with employees about where the company stands and what that means for them.

It’s critical to take a fresh look at your business, where the money is coming in — and where it may be unnecessarily going out. Make adjustments to the financials, to banking, to expenses and to employee structure to get to the right size for where you are now.

Insights Accounting is brought to you by Brady Ware & Company

Preparing for a sale early could mean more than a high sale price

Business owners who intend to sell their company should operate with the goal of maximizing its value as early as possible in the business life cycle. By doing so, an owner can reap the benefits of the operational and cultural improvements, and have more control over how, when and to whom they sell their business.

Alternatively, those who wait to prepare their business for a sale will find it’s a lot of work to do in a short period of time. Catching up will tax an organization, distracting from its core business, likely leading to a decrease in potential market price.

Smart Business spoke with Jim Barney, President of Advisory Services, Clark Schaefer Hackett, about the ways owners can prepare their business for a sale.

What preparations should be made before putting a company on the market?

It’s important that prospective buyers walk away from diligence confident in the strength of the business, so they’ll want to see that all the standard information needed to examine the business is available and organized.

Buyers are looking for clean and consistent financials. Volatility in the balance sheet, such as frequent write-downs of inventory or receivables, shows a lack of control and could sink a deal or drop down the offering price.

Buyers also want to see stability. They’re looking for confirmation that revenues, as stated in the financials, are solid and sustainable. In particular, they will be looking at client relationships, types of customers, margin trends and competitive pressures. They’ll want to see contracts to get a clear picture of how business is transacted and how often terms will need to be negotiated.

There will also be considerable attention paid to the strength of the leadership team transitioning with the business. Buyers need to have confidence that they understand the capabilities of the leadership team in place that’s going to help the new ownership take advantage of the opportunity they just bought into.

What is the deal preparation process like for business owners?

There is a lot of material that has to be pulled together for buyers ahead of a sale. Business owners who, from the start of their company, preserve and organize critical information will have a much easier time assembling it when it comes time for a sale. And from the buyer’s perspective, well-organized information increases confidence that the owner has the appropriate controls and oversight, which could lead to a higher offer.

For smaller, personally run businesses, deal preparation can be very taxing for the owner, as well as the person in the company responsible for its finances. It’s a lot of work — sometimes as much as another full-time job — and it can really pull an owner in two different directions. If the preparation is lacking and buyers see the owner is stressed just to give them standard information, it will have a negative effect on the offer. So, the more time that can be given to preparation before the desired transaction date, the better the results.

Who can sellers work with to prepare their company for a sale?

Most owners can easily find and organize the information buyers want if they give themselves enough time to prepare ahead of a sale. But when time or resources are limited, owners will need help to gather and prepare information. Owners could start by talking with their most trusted professional adviser, such as their CPA partner. They should know the business and could help get information organized or recommend a firm that has more M&A experience.

A lot of work goes into making it easy for buyers to get the data they’re looking for. The smaller the company, the more difficult it is to put that information together.

By staying consistently organized and preserving relevant information along the way, a company is not only ready to take advantage of an unexpected sale opportunity, it’s also more likely to incorporate best business practices, improving the value of the business and driving up the price. Owners who try to rush to the finish line risk having a deal fall apart during diligence, and that can stress an owner, the organization and the company’s future value.

Insights Accounting is brought to you by Clark Schaefer Hackett

Software in the cloud provides real-time data and creates efficiencies

If you haven’t recently considered how cloud accounting software can help your business function more smoothly, it may be time to do so.

“Cloud accounting software has come a long way in just the last year,” says Heather McNichols, director of accounting services, Rea & Associates Inc. “Many business owners looked at these systems a year or two ago and were not impressed. A lot has changed, and it’s definitely worth a second look.”

Smart Business spoke with McNichols about how cloud accounting software can help businesses function more efficiently and allow them to see their financials in real time, vs. relying on paper documents that could reflect data that is days or weeks old.

How does a cloud accounting software system work?

It’s an internet-based server system that does all of a business’s accounting functions, from accounts payable, to invoicing, to a general ledger, in the cloud. A year ago, it was a nice benefit to have, but during the pandemic, it can be lifechanging.

