1500 Lake Shore Drive, Suite 400, Columbus, OH 43204
Monthly Archives

May 2009


By Your Employee Matters | No Comments

Many employers are freezing wages, telling employees that any additional pay will come in the form of a bonus if they or the company does well. A recent California decision (Marin v. Costco) serves as a reminder that paying a bonus to non-exempt employees can trigger additional overtime obligations.

In Marin, several former employees, all classified as non-exempt, sued Costco for its alleged failure to pay overtime wages on the non-discretionary bonus it paid to these employees.

Under the Federal Fair Labor Standards Act and the California Wage Orders, employers must calculate overtime based on the employee’s regular rate of pay. This rate must be computed by each work week, and becomes significantly more complex if an employee’s compensation involves more than just an hourly wage, such as profit sharing or productivity bonuses. For each work week, the employer must total all the compensation paid, but exclude overtime payments, profit sharing, discretionary bonuses and other benefit plans, and then divide the total number of hours worked, up to 40, to determine the regular rate of pay. Significantly, non-discretionary bonuses, such as those earned by meeting performance standards, are included in the regular rate calculation.

Bonus overtime stems from the fact that overtime premium pay is computed based on a multiple (usually 1.5 times) of the employee’s regular rate of hourly compensation. This regular rate is calculated by dividing the number of hours worked in the week by all compensation earned for that week. If the employee is later given a bonus that’s partially due to work performed in that week, this additional pay must be added to the total compensation for the week. This effectively causes a retroactive increase in the employee’s regular rate of pay.

For example, suppose an employee’s straight time hourly pay is $10 per hour, and that he worked 40 regular hours and 10 overtime hours in a given week. His regular weekly paycheck would include $400 as straight time pay, plus $150 of overtime pay (1.5 times his base rate, or $15 an hour, multiplied by 10 hours).

Now suppose the employer has a profit-sharing program that pays this employee $5,200 at the end of the year based on the company’s overall performance. Because the bonus is equally attributable to all weeks in the year, this payment retroactively increases his weekly compensation by $100 ($5,200 divided by 52 weeks). Under the law, this additional $100 per week payment also raises the employee’s regular hourly rate for the week retroactively by $2.50 ($100 per week divided by 40 straight time hours per week). Since the employees recalculated regular rate for this week is now $12.50 per hour, his recalculated overtime rate increases proportionately from $15 an hour to $18.75 an hour. Each employee is thus entitled to an additional $3.75 for each overtime hour worked, totaling $37.50 extra for the week in which he worked 10 hours of overtime. This is known as the retroactive effect of a non-discretionary bonus.

In contrast, the retroactive effect of a discretionary bonus creates a different outcome. Suppose the same employer paid the same $100 per week for the performance bonus based on that particular employee’s volume of production during the year (e.g., making sales, manufacturing products, etc.). The law now requires that the bonus overtime be calculated differently. Instead of dividing the $100 by 40 straight time hours to determine the regular rate for bonus overtime, the employer is allowed to divide the amount by the total of the straight time and overtime hours worked (in this case, 50 hours). As a result, the employee’s regular rate for the week rises by just $2.00 ($100 divided by 50 total hours worked). The employee would be entitled to only an additional $20 ($2.00 multiplied by 10 hours of overtime), as opposed to $37.50.

In summary, the two points to remember from the Marin case are that: (1) Additional overtime payments are triggered when a bonus is paid; and (2) the method for calculating the amount of this bonus overtime depends on whether the bonus is characterized as a non-discretionary bonus or a discretionary bonus. Calculating bonus overtime is complex and can be a headache for employers. However, employers who ignore this calculation do so at their own peril because using a mistaken formula offers fertile ground for a class action or other litigation.

The Bottom line: When formulating bonus plans, be prepared to calculate the impact of retroactive overtime pay.

Here are materials to help you calculate wage obligations related to bonuses.

