The Eleventh Circuit Court of Appeals said that the managers, who were routinely expected to put in shifts totally 60-70 hour per week, were wrongly treated as executive employees exempt from OT.

According to the appeals court, the managers were non-exempt for three main reasons:

1. They spent 80-90% of their time performing non-exempt labor (running cash registers, stocking shelves, etc.)
2. Non-exempt tasks were considered an “essential” part of the managers’ jobs, as opposed to “incidental.”
3. Managers had relatively little freedom. Instead, district managers handled most managerial decisions, such as pricing, choosing inventory, etc.
4. The average manager’s “exempt” salary was barely more than the average assistant manager’s salary.

Cite: Morgan v. Family Dollar Stores, Inc.; 11th Circuit Ct. of Appeals, 12/18/08.

Bear in mind: Private letter rulings (PLRs) only apply to the companies seeking them. But they do give you an idea of how IRS looks at certain issues.

In this case, employees sued the company for unpaid leave and vacation time. As part of the settlement, the court ordered the company to pay attorney’s fees for the employees in the suit. According to the PLR, the awarding of attorney’s fees is essentially a reimbursement of an expense. Therefore, it’s not subject to taxes or reporting.

You can the download the PLR here to see all the details.

The facts

When they were on call, drivers had to:

• respond to calls within 8 minutes, including driving to the squad house and picking up an ambulance
• be reachable at all times, and
• refrain from using alcohol and other substances that might impair their judgment.

The number of calls the drivers had to respond to varied greatly. In the winter, it was common to respond every day; other times of the year, a week could pass without being called. Drivers couldn’t trade on-call shifts (there weren’t enough drivers to cover them all) and they couldn’t refuse to respond to a call.

Ruling

DOL ruled that on call time was compensable during the winter because drivers couldn’t freely engage in most personal activities. Due to the frequency of the calls and the speedy response required, any personal activities were severely restricted.

However, on-call periods at other times of the year were not deemed compensable. Because the calls were so infrequent, the drivers’ personal activities weren’t as restricted.

• New withholding rates. The “Making Work Pay” tax credit will most likely be implemented by having Payroll make two withholding adjustments: one in June of this year, and another at the start of Jan. 2010. (The maximum credit each year is $400 for singles. Because the ’09 credit is effective mid-year, the weekly withholding will have to be re-adjusted in 2010.)
• COBRA coverage/reporting. Employees who are terminated between Sept. 1, 2008 and Dec. 31, 2009 are eligible for lower premiums on their COBRA coverage, starting Feb. 17, 2009. Eligible employees will now pay 35% of the premium. The rest will be paid by the employer — but you can recover the subsidy through a credit on your payroll tax deposits. (Note: The subsidy applies only to former employees whose income is less than $125,000 a year; or family income of under $250,000 a year.)
  That creates a few tasks for Accounting and Benefits pros: You’ll need to contact eligible former employees who rejected COBRA to let them know they are eligible at the new lower rate. You’ll also need to get up to speed on the reporting fast, since the first round is due for 1Q ’09.
• Monitoring COBRA reimbursements from the feds. Related to the point above, if your COBRA premium subsidy is more than your tax deposit, you’ll have to request — and wait for — reimbursement from the feds. So far, there’s no word on how quickly that will be processed.
• Transportation fringe benefits. The new monthly limit on benefits for transit passes and vanpools has been increased to $230 per month, the same as for qualified parking. It’s in effect from March 2009 through December 2010.

In addition to these changes, you can expect employees will be confused about what they’re eligible for, what forms they have to fill out, etc. Be prepared for a slew of e-mails and phone calls. In particular, you may have many more employees who want to update their W-4s due to new tax credits that were tucked into the non-business portions of the law.

Consider putting together a resource you can hand out to answer the questions you’re more likely to hear. Even an e-mail with some links to IRS information releases can go a long way toward reducing how many times your phone rings over the next few weeks.

You can see the entire text of ARRA here.

After all the bickering, Congress finally approved an economic stimulus. So what’s it all mean?

The package that finally passed wasn’t all that different from the original proposal: Some spending was cut, some taxes were lowered, but the main ideas carried through.

Here’s a quick and dirty analysis of the final legislation, focusing on aspects of the law that will affect your company — and those who work for it:

Taxes

• Single filers will get a tax credit of $400, couples get $800, with the credit phasing out for single filers with incomes over $75,000 and couples making more than $150,000.
• State and local sales taxes paid on cars, SUVs and light trucks are exempt from federal taxes.
• Temporary exemption from income taxes for certain unemployment benefits.
• The Alternative Minimum Tax is patched, exempting an estimated 24 million people from having to pay AMT.
• The Earned Income Tax Credit is expanded for families with three or more children, and is restructured to provide relief for the so-called marriage penalty.
• Low income families now qualify for the child tax credit starting once they have income above $3,000.

Workers and unemployment

• Extends through December 2009 a program that gives up to 33 weeks of unemployment benefits.
• Increases weekly unemployment benefits by $25.
• Provides a federal subsidy of 60% to continue workers’ COBRA coverage for up to nine months.
• Provides for $4 billion in job training, as well as another $3.5 billion to provide short-term rental assistance and to buy and fix vacant properties.