You can access the accounting software and records from any device, so you don’t have to be in the office connected to the server. Your accounts payable person can be working at home in Ohio, while your accounts receivable person is at home in Florida, and they both have access to the same data in real time. That gives employees the flexibility to work from anywhere.

What are some other benefits of cloud accounting?

The biggest benefit is decreased maintenance of a network — either you don’t need one at all, or it doesn’t need to be as big — and you don’t have to pay to have your network updated. Your data is also protected and backed up in the cloud, whereas if it is on your internal server and the server crashes, or something happens to the building, it can cost thousands of dollars to retrieve it and build a new network.

Another benefit is that you don’t have to keep up with software updates, because in the cloud, you get automatic updates to the software, so you are always working in the newest version.

How can the system increase efficiencies?

There are other applications that can be bolted on to your cloud accounting software. If you need to track employee expenses, there are apps that efficiently work with your online accounting software.

That removes a lot of manual entries and mundane tasks, and increases accuracy, because any time you have a human element in the process, there is the opportunity for errors.

Cloud accounting software also decreases search time for documents, as employees no longer need to spend time searching for files that may have been misplaced or lost, or be outdated.

And because everything is in one place, and data is updated in real time, business owners have the information they need at their fingertips. If you are in a meeting, you can pull up financials and see where things are sitting at that moment with live data.

With paper reports, you could be working off of data that is days, weeks, or even months old.

How secure are cloud accounting software systems?

The systems have a massive amount of encryption, so security is top-notch. The companies that offer these systems would be at risk themselves if data were accessed, so they take every precaution, such as double authentication, to ensure that data remains secure.

Cloud accounting software systems have come a long way and continue to evolve. Business owners owe it to themselves to at least look at them to see how they can benefit their companies.

Insights Accounting is brought to you by Rea & Associates

How to manage your sales and use tax obligations

The Wayfair decision changed the criteria that determine when a company selling goods or services can be required to collect state sales tax. But not all companies affected by the decision have complied.

“I am surprised by the number of companies that have yet to adapt, particularly companies that sell online,” says Stephen Estelle, Tax Manager at Clark Schaefer Hackett. “I continue to come across companies that have heard of Wayfair, but have done nothing about it.”

Smart Business spoke with Estelle about some of the ways companies can keep up with their sales and use tax obligations.

How does a company know where it needs to file?

To know if it has a filing responsibility, a company needs to understand state law and how it applies to the company’s activities in the state.
Wayfair expanded states’ ability to require an out-of-state company to collect the state’s sales tax. Now, states can require an out-of-state company to collect the state’s sales tax if the company has sufficient ‘economic presence’ in the state.

The most common economic threshold for a sales tax requirement is $100,000 in sales or 200 transactions in a state. The traditional parameters, however, such as whether a company has an employee presence or physical locations in the state, still apply. Complicating the situation, each state has its own parameters for determining when tax needs to be collected.

How can companies be sure they’re calculating the taxes correctly?

Calculating tax requires an analysis of state law and an understanding of the state’s sourcing rules. Depending on the state, some transactions are taxed all the time while some are circumstantially exempt.

Typically, a state will source a sale to the jurisdiction where the good is sold or delivered. Identifying that particular jurisdiction, however, can be tricky. While most states have a tax rate lookup system that enables companies to search for the correct jurisdiction and rate, it can be daunting when a company has thousands of customers with different addresses. Complete accuracy would require a check of every single transaction.

Alternatively, a company can invest in sales tax automation software. But, whether that software produces the correct result depends on whether the company gave it the correct information at the start.

What challenges are there for companies that want to handle sales and use tax compliance in-house?

There are three main challenges: personnel, cost and risk.

Calculating sales tax in-house requires at least one individual who is more than just knowledgeable about sales taxes. Companies who invest in such a person risk that person moving on and taking that knowledge with them. Also, sales tax isn’t really a full-time job. Returns are typically due around the 20th of the month, so there’s a lot of downtime for a sales tax expert.