Partial content contributed by Pettit Kohn Ingrassia & Lutz (www.pettitkohn.com).


By Your Employee Matters | No Comments

Because many employers can find these two categories confusing, we decided to help clarify things. To begin with, comp time is basically illegal unless you’re a federal or state employer. Comp time allows you to work extra one week and then get the time off at a time-and-a-half rate the next week. Government employers who do this are limited to 240 hours of comp time off (CTO). They must be requested by employees only. Although comp time is theoretically available under California state law, employers are still required to pay the time at an overtime rate. For most businesses, providing CTO just isn’t worth it — in California or any other state.

Make-up time is different because it involves swapping some hours for other hours within a week period and avoiding overtime obligations in the process. To get make-up time, there must be a written request, a personal obligation of the employee, and the make-up time has to occur in the same week. Under Federal law, as long as employees work less than 40 hours a week, make-up time is not an issue. Under California law, with its eight-hour overtime requirement, there are more specific rules: The employee may not exceed more than 11 hours of work in one day or 40 hours in the week (the only real distinction with federal law is the 11-hour limit). HR That Works users can find a Sample Make-Up Time Policy and Request on the Web site.


By Your Employee Matters | No Comments

Many companies have instituted across-the-board salary reductions. Many of the same companies offer their employees reduced hours as well. This can be a trap with exempt employees. The DOL recently released opinion letters addressing short-term layoffs, mandatory time-off policies, and a reduction in work hours. In all three cases, the employer would allow use of vacation time but would dock worker time once exhausted.

Although the DOL had no problem with folks being required to use their vacation time, it did have a problem with docking pay for the time missed. The latter can jeopardize the employee’s exempt status. Employers may dock time if the employee misses an entire week of work or voluntarily takes time off for personal reasons, but not simply because they reduced their pay and feel that it’s fair to have them work less. In other words, if an exempt employee has their pay and hours reduced, they might lose their exempt status.

According to the DOL, there is a narrow exception: A fixed reduction in salary effective during a period when a company operates a shortened workweek due to economic conditions would be a bona fide reduction. If you attempt to go this route, get some legal advice first. You’ll find the opinion letters here.

The bottom line: When it comes to exempt employees, you can fire them or reduce their pay — but watch cutting their hours in the process!


By Your Employee Matters | No Comments

It’s a good idea to take advantage of the O*NET Web site, which provides job descriptions for thousands of positions — and it’s free! In addition to the essential job duties identified by O*NET, you might also consider adding these items to your job descriptions:

  1. Being on time. (Yes, lawyers will argue that this is not an essential job function). If it’s essential for an employee to show up at 8 a.m., due to the nature of your business, and flexible scheduling won’t work for that position, then identify it as an essential job function.
  2. Mandatory overtime. If your business requires mandatory overtime, make sure that this is an essential job function. (Even though lawyers will argue that the essential work only has to be done within 40 hours per week).
  3. Rotation through jobs. Many companies do this for cross-training and other purposes. Again, if job rotation is important, put it in the job description. (This forestalls the argument that rotation is a punitive or retaliatory measure).
  4. A pleasant personality. For example, having a pleasant personality is an essential job function for customer service employees. (Again, lawyers will argue that being nice isn’t an essential job function — simply getting the job done is).

Although it might sound ridiculous to add such requirements to your job descriptions, we’ve seen these issues arise in case after case, especially in the disability accommodation area.


By Your Employee Matters | No Comments

Every year I look forward to the annual Berkshire Hathaway Annual Report. Not just because I own some of the stock, but because of the much anticipated letter from Warren Buffett that provides incredible insight with a good sense of humor to boot.

For example, in this year’s letter Buffett stated that the recent economic period was “devastating” and that “investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game.”

