Tag Archives | employees

Should You Pay Your Interns?

Have you ever wondered if you should pay your interns? You have probably heard others praising the benefits of hiring low-cost, energetic, and eager-to-learn interns. But the question on your mind is, should you pay your interns?

Should You Pay Your Interns?

As an entrepreneur and CEO, I often feel like I have too many ideas and too little time to follow through on those ideas. That is where an intern comes in. Every summer, I design an internship program with meaningful internship projects to follow through on my ideas and concepts from the past year. For my thoughts on how to design an effective internship program, check out this video:

I believe in paid internships. My moral and business obligation is to treat my employees with fairness and to compensate employees for their work. Not only do paid internship programs lead to higher quality internship candidates, but they also lead to more motivated, loyal, and hard-working interns.

If the employer and the organization benefit from the interns’ work, then the employer should pay the interns. There are many competitive paid internship positions available. So why would I risk losing quality internship candidates on the grounds that they went looking somewhere else for a paid internship program? While I focus on growing my business, my interns help me follow through and implement my business ideas that would have otherwise remained stagnant.

Fair Labor Standards Act

Some might argue that unpaid internships are fair for the intern and the organization. Interns gain skills and experience which may lead to higher paid positions soon after. Internship programs also provide the interns with exposure to networking opportunities, expertise, and experience in an industry. I agree with these benefits of internship programs for interns, however, unpaid internships violate minimum wage laws if your company does not follow these six requirements under the Fair Labor Standards Act:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If one meets all of the factors listed above, then an employment relationship does not exist under the FLSA. The Act’s minimum wage and overtime provisions do not apply to the intern. This exclusion from the definition of employment is necessarily quite narrow because the FLSA’s definition of “employ” is very broad.

Conclusion

Your conclusion of whether you pay your interns should be an educated decision based on what’s right for your company.  So, should you pay your interns? I strongly believe that paid internship programs lead to better-quality and more dedicated intern candidates. They are mostly likely going to have enhanced skills that your business will benefit from.

Do you believe in paid internship programs?  Let us know your thoughts. For more information on this topic, check out this article.

Should You Pay Your Interns

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IRS Cracks Down on Employee Misclassification

I recently came across an interesting Wall Street Journal article discussing how the IRS has begun cracking down on employee misclassification. This is where employers misclassify workers as independent contractors to avoid payroll taxes and other employment-related expenses.  Many small businesses use contract workers in order to stay lean and, with the new healthcare changes on the horizon, using contractors is becoming even more enticing.  So what’s a small business owner to do?

IRS Cracks Down on Employee Misclassification

Here’s what the article says:

Internal Revenue Service auditors showed up with little warning at Brian Robinson’s staffing firm in Atlanta a year ago, seeking to verify that a dozen outside contractors he [hired] to handle his information-technology services weren’t… full-time staffers.

The audit was part of a government crackdown on employers who misclassify workers as independent contractors to avoid paying payroll taxes, and other employment-related expenses.

Mr. Robinson says the auditors ultimately found that his 30-year-old family business, TRC Staffing Services Inc., with its 100 permanent employees and up to 20 temporary workers, was in the clear. But he says the audit was “nerve wracking” because tax law doesn’t make it easy to distinguish between full-time staff and independent contractors doing full-time work. He says the legal distinction can be confusing even for an employer with his decades of experience in the labor market.

The appeal of using outside workers is growing as many small businesses struggle to stay lean. Some employers also are turning to contractors to avoid hitting the 50-employee threshold that would require them to pay for employees’ health insurance, starting next year, under the federal health-care law, or pay a penalty.

[Prevalence of Employee Misclassification]

State studies have shown that local businesses misclassify anywhere from 10% to more than 60% of their workers as independent contractors. Many business owners blame the complex tax code, which doesn’t offer black-and-white standards for telling the difference. The distinction is based on the employer’s degree of control over a worker, the length of the relationship, and a series of other factors. But such factors are open to interpretation. Past court cases on the issue have had different outcomes, providing little guidance.

In the past three years, the IRS, working with the Labor Department and officials in more than a dozen states, set a goal of investigating 6,000 employers, like Mr. Robinson, to ensure their workers are properly classified. Since September 2011, the government has collected $9.5 million in back wages for more than 11,400 workers who were misclassified as independent contractors by their employers, the Labor Department says.