There can also be ongoing technology costs, such as compliance and research software.

Finally, if the person handling sales tax doesn’t rise to the level of ‘expert,’ there’s increased risk that the decisions made will turn out to be incorrect and will lead to tax, penalties and interest on audit.

What are some tools companies can use to help with compliance?

Software can help, but the more the software is asked to do, the more expensive it gets. Also, the software needs to be set up correctly and checked often to ensure its accuracy, and that requires an expert.

Another option is to outsource the function or employ a hybrid solution — for instance, working with a sales tax expert on a quarterly basis to make sure filings are happening in the right states, that tax is being charged when it should be, and that it’s being calculated correctly and for the right jurisdiction.

Although it’s often the smallest item on the invoice, companies should take it seriously, especially now, because states are going to be hungry for revenue. If there is an out-of-state company that hasn’t been filing when it should have, states will be motivated to go after them.

Insights Accounting is brought to you by Clark Schaeffer Hackett

What to do when an employee contracts COVID-19

Employers operating during the pandemic have responsibilities they have not had before. They’re sometimes taking employees’ temperatures and asking them questions to determine the state of their health before they walk in the door. This is, in part, to ensure the safety of all employees working in close proximity to one another and to mitigate legal liability, but there’s another reason to be diligent now.

“Trust has to be there because people are really frightened about this,” says Peter J. Olmsted, director of executive talent solutions at Clark Schaefer Hackett. “Employers need to be as transparent as possible and put the safety and security of their employees first. If they do that, they should not have any undue legal risk.”

Smart Business spoke with Olmsted about the responsibilities employers have to their employees, legal and otherwise, through the pandemic.

How does a company typically learn an employee has contracted COVID-19?

Generally, under the Americans with Disabilities Act, you can’t ask employees certain questions about their health, except when there’s a substantial threat to the safety of employees or others. So, employers can ask their employees if they have COVID-19.

Employers could ask employees health questions as part of their screening protocol. Much like employers can require employees to have their temperature taken, they can also ask employees if they’ve come in contact with anyone known or suspected to have COVID-19 or if they’re feeling well today, and employees must respond in order to work and receive pay for that day.

What are the employer’s obligations when an employee tests positive for COVID-19?

Employers have an obligation to make sure that anyone who had any potential exposure to a person infected by COVID-19 is notified of the location and the timing of that interaction, but not the specific person’s name. That has to be kept confidential.

There are other actions employers can take that are not required but can help them to have the best outcomes while maintaining a positive culture. For example, there may not be an obligation to communicate updates to employees every day regarding COVID-19 cases, but it’s probably a good idea. If no one tested positive, tell them that as well. This can go a long way toward keeping up trust between employers and employees.

What required reporting exists for companies that have confirmed COVID-19 cases?

Employers are required to immediately report the employee, or even a customer who had the virus and was working at or visiting an employer’s facility, to the Ohio Health Department. The local health department may also require employers to identify anyone potentially exposed to those infected individuals to help facilitate contact tracing. It may also be necessary to shut down a facility and bring in professionals to do a deep cleaning, then reopening in consultation with the local health department.

What legal risks exist for a company once an employee has contracted the virus?

The liability issue has yet to be fully tested in court, but there are mistakes employers can make that would put them more at risk of being held liable. For example, if an employer doesn’t report cases to local and state health departments, it could be fined. Employers are also required to report cases to OSHA when they learn someone has entered their facility who tested positive for a COVID-19 illness. Another issue is not taking reasonable steps to protect employees — steps such as social distancing, mask wearing and regular cleanings. Employers can also get in trouble for not complying with federal or state guidelines, such as the Families First Coronavirus Response Act.

Employers should show that they care about their employees and be proactive when it comes to mitigation steps. That means staying up to date, because the laws are changing every day, and overcommunicating with employees. Consider that the actions employers take today to protect employees are going to be remembered by those employees in the future when work returns to normal.

