“The costs and resources invested by ON A WING AND A PRAYER PRODUCT GROUP into growing its followers, fans and general brand awareness through social media are substantial and are considered property of  the Company.  We intend to aggressively protect our customer lists and confidential information, intellectual property, trademark and brands. That’s why we are suing you for misappropriation of our customer list and other trade secrets (aka your Twitter followers). Please pay us $2.50 per follower per month of your unauthorized use.”

The first case to address whether a Twitter account is a corporate asset and how to value the account has been filed in federal court. Initial hearings are later this month.

It’s an important case because as more and more employees post material on Facebook, LinkedIn and Twitter—often on behalf of their companies — the social media account becomes increasingly more valuable to both employer and employee.  The company gets an online voice and brand, and the employee makes often significant personal connections that can impact his career.

In Phonedog v. Kravitz, an employee voluntarily quit a technology review company.  At separation, he was permitted to keep his Twitter account with 17,000 followers, but was asked to occasionally tweet about the company and continue to provide content for blogs and reviews.  At some point he changed his Twitter name to delete the name of the company. The relationship later soured, with the employee filing suit for unpaid benefits and compensation, and the company  contending that the former employee misappropriated the company’s Twitter account and followers, and cost the company thousands of dollars in lost advertising and sales.

Without delving into the details of this particular case, here are some reasons a Twitter account could legitimately belong to an employer:

• The account uses the company’s brand name.
• The account was created specifically to communicate with the company’s customers.
• The account was created to attract new customers.
• There is an applicable non-competition or confidentiality agreement.
• What does the corporate social media policy say?

Reasons the account could legitimately belong to the employee:

• The account name does not include the employer’s brand name.
• Tweets were not exclusively about the company (some about the Tweeter’s life and thoughts, some about the company and its products).
• Followers connect because of the personal relationship with the Tweeter, not because of the brand name of his company.
• Twitter followers (and LinkedIn connections) are not secret, so this is not theft of a trade secret.
• The employee is actually an independent contractor.
• What does the social media policy say?

If you are not hearing my subtext, a social media policy is more crucial than ever.  But there are significant hidden issues in the areas of labor and employment law, intellectual property protection and public relations/disaster recovery.  This is a good time to spend money on an attorney.

Stay tuned for more insight into social media policy.

Related articles

• Who Owns Your Social Media Account? Your Company or You? (intelligentdesignsmedia.com)
• Who owns a Twitter username? How to avoid a Twitter account lawsuit (theredrocket.co.uk)

Heading to the office today, I heard a young man behind me say, “Well, I’d been there six- and-a-half years, so it was time to move on.”  A few steps later, I heard him add, “Well, it was time for me to get health insurance.”

This random comment fell right in line with the just reported findings by Mercer’s October 2011, What’s Working survey.   The survey finds that employees leave for a host of nonfinancial reasons as well, with a key factor being “how you are treated….”

When I’m leading training sessions for human resources professionals, I remind participants that in spite of the many laws they must know, if they will remember but one rule, they will usually get the law right, quoting Maya Angelou: “People will forget what you said, People will forget what you did, but people will never forget how you made them feel.”  When workers believe that they have not been treated fairly they seek to strike back.  Sometimes they vote quietly with their feet because of how they feel about their “work, co-workers, bosses and the general work environment,” according to Colleen O’Neill at Mercer.

Perhaps fueled by the Occupy Wall Street movement, it is clear that more terminated employees are not voting so quietly. The EEOC’s charge statistics certainly show a steady increase.    And, although the year-to-date numbers are not posted, it is clear from speaking with fellow defense oriented employment lawyers, charges are up across the board. To paraphrase the famous line from the movieNetwork, workers are “Mad as H_ _ _ and Not Going to Take it Anymore.”

The tide has clearly turned since the end of the official recession.  Making sure that employees understand their workplace situation is key to your company’s economic health. North Carolina may be an “at-will” employment state, but if employees don’t feel that they have been treated fairly, your company may become part of the EEOC’s new statistics.

If you need assistance with workplace decisions, The Workplace Lawyers at Sands Anderson would be pleased to assist you.