Although Buffett is concerned that government spending will lead to an onslaught of inflation, he remains optimistic that America’s best days lie ahead. In his report, he states that he and his partner, Charlie Munger, are focused on these goals:

  1. Maintain the company’s Gibraltar-like financial position, which features huge amounts of liquidity, modest near-term obligations, and dozens of sources of earnings in cash.
  2. Widening the moats around operating business that give them durable competitive advantages.
  3. Expanding and nurturing the cadre of outstanding operating managers who, over the years, have delivered exceptional results.

Does anything make more sense for your business or career than what you’ve just read? The answer should be “of course not.” Which begs the question: Are these the goals of your business or career? Do you maintain liquidity both at home and in your business? Do employees understand the importance of maintaining retained earnings? Do you have dozens of sources of earnings in cash? What are you doing to acquire or develop new ones?

Have you identified the moat around your operating business that you’re now attempting to widen? What do you do that’s unique from your competition or others at the company? How do you intensify it? Do a better job of branding it?

Finally, do you have outstanding managers you are constantly nurturing so that they can continue to produce exceptional results? How are you nurturing them? What leadership training are they getting? How are their egos being stroked? If you’re a manager, how are you nurturing yourself? Feeding your mind, body and soul?

Productivity and quality are key to Buffett. Two examples: GEICO is one of the most efficient operators in the insurance business. Five years ago the number of policies per employee was 299. In 2008 the number was 439, a huge increase in productivity, without a drop-off in service.

“Our two pipelines, Kern River and Northern Natural, were both acquired in 2002. A firm called Mastio regularly ranks pipelines for customer satisfaction. Among the 44 rated, Kern came in ninth when we purchased it and Natural ranked 39th. There was work to do … Mastio’s 2009 report, Kern River ranked first and Northern Natural third. Charlie and I couldn’t be more proud of this performance. It came about because hundreds of people at each operation committed themselves to a new culture and then delivered on their commitment (mine).”

So, how can you show that you’ve increased productivity per employee and the overall quality of your operations? What are your benchmarks and how well do your employees know them?

While remaining cautious, Buffett see this as an incredible time for opportunity. As he states, “When investing, pessimism is your friend; euphoria the enemy … Whether we’re talking about socks or stocks, I like buying quality merchandise when it’s marked down.”

The savvy employers I know get that this opportunity is the silver lining in a stressful time. They’re doing everything possible to capture market share, as well as the best and brightest employees from the competition. When the economy eventually does turn around, they’ll be in an incredible competitive position. You want to be a company like that — you don’t want to compete against a company like that.

Finally, at the end of every annual report are the 15 owner-related business principles that Buffett believes will help shareholders understand his management approach. Reading these 15 principles offers a lesson in business management.

How would your company stack up to them?

You can read a copy of the annual report here.


By Life and Health | No Comments

If you participate in a High Deductible Health Plan (HDHP), you have the opportunity to take advantage of a federal income tax break by saving and paying for health care expenses through a Health Savings Account (HSA). Contributions you make to your HSA are deductible from your gross income, earnings on your HSA funds grow tax-free, and withdrawals used to pay for qualified medical expenses are tax-free.

HSAs might be established by employers for their employees, or by individuals outside of an employer-based plan. Regardless of whether your HSA is through your employer or established individually, you will be responsible for some reporting and record keeping requirements. These tasks are not extensive or burdensome, but must be followed so that you receive the tax advantages that the HSA offers.

Reporting HSA contributions. IRS Form 8889 is the key reporting vehicle for HSAs. Form 8889 is used to report HSA contributions, figure your HSA deduction, and report any HSA distributions. Contributions you make, and those made by anyone else on your behalf, including contributions made by your employer, must be reported. Employer contributions will be shown in Box 12 of your W-2, and will be coded with a “W.” You also will receive a Form 5498-SA from the HSA trustee, which will show the amount contributed to your HSA during the year, from all sources. You must file a Form 8889 with your federal income tax return if, during the taxable year, contributions were made to your HSA, you received distributions from your HSA, or you acquired an interest in an HSA due to the death of an HSA account beneficiary.