[Boosting Tax Revenue]

The crackdown is aimed in part at boosting tax revenue. Employers don’t pay or withhold income taxes, Social Security, Medicare or unemployment taxes for independent contractors, as they do for staff workers. The U.S. Treasury estimates that forcing employers to properly classify their workers—while tightening so-called “safe harbor” rules that provide them with leeway in determining who is and isn’t an employee—would yield $8.71 billion in added tax revenue over the next decade.

Despite the threat of a payroll audit, more small employers are finding that independent contractors are essential to remaining competitive. The number of small firms that rely on outside contractors, for everything from technology services and public relations to marketing and sales, has grown sharply over the past five years, according to SurePayroll, a Chicago-based payroll-management firm whose clients are small employers.

The firm says that the proportion of contractors on the 80,000 small-business payrolls it processes every month has nearly doubled over past six years… [It has risen] to 6.7% last month from 3.4% in February 2007.

[Independent Contractor]

“As economic situations get tougher, that’s when everyone is looking to cut costs,” says Lisa Petkun… [Lisa is a] partner in the tax-practice group at law firm Pepper Hamilton LLP in Philadelphia. “It’s significantly cheaper to have an independent contractor.”

Using independent workers gives employers flexibility to hire only when there is work to be done, and leaves them with fewer tax obligations—and thus less paperwork—than do regular full-time workers. Using contractors also can cut benefits costs: they typically aren’t eligible for such benefits as health insurance and paid maternity leave.

A Michigan State University study estimates that contractors can save employers as much as 40% on labor costs. Indeed, some business owners say the IRS audits could stifle their ability to grow as demand picks up.

“I’m either going to hire someone full-time to do a job or we just won’t do it,” says Ciaran Dwyer, chief executive of 3t Systems Inc., a Denver-based IT company with 65 full-time workers. His firm relies on about a dozen outside contractors at any given time, depending on demand, he says.

Rather than risk an audit, and perhaps costly penalties—Mr. Robinson, the staffing-firm owner, says many of his small-business clients are rushing to convert any long-term contract workers into permanent staff.

[Payroll Audit]

Mike Johnson, a human-resources manager in Atlanta with over 35 years of experience with small employers, ranging from commercial insurance to telecommunications firms, says a payroll audit is a major disruption for a small business. “Apart from the legal expenses, the downtime is just not worth taking the risk,” he says.

In January, the IRS extended an amnesty program designed to encourage employers to voluntarily reclassify contractors as employees by waiving some penalties. Under the program, employers pay as little as 1% of the wages paid to their reclassified workers the previous year, rather than the full amount they owe in back taxes. So far, 1,000 employers have signed on since the program was launched in 2011, the agency says.

In recent years, Congress has proposed various bills to clarify the definition of independent contractors, including as recently as December, though none of the bills has passed.

Chris Whitcomb, tax counsel for the National Federation of Independent Business, a small-business lobbying group, says that without a clear definition of who counts as an independent contractor, many employers don’t know whether they are complying with tax rules “until they get audited.”

Does your business use contract workers?  If so, how will these changes affect you?  I’d love to hear your thoughts.

Read the original article here.

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Insulate Your Company from Rising Health Insurance Costs

Refer to the following wiki about how to insulate your company from rising health insurance costs:

Insulate Your Company from Rising Health Insurance Costs

“How many times have your employees — or even potential employees — expressed concerns about the cost of the health insurance that your small business provide? It’s an employee concern that most small business owners dread discussing because providing comprehensive health care can be a substantial cost burden. There are small business owners who can afford to provide a competitive benefits package in the short-term[; however,] many are not aware that their rates can increase in the long-term as the result of employee illnesses… [Some of these illnesses] require substantial medical care and cost.

Going It Alone

Often times, small businesses implement a health insurance plan one year, only to see their costs skyrocket in subsequent years due to the health experience of their small employee base. If there have been health conditions that resulted in significant costs, insurance rates for the small group plan rise, and a once competitive plan becomes a cost burden to the company. When a small or medium-sized business obtains its own health care coverage and is faced with a significant rate increase due to the performance or cost burden generated by the small pool of employees, difficult choices emerge, [including the following]:

  • Eliminate or reduce coverage
  • Increase the employer contribution to the premium
  • Increase employee premiums

Partnerships Can Help

To help protect themselves from these types of increases, many small businesses choose to partner with a Professional Employer Organization (PEO). PEOs operate under a co-employment model… [It] is based on a commitment by the PEO… [They] share employment-related risk with clients, thereby helping to reduce financial exposure…”

More at WikiCFO.com

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Insulate Your Company from Rising Health Insurance Costs

 

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Recession Strategies for Business

Once you find yourself in a recession your first goal is to stabilize your operations. But having achieved that goal you need to look beyond the present and develop a longer term strategy. Our goal for this recession is to “come out of the recession better and stronger than we went in!”