This was originally published on Virginia Workplace Law on November 8, 2011.

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Guest post by Annemarie Cleary

What a week we just had in Virginia!  An earthquake, a hurricane with flooding, and swamp fire smoke all in one week.  If last week didn’t convince you to review, or prepare for the first time, a Business Continuity Plan (BCP), then the approaching ten-year anniversary of 9/11 should spur you to action.

The 9/11 attacks destroyed tens of thousands of vital records, irreplaceable documents and art.  The businesses affected lost employee records, customer lists and many, many more documents vital to business operations. As many employers on the East Coast are undoubtedly discovering, it doesn’t take a disaster as devastating as 9/11 to cause an interruption in business.  Earthquakes, hurricanes, floods and fires are just a small sample of the very real disasters that can strike your business.  Are you prepared to pick up the pieces?

Creating a BCP so that you can get your business up and running as soon as possible after a disaster is vital to your company’s long-term survival.  A BCP should include lists of emergency contact information, both internal and external, and a detailed recovery plan and should be developed with employees from all business units and levels of your company.

Begin by assessing the potential risks to your business’ ability to deliver products or services to customers.  Arizona business may need to plan for the effects of an evacuation due to forest fires, but not for a hurricane.  Businesses in North Carolina or Virginia, on the other hand, would be more likely to plan for flooding as a result of a hurricane, for an office fire or even for an earthquake.

After determining the risks that your business might face, consider how to mitigate the effects of those risks on business operations.  The objective is to compile a detailed step-by-step guide to getting your business running again.  You should:

• Identify the employees who are critical to the operations of your business, as well as a backup for each position in case key personnel are not available.  Your list should include every available means of contacting these individuals (e.g., business phone, home phone, cell phone, business and home email).
• Identify the critical products and services you provide to your customers and record the contact information for your most important customers so that you can stay in touch.
• Identify an alternative location from which to operate your business in the event your office is inaccessible.
• Identify contingency equipment options.  If, for example, the equipment your company uses to operate is its computers, contingency equipment options might include identifying which of your employees can telecommute.
• Identify what protections you need to take to preserve confidential client information.
• It is vital that your BCP includes a technology recovery plan.  You should regularly back up important IT data, such as customer lists, banking information, employee records and anything else that would be necessary to starting your business again.  Back up the information and arrange a secure off-site storage location.  Redundancy is the key.

Once you have all the necessary information, put your plan in writing.  Create step-by-step instructions on what to do, who should do it, when it should be done and how.  Ensure that critical personnel have copies of the plan and keep a copy off-site, too.  Then, practice and maintain your plan.  Review your plan periodically and walk through the plan with an imaginary disaster in mind.  Then, make changes where needed.

There are a number of websites that offer additional suggestions on developing a BCP, including the Federal Emergency Management Agency (FEMA) and Inc. .  You can alsocontact your employment attorney for assistance in preparing a plan.

Related articles

• Corporate Damage Control (nclawlife.com)

While many business owners are savvy enough to select the proper entity on their own, many do not understand the difference between trade names and trademarks. Others accidentally give the rights to their logos and other commissioned artwork to their graphic artist and the content of their website to their web host.  Some will think they can choose whether a worker is a contractor or an employee.  A good business attorney can address these issues on the front end, and save much expense and aggravation later.

Likewise, a good certified public accountant isn’t just a number cruncher — he or she is a trusted advisor who understands your business and today’s economic climate.  CPAs evaluate business ideas, plan for growth, minimize taxes, monitor cash flow and help keep proper financial records.  Poorly set up books can make it impossible for companies to track costs, make profits and attract financing.

Those of us that work with startups are familiar with the intersection of  providing value and penny-pinching, and can often work with the bootstrapped entrepreneur on how the services are provided and paid for.