Insights Accounting is brought to you by Clark Schaefer Hackett

Building a recovery plan for your business

Businesses have suffered massive disruptions during the COVID-19 pandemic. But smart businesses can turn that into a positive — and prepare for future disruptions — by taking a number of steps, says Tom Wolf, CPA, director, Brady Ware & Co.

“No one was prepared for what happened, economically or socially,” says Wolf. “A lot of businesses are still doing well, but a lot aren’t. And even if you’re doing well now, that could change.”

Smart Business spoke with Wolf about how to emerge stronger from this downturn and how to prepare for the next one

How can companies begin to plan for a recovery from the impact of COVID-19?

First, assess where you are. Look at the last six months and determine what went well and what didn’t. For the things that didn’t, look at whether you can make adjustments, and have a plan B and C.

For the things that went well, how can you capitalize? Consider how you can take advantage of those things, but don’t get complacent. Things can change on a dime, so don’t think that because things are going well you can rest easy.

Also look at suppliers and customers. Create a backup plan so you can accomplish what you need to. And think about whether things will return to normal, or whether this is the new normal, and adjust accordingly.

How should companies be reimagining a new business environment and culture?

Review your risk model and technology platforms to ensure you can pivot as needed. Consider the way employees work and how expectations have changed. Be flexible with your workforce and how work gets done.

The pandemic has had a significant impact on commercial real estate as companies realize they don’t need all the space they have. Many are finding they just need a central location, and not everyone needs to be in the office.

In addition, businesses that laid off employees may find they are getting the same amount of productivity with fewer people. If they continue to do well, that will also reduce the need for office space and help improve efficiencies and control costs.

What do business leaders need to understand about their financials?

When a major disruption occurs, the strength of your balance sheet determines how well you can withstand it and for how long. It should let you take advantage of opportunities and be on the offensive. With companies struggling, there may be ways to expand. Income, revenue and expenses are important, but if you lose sight of your balance sheet, you may miss an opportunity.

How can your financial partners help?

Access to financing could become more challenging, and your banker, accountant and attorney can help you model out loan covenants and modifications as needed.

They can also look at cash flow and future profitability and help you be conservatively realistic about what you can do. If you are in a position to be cautiously aggressive, your strategic partners can help guide you, because if an opportunity presents itself, you don’t want to miss it. Shore up your financial situation, work with your financial partners to project out into the future and address potential speed bumps as quickly as possible.

How can companies reinvent their marketing and sales plans?

The way we connect with people has changed. We have to find new ways to connect and adjust how we think about making connections. If you’re not in a client’s business, how do you market to them and make yourself valuable? You need to make every interaction count.

Continue to adapt every day as the world changes and the way we’ve done business no longer exists. Focus on opportunities for margin and align marketing and sales in terms of goals, revenue and process.

People became complacent and didn’t realize the magnitude of what could happen. How are you going to be prepared for next big change, whatever it is?

Insights Accounting is brought to you by Brady Ware & Company

Leverage insight in consumer purchasing behavior to drive sales

Consumer confidence, the general measure of consumers’ economic optimism or pessimism, fell 30 percent from February to April. As businesses began shutting down and people began losing their jobs, they became fearful, which caused an unusually rapid decline in confidence to the lowest level the U.S. has seen since 2011.

While that news should be a cause for concern among retailers, data analytics can help retailers better understand consumer purchasing behaviors and appeal to the changing sentiments of their specific customers to maintain, or even increase, sales.

Smart Business spoke with Jonathan Poeder, director of data analytics at Clark Schaefer Hackett, about the pandemic’s effect on consumer behaviors and what retailers can do to meet new consumer demands.

How is unemployment driving purchasing behavior?

We’ve had a historic rise in unemployment with over 40 million people losing their jobs since mid-March, which brought the national unemployment rate to 13.3 percent in May. That’s really driving consumers to reduce their spending and seek out value.

Research has shown half of U.S. consumers have been reducing their spending. We also see evidence of an increase in value-conscious behavior in the consumer packaged goods market, which is driving up sales of private label products about 19 percent year over year. There was already an upward deterministic trend of private label sales, but it has been accelerated by the pandemic.

