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.

Now, IRS will continue to go after unpaid taxes using internal resources: It plans to hire approximately 1,000 new collection agents this year.

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.

FedEx is learning an expensive lesson. Several years ago, the company misclassified its drivers as independent contractors (ICs) instead of employees. The feds discovered the error — and the company’s been paying for it ever since.

In 2002, FedEx was ordered to pay the drivers (current and former) $5 million in business expenses. And in 2007, the federal government found the company owed $319 million in back employment taxes and penalties related to the error.

And it’s still not over: The California Superior Court has just ordered the company to pay another $9.1 million to the drivers for job-related expenses. Similar cases are being heard in 40 other states.

Something to think about next time a hiring manager asks if its that big of a deal to just call someone an IC for convenience’s sake.

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.

IRS Headliner 246 provides expanded explanations on:

• handling personal use of employer-provided cars — Personal use of the cars is a fringe benefit and, generally, fringe benefits are taxable unless specifically excluded by law. The guidance explains how to determine that value of the use of the car.
• the Classification Settlement Program– The CSP allows eligible companies who apply to the program to receive reduced penalties for worker misclassification errors. CSP is available only for companies who have independent contractor/employee misclassification issues to clear up.

Visit IRS to see all the details.

When Prodantis failed to withhold, USAF sued. 

Bad news for Prodantis: Any employer that fails to follow a garnishment order from a student loan guaranty is liable for the amount of the garnishment — as well as attorney’s fees, costs and possibly punitive damages. 

Even though Prodantis admitted liability, the court ruled that USAF was entitled to $6,300 — almost 10 times the original garnishment amount. 

Rubbing salt in the wound: The court also awarded to USAF pre-judgment interest of $27 and post-judgment interest until it receives full payment. 

GAO just released a report, and the news isn’t pretty. According to the report, between 1997 and 2007:

• Total number of enforcement actions is down.
• Most complaints from workers are handled as “conciliations” done over the phone.
• Wage-and-Hour-initiated actions are down 45% — and usually target the same handful of industries (hotels and food services, agriculture, manufacturing, health care and social services).
• Total back wages assessed is up 41%– but penalties are up only 6%.

GAO is recommending DOL make several changes to improve enforcement of the existing laws. Among them:

• Entering all complaints and actions into a Wage and Hour database.
• Getting input from employer and industry associations as well as employee advocacy organizations.
• Using existing tools such as tiplines and partnerships to track that proper penalties are assessed and collected. 

What’s your take on the report? Is it good that DOL is being encouraged to clean up? Or will this eventually mean more meddling into your company’s processes? Sound off in the comments. 

Most of the $58 billion is from companies that have failed to remit employment taxes for a year or more.

Chances are, your company’s not in that boat. But any time IRS starts to look at ways to bring in more tax dollars, we figure it can only lead to more headaches for Accounting down the road.

But in Indiana, a company got caught up in a loophole — and ended up having to pay taxes on the equipment.

The problem: The company, an auto exhaust systems manufacturer, purchased steel-toe boots for its line workers and claimed them as an exempt item. Might have worked, but the company actually sold them to the workers at a reduced cost, instead of just supplying them for free.

That turned the boots into a benefit — and in the DOR’s eyes, a taxable use.

Now the company will have to pay taxes and on the entire cost of the boots.