Related articles

• Moving beyond the kitchen table (csmonitor.com)
• Bootstrapping Mistakes You Can Easily Avoid (startupbiz.wordpress.com)
• How to Get Good At Making Money (inc.com)
• About Starting a Small Business (thinkup.waldenu.edu)

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As of June 23, 2011, all cities, all counties, and private employers with at lest 25 employees in North Carolina are required to use the federal government’s E-Verify program to verify the work authorization of newly hired employees.
Public universities, community colleges and other North Carolina state agencies are already required to use E-Verify. The new statute applies to municipalities, counties and employers that employ 25 or more employees in North Carolina.

Timeline for employers to register and participate in E-Verify:

• October 1, 2011:  municipalities and counties in North Carolina.
• October 1 2012: Employers who employ 500 or more employees in North Carolina.
• January 1, 2013: Employers that employ 100 or more employees in North Carolina
• July 1, 2013: Employers that employ 25 or more employees in North Carolina

Employers with seasonal temporary employees who work fewer than 90 days in a consecutive 12-month period are excepted from compliance, and the law also does not apply to employers that employ fewer than 25 employees in North Carolina.

An employer covered by the Act will be required to enter a new hire’s information reported on the Form I-9, Employment Eligibility Verification, into the E-Verify program to determine the eligibility of that employee to work in the United States. An employer must retain the records of the verification of the employee’s work authorization during the length of that employee’s employment and for one year after the end of the employment period.

Any person who has a good faith belief that an employer is violating the requirement to use E-Verify may file a complaint with the North Carolina Commissioner of Labor. The complaint may be anonymous. The commissioner will investigate valid complaints and may issue subpoenas for employment records from the employer as part of this investigation.

For a first violation of the Act, the North Carolina Commissioner of Labor will order the employer to file a sworn affidavit within three business days after the determination that the employer has violated the Act. The employer must swear in the affidavit that it has consulted with the employee and requested a verification through E-Verify. Failure to timely file this affidavit subjects the employer to a $10,000 civil penalty. A second violation of the Act subjects the employer to an additional $1,000 civil penalty, and a third violation subjects the employer to a $2,000 civil penalty for each required employee verification that the employer failed to make. The Act contains a provision allowing an employer to appeal the commissioner’s determination that the employer has violated the Act.

 For more information about instituting an E-verify program, please call Donna Ray Chmura at 919-706-4200 or dchmura@sandsanderson.com

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Remember when political opponents attacked California gubernatorial candidate Meg Whitman over the social security no-match letter she received in the early 2000’s regarding her maid? Many employers may have wondered just what those letters were all about, because for the past three years, the Social Security Administration stopped sending them out. As the saying goes, “They’re Back,” and if you are an employer, you need to be concerned.

Employers will once again have to worry about “getting it right” upon receipt of a no-match letter. And, unfortunately, once again, there are only questions, and no clear answers.

The government states it will send a letter when employee information on the W-2 Form is either incomplete or a reported name or Social Security number does not match with the government’s records. The letters will be sent on an employee-by-employee basis. (In the past the Social Security Administration sent the employer a letter with a listing of names that had a number mismatches.)  According to the administration, the new letters will be sent when the government is unable to reach the individual directly about the discrepancy.

The new process is replete with legal issues for the employer. The letter tells the employer to first compare the information listed on the government’s letter to the employer’s records. If the records match, the employer is directed to “ask” the employee to give the name and Social Security number exactly as it appears on the employee’s Social Security card. Then, the form notes “(While the employee must furnish the SSN to you, the employee is not required to show you the Social Security card. But, seeing the card will help ensure that all records are correct.”) If there is a problem between the government’s records and the social security information given/shown by the employee, then the employer is directed to tell the employee to contact any Social Security office.

The question for the employer now becomes, what do you do?

First, as you may recall, you are not allowed to ask employees for their social security card as part of the I-9 process.  Now, you are being requested to “ask” for the information, and the suggestion is strongly made that you look at the card. There are no good answers yet, but here are a few tips to consider if you get these letters:

1. Don’t rely on a copy of the card in your records if you did receive it for I-9 purposes.

2. If you are going to ask for the actual SSI card, you need to make sure you always ask for the card from each employee who is the subject of the no-match letter. Asking only employees of a particular race or culture would be discriminatory.