There has also been a large shift away from brick-and-mortar toward e-commerce. Some estimates expect brick-and-mortar retail sales will drop by about 14 percent for 2020 and e-commerce sales will increase by about 18 percent.

Historically, consumer sentiment follows closely with economic conditions. The expectation is that, as the economy recovers, consumer sentiment will become more positive. Depending on how things unfold, it could get worse before it gets better. COVID-19 infections are spiking, which may bring another round of closures that could exacerbate consumers’ pessimistic views. Furthermore, in terms of purchasing behavior, there is data that suggest consumers will maintain cost-conscious behavior in a post-COVID economy.

How can individual retailers identify changes in their customers’ behaviors?

National trends are relevant, but it’s good to look at certain characteristics that drive purchasing behavior within individual retailers. People are making fewer trips when they go shopping, so managing inventory is very important. Customers want to feel appreciated, which means retailers should continue recognizing and rewarding loyalty even during a difficult time. Safety is top of mind. Retailers can benefit by having curbside pickup and other options for contactless shopping.

Convenience is key, which means meeting shoppers where they want to shop. That could mean transitioning to an e-commerce platform or providing other ways to make shopping easy for customers. Keep customers’ price sensitivity in mind and find ways to provide value within their budget.

How can retailers use data to stay on top of changing consumer sentiment?

The very first step for retailers is to make sure they have clean data as a foundation for analysis. That foundation can then support business intelligence tools — software that connects their data to create dashboards, or automated reports. The dashboards include key performance indicators and data visualizations that tell retailers how their business is doing in real time.

The next level is incorporating predictive analytics, which uses sophisticated algorithms and machine learning to generate predictions about the future. That enables retailers to determine which customers to target with promotions to drive the greatest incremental revenue, or to predict how much inventory should be kept on hand.

Many retailers don’t have the budget or skillset to take full advantage of the analytical tools and methodologies out there. Fortunately, there are service providers who specialize in data analysis. They can help retailers analyze all aspects of the customer experience and identify strategies to drive more positive purchasing behaviors during a difficult time.

Insights Accounting is brought to you by Clark Schaefer Hackett

Top HR issues employers need to be thinking about

As workplaces have shifted into virtual mode, human resource priorities have shifted, as well, says Renee West, SHRM-SCP, PHR, senior human resource manager at Rea & Associates.

“Topics have trended differently in response to COVID-19, and employers need to have certain measures in place from an HR compliance standpoint,” she says.

Smart Business spoke with West about how to comply with coronavirus-related regulations and other HR topics that should be top of mind for employers.

What should employers be doing in response to the pandemic?

No. 1, employers need to be compliant with COVID-19 regulations. Update employee handbooks to reflect the current situation. Comply with safety recommendations to ensure safe re-entry into the workplace. Educate employees about staying safe. Compliance is a huge piece of this right now.
Another piece is understanding the Families First Coronavirus Response Act as it relates to paid leave; employees with child care issues can take leave up to certain periods of time at certain rates of pay.

And employers that never allowed working remotely need to be flexible. Look at how you structure the workday. How can you be flexible but still have employees be productive? Consider work-sharing or bringing back employees on a rotating schedule. Think outside the box of the traditional work day.

What should employers do to help employees with their mental health and well-being?

Companies need to provide resources, through an employee assistance program or some other means. Employees need to understand it’s OK if they’re having anxiety and need help. Even before coronavirus, the ability to balance work and life was difficult. Understand what challenges employees are facing working with children at home. Supporting employee well-being is crucial to them being productive and knowing the company cares about them.

Mental health can affect performance and quality of work. If someone is struggling, they may call off more often and put out an inferior product, which can be costly.

What do employers need to think about regarding retention and recruitment?

COVID-19 has caused recruiting to look very different. Interviews are being done via phone or online job fairs. Given the market, you need to find different ways to recruit.

The flip side is retention. Employers struggle with what benefits to offer to ensure employees stay, to improve consistency of product. Employees can leave any time, and if people have skills you want to retain, it’s important they’re happy.

How important is it for employers to consider diversity, equity and inclusion?