Figuring your HSA deduction. Form 8889 instructions walk you through the process of calculating the deduction allowed for HSA contributions. The amount of your deduction is limited to the IRS maximum (up to $3,000 individual/$5,950 family for 2009), and is reduced by any HSA contributions made by your employer. You enter the deductible amount as an adjustment to your gross income on your federal income tax return. If both you and your spouse have an HSA, IRS Publication 969 explains how to handle the reporting for this situation. You also use Form 8889 to calculate whether excess contributions were made to your HSA. Excess contributions receive no tax preference and generally are subject to a 6% excise tax (unless timely withdrawn). Excess contributions, if made by your employer and not included in Box 1 of your W-2, should be reported as “Other income” on your federal income tax return.

Reporting HSA distributions. The HSA trustee reports distributions on IRS Form 1099-SA. HSA distributions used to pay for qualified medical expenses are free from tax. However, you still must report these on Form 8889. Distributions used for something other than qualified medical expenses are taxable, and subject to a 10% additional tax. Report taxable HSA distributions as “Other income” on your federal income tax return. Use Form 8889 to calculate the additional 10% tax, and report this in the “Other tax” section of your federal income tax return.

HSA Recordkeeping. According to IRS Publication 969, HSA accountholders must keep records sufficient to show that:

  • HSA distributions were used to pay for or reimburse qualified medical expenses;
  • The qualified medical expenses paid from the HSA were not paid for or reimbursed from another source; and
  • The qualified medical expenses paid from the HSA were not itemized as a medical deduction in any previous year.

You should retain the paperwork verifying you have met these requirements, however, do not file the paperwork along with your federal income tax return.

State Tax Reporting/Record Keeping Requirements. These will vary by state. Review the instructions on your state income tax return, or check with your tax preparer.

Compliance with these reporting and record keeping requirements will help ensure your HSA provides the intended tax benefits.


By Life and Health | No Comments

Word on the street is that health care reform is on the way, but medical costs are still phenomenally high at the moment. Health care spending in the U.S. reached a whopping $2.4 trillion in 2008, according to the National Coalition on Health Care. Unless you and your family members all happen to be incredibly healthy folks, you’ve probably felt the financial impact of ever-rising medical expenses. These days, all it takes is one trip to the emergency room or a visit to a medical specialist — and suddenly your mailbox is flooded with medical bills. Fortunately, there are a few ways you can cut down on your annual health care costs. Here are ten medical bill slashing tips that could save you a boatload of money:

  1. Find a primary care physician: In this day and age, many patients simply stop by the local urgent care center when they aren’t feeling well. These centers are fast, convenient and affordable. Although going to a primary physician might seem passé, it’s still important to develop a relationship with a doctor you know and trust. Because a primary care physician takes time to get to know you and your medical history, they are more likely to diagnose you correctly and make well-educated decisions about your overall health — which could save you time and money in the long run.
  2. Save on prescriptions: Ask your doctor to prescribe you generic drugs instead of costly brand-name drugs whenever possible. Most health insurance companies charge lower co-pays for generic drugs. You could reduce your prescription costs by $10 to $40 per medication.
  3. Avoid the emergency room: Don’t go to the emergency room unless you actually have a medical emergency. Find out if your physician or pediatrician provides after-hours services or ask if they can recommend an urgent care center. This could save you a trip to the hospital and a great deal of money. Figure out which hospitals are in your health care network and keep the address and phone number on hand. Study your plan’s rules about ambulance services and emergency room co-pays. If an emergency does arise and you’re not sure what to do, call the 24-hour emergency help line number located on the back of your insurance card.
  4. Cut back on specialist visits: Go to your primary care physician before you make an appointment with a specialist. Your regular doctor might be able to help you with your medical problem without a costly visit to a specialist.
  5. Stay healthy: If you quit smoking, keep your weight at a healthy level, exercise regularly, take prescribed medications and get regular check-ups, you’ll save untold amounts money in the long-run on health care expenses. Plus, healthy lifestyle changes can help you keep chronic diseases under control, which means you won’t have to pay as much for costly treatments and prescriptions.
  6. Review your meds: Discuss your regular medications with your primary care doctor every so often. Talk about how long you’ve been taking the prescription, whether it’s working or not and what negative side effects it might have. You and your doctor might decide you no longer need the medication.
  7. Question expensive testing: If your doctor says you need to get an MRI, a CT scan or another costly test, ask if the test is absolutely necessary. Sometimes these tests lead to nothing more than hefty medical bills.
  8. Don’t fall for the drug hype: Every time you turn on the TV there’s a flashy new ad for the latest “miracle” drug. Don’t get caught up in the hype. Although some of these newly released drugs might have a few advantages over their older counterparts, the new meds are often much more expensive. Talk to your primary care physician about whether it’s worth it to make the switch.
  9. Don’t go crazy with screening tests: Some screening tests are important because they can catch a disease in the earliest stages. However, you can easily get carried away with screening tests. Oftentimes, these tests lead to false alarms and unnecessary treatments. Try to stick with just the screening tests your doctor recommends based on your medical history.
  10. Give it some time: Obviously some medical problems require immediate treatment. For example, if you think you’re suffering from a stroke or heart attack, get medical attention immediately. On the other hand, if you’re just feeling a little under the weather or having minor aches or pains in your joints, you probably shouldn’t rush to the doctor. Give yourself some time and see if your body can handle it without the help of medication. However, if these symptoms persist for a week or longer, you might want to see your doctor.


By Life and Health | No Comments

If you’ve purchased Life insurance to help protect your family in the event of your death, good for you. However, you probably shouldn’t pat yourself on the back just yet. Why not? Because unless you have the appropriate amount of Life insurance, your family isn’t fully covered.

According to a 2008 study by LIMRA International, a whopping one-third of U.S. adults do not have Life insurance. This is certainly a troubling statistic, but there’s another trend that’s perhaps even more disturbing: Countless families who do have Life insurance do not have enough.

Americans have a combined $10 trillion worth of Life insurance coverage, according to a 2008 study by the American Council of Life Insurers. Although this might seem like an astounding amount of insurance, $10 trillion represents only 72% of our nation’s combined annual income, which comes out to a whopping $14 trillion. Although uninsured families are well aware that they have no coverage, most underinsured families don’t realize it until it’s too late.

Even if you have Life insurance, your family could be at serious financial risk if you don’t have the proper amount. If you’re not sure whether you have enough coverage, it’s time to take a second look at your insurance policy.

Pin-pointing the magic number

Figuring out how much Life insurance you need is no easy task. There are a few different ways to calculate the appropriate amount of Life insurance you need. Some insurance experts say you should simply multiply your annual income by three times while others say you need at least eight times your annual salary.

However, many advisors point out that the income multiplication rule of thumb might not be the best the calculation. When it comes down to it, the amount of Life insurance you need depends on your family’s unique situation, including many different factors.

To figure out the right amount, you might want to ask yourself a few important questions, including:

  • If I were to die, how much money would my spouse need to continue paying our mortgage?
  • Would my spouse be able to work or would he or she need to stay home with the children?
  • If my spouse were to work, would he or she need to pay childcare expenses?
  • How will my children be able to afford college tuition?
  • Will my spouse be able to afford making contributions to a retirement account, ensuring a comfortable retirement?
  • How will inflation impact my family’s finances in future years?

Once you answer all of these questions, you’ll be able to make a more informed decision about the amount of Life insurance you need. Of course, you’ll also want to review your coverage each year. If there have been changes in your family (your children are now grown and no longer need financial support) or changes in your overall financial situation (you now have a higher-paying job or a lower mortgage), you’ll want to adjust your Life insurance coverage accordingly.