3. If you decide to always ask for the card, then either always make a copy of the card, or never make a copy of the card. Whatever you decide, be consistent.

4. If the card looks fake, you are probably now on notice that the employee is not lawfully working. If you have reason to believe the card is fake, hope that the employee doesn’t show up to work again. If the employee returns to work, you will need to determine what next steps you may legally take to determine their status.

5. If you determine that the Social Security card does not show the employee’s correct name or Social Security number, or there is some other error, you must direct the employee to any Social Security office.

Unfortunately, the letter is completely silent about how long the employee has to correct the problem, and what you are to do if the problem remains uncorrected. On the other hand, you are directed by the letter to start using the correct name or Social Security number if you determine either is incorrect. So, how do you get the correct information? Stay tuned…….

If you need assistance with issues arising from receipt of the no-match letters, the North Carolina Employment lawyers at Sands Anderson will be pleased to hear from you.

We’d also like to know what you think. What problems do you anticipate these letters will present for you?

Related articles

• Originally posted on  Virginia Workplace Law

Imagine you are the owner of a business with about 50 employees.  Your product is well-known and there are limited suppliers in the United States.  Your best salesman generates about 50% of your company’s gross sales – or about $100 million a year.  He is on salary plus commission under his employment contract and is earning at least three times as much as any other employee. 

Now imagine that this super-star has a very messy personal life, and he’s well-known around town for partying and womanizing.  He’s been divorced three times (once after being discovered in bed with another woman by his first wife),  experienced a brutal custody battle, was accused of beating his second wife and now he’s missed a key sales meeting in New York.  Turns out he was found by hotel staff drunk and naked in a hotel room that’s been trashed.  He is hospitalized in New York (his mother rushed to be with him and says it is very serious).  Upon his release, he enters a three-week rehab program. 

He comes back to work.  At the local Arts Council fundraising dinner, where your VP of Marketing is getting an award and your company has a table, the employee  complains loudly about what a “stupid, stupid man” you are, how your company is exploiting his sales experience and contacts, he doesn’t get paid enough for all the crap he has to put up with — and your company would be nothing without him. 

Can you even fire someone for their outside conduct that reflects unfavorably on your company?  What are your potential legal liabilities?  Does it matter if the employee had an illegal drug problem? A booze problem? Would it matter if he were bi-polar or otherwise mentally ill? 

Would the answer be any different if the employee were Charlie Sheen? 
 
If we were the employment attorneys advising the company and its owner in this scenario, first we would look to the employment contract.  Is this employment-at-will where the employee can be fired at any time for any reason that is not discriminatory?  Are there notice provisions?  Or are there specific guidelines for termination that must be met before the employee can be fired?

We would make sure the personnel record is up to date and all performance-related conversations and observations are entered. We would look at how the company treated other employees in similar situations. 

In light of the very liberal definitions of disability under the Americans with Disabilities Act (ADA), we would have to consider whether the employee is in a protected class and whether the termination would be in violation of the ADA.  And if his “stupid, stupid boss” comment is made in front of co-workers, we would also consider whether this public comment is protected activity under the National Labor Relations Act. 

The stakes are high if you handle it wrong.  Charlie Sheen was in fact fired after his off-the-clock antics, and in fact sued the studio, the producer and the production company for $100 million.  The complaint alleges breach of contract, conspiracy, and breach of state and federal laws that protect ill employees. 

What do you do when your super-star employees lose their Sheen?

A few years ago as second-in-command of the Enterprise, Honors wrote and produced a series of on-ship videos.  These were supposed to be humorous, morale-builders for sailors who were deployed long-term to support the wars in Iraq and Afghanistan.  The videos have been described as containing either “locker-room humor” or “virulent anti-gay slurs,” depending on your point of view. 

To the executives I spoke with, the most interesting question is not whether the content is humorous or offensive, but what kind of leadership Honors provided.  Leaders, whether military or civilian, set the tone for the character, ethic and environment in the enterprise they lead.