Recession Strategies for Business

How do you do that? The answer is in improving your capabilities in the following areas. We immediately began improving our marketing efforts and results. While cutting expenses in other areas we increased our marketing efforts and budget dollars. We began to increase the frequency and improve the quality of our marketing techniques with the goal of being in a better position to compete when the economy came back.

The next area we invested in was improving and documenting our systems. We documented our best practices and began to institutionalized them throughout the organization. This exercise led to increase training of our employees. We took advantage of the resulting down time to train and develop new skills for our staff.

Finally, all of this combined effort led to the development of new products that could be sold to our customer base. We are now generating sales with less expensive products that are needed in the recession.

So what is your company doing to position themselves for the recovery? Are you going to come out of the recession leapfrogging your competition or playing catch up? When you find your business slow are you just taking time off instead of investing in yourself and your company? The success of tomorrow rests on the efforts of today!

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Recession Strategies

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Employee Theft

Throughout my career, I’ve witnessed theft of office supplies, the use of company property for personal gain, dishonesty on time sheets, and other infractions that cost the company thousands of dollars per year. But, I worked under the naive assumption that the more significant embezzlement of company assets was scarce and overblown by the media.

Employee Theft Example

It turns out that the Controller of a company I’ve worked with had embezzled well over $1 million in cash. In addition, most of the embezzlement occurred in 15 months. As I discussed the matter with colleagues, I was surprised by the number of individual experiences that were shared with me on similar situations. I was particularly intrigued by my colleague’s recollection of a controller who when caught, admitted to stealing to pay back a judgement against her for theft from a prior employer. According to the US Chamber of Commerce, approximately 75% of employees steal from their employers. In addition, over half of these employees do it more than once. The US Commerce Department estimates that employee theft costs employers over $50 billion dollars a year. These are staggering figures.

In the example above, there were two primary factors contributing to employee’s ability to perpetrate this fraud including:

This employee was responsible for every facet of accounting. They had complete control of the cash accounts (received customer payments, made deposits, paid vendors, and was responsible for collections). Due to financial constraints and/or lack of transactional volume, it is not practical for many small businesses to have more than one person in accounting. That’s okay.

Steps to Prevent Employee Theft

There are still steps you can take to help prevent most types of dishonesty. Here are a few examples:

  1. Outsource payroll. In addition to removing fraud opportunities, you are greatly reducing your risk associated with federal, state, and local payroll tax filings.
  2. Have a non-accounting employee open and inventory mail, and stamp any checks with “For Deposit Only, Acct number ####” before turning it over to the person that will enter the receipts and make the deposit.
  3. Have an executive or manager review deposit slips, check copies, and compare them to the inventory previously taken.
  4. Open a lock box and print remittance instructions clearly on all customer invoices.
  5. Have someone who does not perform deposits or disbursements reconcile the bank accounts.
  6. Review your bank statement, check copies (if you don’t get them now, arrange to get them going forward), and the reconciliations each month.
  7. Perform background checks on your employment candidates BEFORE offering employment.
  8. Have an audit (or at a minimum a review) performed by your CPA annually. Although CPA firms specifically indicate that they may not detect fraud, that outside look requires GL to sub-ledger reconciliations and random samplings of detailed transactions that would make most people think twice.
  9. Count physical inventory at random intervals and reconcile the increases or decreases to sales, purchases, and damaged items.
  10. Be suspicious. As the business owner or manager, you have the right to ask questions and review detailed work. If an employee is defensive or resistant to sharing their work, this may be a red flag.

Conclusion

It is an unfortunate reality in today’s business environment that we need to be on guard at all times. There are many additional steps you can take based on your industry and the resources available to you. Because the problem is so widespread, look into adding employee dishonesty to your insurance coverage. It could save you one day!

If you want to prevent employee theft, check out our free Internal Analysis whitepaper and learn what weaknesses need to be resolved.

employee theft
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