This is critical. Look at what you’re doing to ensure these things are addressed every day. A recent Supreme Court ruling expanded protected classes to include LGBTQ employees. Define diversity and inclusion, and make sure your recruiting and evaluation processes are diverse and your compensation is equitable.

Update your policies, and train employees on them. What policies do you have regarding harassment training? What about diversity training? What do employees do if they have a concern?

Too many employers dismiss training on these issues, but any employee can come forward at any time. It just takes one case, and if you don’t have policies in place, one lawsuit can easily put you out of business.

What are you hearing in the marketplace?

I’m hearing a lot about balancing, employees who need to take leave and how to comply with regulations. People want to do the right thing, but things change every day with new guidelines. It’s important to stay up to date and current. The legislation never stops, and businesses struggle with how to keep up and still get their product out the door.

Work with a trusted adviser, and listen to trusted sources like your state government, state department of labor, the CDC, the EEOC and your chamber of commerce. To be effective, you need to get information from credible sources.

Insights Accounting is brought to you by Rea & Associates

How the CARES Act impacts benefit plans for both employees and employers

With the economy reeling from the COVID-19 pandemic, businesses closed and millions of employees out of work, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) is offering financial relief to both businesses and individuals.

Under certain circumstances, the act gives employees easier access to funds in their defined contribution plans. In addition, employers have delayed obligations regarding pension contributions, and there is less of a financial burden for coronavirus-related health care.

“This is relief provided by the government to address some issues that individuals and businesses are facing with the pandemic,” says George P. Pickard, CPA, MSA, principal at Ciuni & Panichi Inc.

Smart Business spoke with Pickard about the benefits aspects of the CARES Act, who qualifies and how to take advantage of its provisions.

Who qualifies for relief under the CARES Act?

If you have been diagnosed with COVID-19, or a spouse or dependent is diagnosed, you qualify. In addition, if you have experienced financial consequences because of a furlough, layoff, reduced hours or quarantine, because your company has closed, or because you are unable to work due to a lack of childcare, you can benefit from its provisions.

What are the changes to the rules for accessing funds in 401(k)s, 403(b)s, ESOPs, SEPs and other plans?

Previously, there were restrictions on how and when you could withdraw funds. While you could access money before turning 59½, in addition to paying taxes on those funds, there was a 10 percent penalty. Under the CARES Act, that withdrawal, up to $100,000, is considered a coronavirus-related distribution and the penalty is waived. In addition, the withdrawal will be taxed as income over three years instead of one, but if you reinvest back into the fund within three years, you avoid the tax altogether.

For 180 days following the March 27 start date, qualified individuals can take distributions of the lesser of $100,000 — up from $50,000 — or 100 percent of their vested balance, up from 50 percent. For 401(k) loans in place when the CARES Act was passed, for repayment due before Dec. 31, 2020, participants can have payroll payback suspended for one year, although interest continues to accrue.

For employees to take advantage of these changes, an amendment must be adopted by the plan. It can implement the changes immediately, but it must formalize amendments to allow employees to withdraw funds.

However, if you don’t absolutely need the money, don’t take it out. With funds down, you are going to realize losses. Leave the money in and allow the stock market to come back. And if you are able, start pumping more money into your funds in this down time.

How does the act impact minimum distribution requirements and health care plans?

Minimum distributions requirements are suspended for 2020, so if you don’t want to withdraw money in a down market, you can leave it in place until 2021.

The CARES Act follows the Families First Coronavirus Response Act (FFCRA). Under FFCRA, health plans are required to cover qualified preventive services and approved diagnostic testing, without any cost-sharing with the employee. The CARES Act expands the types of COVID-19 testing that must be covered.

What is the impact on employers regarding pension plan contributions?

If a business has a single employer plan, it is required to fund the plan to a certain minimum annual amount. Under the CARES Act, it can delay funding until Jan. 1, 2021, although interest on the deferred amount accumulates. This gives companies leeway to use that cash now to keep the business going and pay employees.

However, these plans rely heavily on investment returns to offset what they contribute, and if investments are down, companies could be liable for a very hefty amount.

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