I know a woman who is an officer in a company that is emerging as a significant player in its field. Its new potential clients are some of the largest and most powerful companies in the industry.  In the past, senior management privately mocked the owner’s often comical mis-use of language.  Now, her office as the company’s president has become a more meaningful leadership role (as she puts it, she finally has something to preside over).  We have been brainstorming about how she transitions from colleague/friend to respected leader, and how she can re-direct the senior management team’s culture and values. 

Leadership matters.  If the leader is “one of the boys” who seeks the affection and camaraderie of his troops, his ability to implement or enforce tough positions may be compromised.  In my acquaintance’s case, she is now struggling to regain her professionalism as she guides her company to a new level. Her workplace friendships are important, and even critical to her success, but she must determine what is appropriate in a larger, more formal workplace.

What does leadership mean to you?

But there can be consequences to public griping, and not just griping via social media. The latest social media tempest is CNN Mideast Editor Octavia Nasr, who tweeted that Grand Ayatollah Mohammed Hussein Fadlallah was “one of Hezbollah’s giants I respect a lot.” She was fired for compromising her objectivity.

A waitress in Charlotte was fired after venting on Facebook about customers who lingered for hours and then gave a paltry trip. She named the restaurant in her post.

But General Stanley A. McChrystal was also fired. He gave an interview to Rolling Stone, a print magazine founded in 1967, in which he criticized his commander-in-chief and the administration’s Afghanistan policy.

I have written previously about ill-considered tweets and status updates. It is easy to get in trouble online. But as the General McChrystal affair shows, any public comment about your employer can get you in hot water.

The lesson from all of this is that the only freedom of speech granted in the US Constitution is the freedom from the government censoring your political speech. Commercial speech has less protection than political speech, and employers in North Carolina and other at-will employment states have broad rights to fire you for giving your opinion.

They also have the right to sue you for defamation if your comments aren’t true.

This issue gets people hot under the collar. As employment attorneys, we would advise our clients to have current social media policies and follow them to the letter in every case.

John Vandenhoff

On Mar. 30, 2010, President Obama signed into law H.R. 4872, the Health Care and Education Reconciliation Act of 2010 (Reconciliation Act, P.L. 111-152 ), effectively completing a massive overhaul of the U.S. health care system that will affect nearly all taxpayers, many employers, and many elements of the health care industry. The Reconciliation Act modifies H.R. 3590, the Patient Protection and Affordable Care Act (Health Care Act, P.L. 111-148 ) where the bulk of the legislation became law on March 23, 2010.

In the next few posts, we present a brief overview of some of the key tax changes affecting individuals in the recently enacted health reform legislation. Please call our offices for details of how the new changes may affect your specific situation.

Individual Mandate

The new law contains an “individual mandate”-a requirement that U.S. citizens and legal residents have qualifying health coverage or be subject to a tax penalty after 2013. In Virginia, this is resulting in a court battle because the Virginia legislature passed a law in its recent session exempting citizens from this requirement. If enforceable under the new law, those without qualifying health coverage will pay a tax penalty of the greater of: (a) $695 per year, up to a maximum of three times that amount ($2,085) per family, or (b) 2.5% of household income over the threshold amount of income required for income tax return filing. The penalty will be phased in over three years starting in 2014.

Beginning after 2016, the penalty will be increased annually by a cost-of-living adjustment. Exemptions will be granted for financial hardship, religious objections, American Indians, those without coverage for less than three months, aliens not lawfully present in the U.S., incarcerated individuals, those for whom the lowest cost plan option exceeds 8% of household income, those with incomes below the tax filing threshold (in 2010 the threshold for taxpayers under age 65 is $9,350 for singles and $18,700 for couples), and those residing outside of the U.S.

Premium Assistance Tax Credits for Purchasing Health Insurance

The health care legislation provides tax credits to low and middle income individuals and families for the purchase of health insurance. Specifically, for tax years ending after 2013, the new law creates a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance through an Exchange. The premium assistance credit, which is refundable and payable in advance directly to the insurer, subsidizes the purchase of certain health insurance plans through an Exchange. Under the provision, an eligible individual enrolls in a plan offered through an Exchange and reports his or her income to the Exchange. Based on the information provided to the Exchange, the individual receives a premium assistance credit based on income and IRS pays the premium assistance credit amount directly to the insurance plan in which the individual is enrolled. The individual then pays to the plan in which he or she is enrolled the dollar difference between the premium assistance credit amount and the total premium charged for the plan. For employed individuals who purchase health insurance through an Exchange, the premium payments are made through payroll deductions.