Purchase the right policy

There are two basic types of Life insurance policies: Term insurance and Cash-Value insurance. Term Life covers you for a specified amount of time, anywhere from one to 30 years. These policies are less expensive because they are designed solely for protection. Many people choose Term insurance because their need for Life insurance will decrease as they get older. Term insurance is also good option for families who want to protect their children until a certain age.

Cash-Value Life insurance covers you for your entire life. These policies act as both an insurance plan and a savings mechanism. Because the insurance company actually invests some of your premium, Permanent Life has the potential to accumulate cash value on a tax-deferred basis.

Eventually, you can borrow money from a Cash-Value Life policy. Because loans are usually not considered income, you probably will not face any income tax liability for these withdrawals. However, whatever you withdraw will be subtracted from the ultimate death benefit.

Calculating how much and what type of Life insurance you need is a complex process that involves a lot of research and thought. Meet with one of our insurance experts, who can help you determine how much insurance you need and what you can realistically afford.


By Personal Perspective | No Comments

Social networking Web sites, such as MySpace, Facebook, and LinkedIn, are growing increasingly popular with young people and adults alike. These sites allow people to reconnect with old friends and colleagues and to make new connections. However, as with most other Web sites, these sites allow the posting of communications that the posters might come to regret. These posts can cause hard feelings and might result in significant financial loss.

In the winter of 2009, a teenager from Oceanside, New York sued Facebook, four of her high school classmates, and their parents for $3 million. The suit accused the four classmates of bullying and humiliating her in a forum on Facebook. They allegedly posted derogatory and false statements about her that were intended to hold her up to “public hatred, ridicule and disgrace.” Whether or not the allegations prove to be true, the teenagers and their parents need legal defense and possibly resources to pay judgments against them. They might look to their Homeowners insurance policies to cover these costs, but will the policies respond?

A standard policy will probably not cover this. The policy pays amounts for which the policyholder (the insured) is legally liable, plus the costs of legal defense, for bodily injury or property damage done to someone else. The policy defines bodily injury as meaning bodily harm, sickness or disease; it defines property damage as injury to, destruction of, or loss of use of physical property. Neither of these definitions includes saying or publishing something that injures another’s reputation or feelings. Consequently, the policy is unlikely to cover a post on Facebook. The girl from Oceanside did not allege that her classmates hurt her body, made her sick or passed her a disease; she accused them of making her life miserable. The policy does not cover that offense.

Insurance companies might offer special personal injury coverage that can be added to Homeowners policies. This coverage pays for the insured’s liability for several offenses, including oral or written publication of material that violates someone’s privacy. If any of the Oceanside classmates’ parents have this coverage, their insurance might cover the claims.

Another potential source of coverage is a Personal Umbrella policy. An Umbrella provides additional insurance in situations where a loss has used up the amounts of Liability insurance under Homeowners or Auto policies. It also covers some liability losses that those policies do not cover, such as personal injury losses. Umbrellas typically carry a deductible of $250 or $500. Suppose one of the parents in the Oceanside case does not have personal injury coverage on his Homeowners policy, but he does have an Umbrella. The Umbrella will pay for his and his child’s defense and their shares of any judgment, minus the $250 deductible. If he does have the coverage on his Homeowners policy, this policy will pay until its limits are exhausted, and the Umbrella will pay the rest, up to its limit.

The costs of enhanced Homeowners policies and Personal Umbrella policies will vary from one insurer to another. Also, the terms of Umbrella policies vary among companies. One of our insurance agents can provide information on coverage options and prices.

Communicating online has become an ordinary part of life today. Web sites like Facebook offer new and exciting ways to meet new people and to stay in touch with people all over the globe. However, they bring with them their own unique risks. Anyone using sites like these should be careful with what they and their children are saying, and they should make sure they have proper insurance backing them up.