In addition, the law calls for increased spending on health care, education, infrastructure, energy and technology that should have long-term benefits for businesses by providing improved efficiency, cleaner energy and better trained workers.

What’s next

Some of the changes to the tax code will take a little time to hammer out the details. For example, the $400 per worker credit will most likely be handled through changing withholding rates. We’ll keep you posted as news comes out.

Your company qualifies if its estimated employment tax liability is $1,000 or less. You’ll receive written notice from IRS if you qualify. (But don’t expect a new notification every year. IRS will contact you again only if you cease to qualify.)

Note: Once you receive notice you qualify for Form 944, you must file it rather than continuing to file Forms 941 quarterly. Ultimately, the new form should be a time-saver for smaller companies. But if you want to opt-out, you can, as long as your company meets at least one of the following:

• It anticipates an employment tax liability of more than $1,000 for the year, or
• It wants to file Forms 941 electronically.

The “Employee Misclassification Prevention Act” (S. 364B) would amend the FLSA to clarify that misclassifying employees as independent contractors is a prohibited act. The bill would also call for civil penalties of up to $10,000 as well as liquidated damages for the employees who were affected.  

If the bill passes, your company will be required to formally notify workers of their status as ICs, and keep records pertaining to the classification and the workers’ employment.

A related bill, H.R. 6111, has been introduced in the House.

Note: The Senate version is co-sponsored by President-elect Obama, so not only is it likely to pass a Democratic-controlled Congress, there’s also no doubt he’ll sign it into law.

After storms and flooding on Sept. 12, the feds declared a disaster area in the following counties:

• Clark
• Crawford
• Dearborn
• Floyd
• Franklin
• Gibson
• Harrison
• Jackson
• Jasper
• Jefferson
• Jennings
• Knox
• Lake
• LaPorte
• Lawrence
• Martin
• Ohio
• Orange
• Perry
• Pike
• Porter
• Posey
• Ripley
• Scott
• Spencer
• St. Joseph
• Switzerland
• Vanderburgh
• Warrick, and
• Washington.

For taxpayers in those counties, IRS is postponing the deadlines for return filing, tax payment and certain other time-sensitive acts until Nov. 12. The extension applies to returns and other forms that would normally be due between Sept. 12 and Nov. 12, 2008.  IRS will also waive failure to deposit penalties for employment and excise deposits due Sept. 12 through Sept. 29, as long as the deposits were made by Sept. 29.

Puerto Rico

Following severe storms and flooding on Oct. 1, the feds declared a disaster area in the municipalities of:

• Arroyo
• Cabo Rojo
• Guanica
• Guayama
• Guayanilla
• Gurabo
• Humacao
• Juncos
• Lajas
• Las Piedras
• Maunabo
• Naguabo
• Patillas
• Peñuelas
• Ponce
• Salinas
• San Lorenzo
• Santa Isabel
• Villalba
• Yabucoa, and
• Yauco.

As a result, IRS is postponing certain deadlines for taxpayers in the disaster area. The postponement applies to return filing, tax payment and certain other time-sensitive acts otherwise due between Sept. 21, 2008 and Nov. 20, 2008. IRS will also waive failure to deposit penalties for employment and excise deposits due between Sept. 21 and Oct. 6, as long as the deposits were made by Oct. 6.

If you’re affected

If you’re an affected taxpayer and you get a penalty notice from IRS, you can call the telephone number on the notice to get the interest and any late filing or late payment penalties abated. IRS automatically identifies taxpayers in the covered disaster area and applies proper filing and payment relief.

The latest changes are a result of the passage of the Emergency Economic Stabilization Act (EESA). Among the most important:

• FUTA surtax extended– The planned decrease to 6% that was supposed to go into effect on Jan. 1, 2009 has been cancelled. Under the new law, the surtax will be extended through Dec. 31, 2009.
• New transportation fringe benefit  – For tax years starting after Dec. 31, 2008, companies may offer a “qualified bicycle commuting reimbursement” as a fringe. It allows you to reimburse for the purchase, repair and/or storage of a bicycle that is used regularly for travel between the employee’s home and work. (More on this here.)
• Equity for mental health — Group health plans must now provide equity for mental health or substance abuse  benefits. The law takes effect for plan years that begin one year after the date of enactment of the EESA
• Work Opportunity Tax Credits extended — For certain employees working in the disaster area of Hurricane Katrina, the WOTC has been extended through Aug. 28, 2009.

You can see the full text of the law here.

That’s what happened when Peno Trucking discovered that despite its best efforts, it had improperly misclassified several employees as independent contractors (ICs).

Peno applied for tax relief, and it was granted by the U.S. Tax Court for a few key reasons. The company had:

• a reasonable basis for classifying the workers as ICs
• consistently treated the workers as ICs
• filed all appropriate 1099s, and 
• otherwise lived by the letter of the tax law. 

As such, the mistake was seen as just that — a mistake, and not a deliberate tax dodge.

Note: If you’re faced with a problem like this, IRS has very specific requirements. Peno also pointed out that the Ohio Industrial Commission and the Board of Workers’ Compensation had both ruled that the workers were ICs. Although it accepted Peno’s other arguments, the court rejected that as a reason for relief because those organizations use different standards than IRS.