The premium assistance credit will be available for individuals and families with incomes up to 400% of the federal poverty level ($43,320 for an individual or $88,200 for a family of four, using 2009 poverty level figures) that are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage. The credits will be available on a sliding scale basis.

“How do I get around it?” he wanted to know.

Along with a lot of other advice regarding not using his current employer’s trade secrets, I told him under no circumstances should he do any outside work during company time, and further, he should not make any new-business calls on his company-provided cell phone or even check Gmail or Yahoo or Hotmail accounts via a company-provided computer, laptop or smartphone. He didn’t want to do anything that would show up on his employer’s radar.

He thought I was being paranoid. Yet, the US Supreme Court ruled yesterday in City of Ontario v. Quon, 08-1332, that it was reasonable in this particular case for a government employer to search the texts on a police-officer’s government-issued pager without violating the employee’s privacy rights.

The specific facts are here or here.

The lesson for employees is that you should not expect privacy on work-issued computers, pagers, smartphones or other devices. The lesson for employers is to have a social media policy and follow it.

If you need assistance with a social media policy, please contact our employment attorneys.

This article is applicable to North Carolina companies as well. Let us hear from you. How do you employ background checks to examine job candidates?

John Vandenhoff

In the last post, we cited the two main provisions of the recently signed “Hiring Incentives to Restore Employment Act of 2010″ (the HIRE Act, P.L. 111-147 ). Some additional features of the new payroll tax hiring incentive include:

• The tax benefit of the new incentive is immediate. It puts money into a business’ cash flow immediately, since the tax is simply not collected in the first place.
• The tax benefit generally applies only to private-sector employment, including nonprofit organizations&emdash;public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution qualifies.
• There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no limit on the dollar amount of payroll taxes per employer that may be forgiven.
• For workers that would otherwise be eligible for the Work Opportunity Tax Credit (i.e., another type of employment tax credit), the employer must select one benefit or the other for 2010. There is no double dipping.
• An employer can’t claim the new tax breaks for hiring family members.
• A worker who replaces another employee who performed the same job for the employer isn’t eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
• For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she hasn’t been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
• The incentive isn’t biased towards either low-wage or high-wage workers. Under the measure, a business saves 6.2% on both a $40,000 worker and a $90,000 worker.
• The payroll tax holiday doesn’t apply with respect to wages paid during the first calendar quarter of 2010, but the amount by which the Social Security payroll tax would have been reduced under the payroll tax holiday provision during the fist calendar quarter is applied against the tax imposed on the employer for the second calendar quarter of 2010.
• The Act creates a similar new set of rules allowing a payroll tax holiday for railroad retirement tax purposes.
• The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker’s wages during the 52-consecutive-week period exceed $16,129.03. However, the credit isn’t available for pay not treated as wages under the Code (e.g., remuneration paid to domestic workers).

Is this going to help you?

John Vandenhoff

About two months ago, President Obama signed into law the “Hiring Incentives to Restore Employment Act of 2010″ (the HIRE Act, P.L. 111-147 ). The main thrust of this Act is a payroll tax holiday and up-to-$1,000 tax credit for businesses that hire unemployed workers. The Act also includes a one-year extension of the enhanced small business expensing option under Code Sec. 179 . Let’s look at some of the important details:

1. Payroll tax holiday and up-to-$1,000 credit for employers who hire unemployed workers.

• To stimulate hiring by the private sector, the new law exempts any private-sector employer that employs someone who had been unemployed for at least 60 days from having to pay the employer’s 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. Your company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800&emdash;the maximum amount of wages subject to Social Security taxes&emdash;by the end of 2010.
• Additionally, any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, makes the employer eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee’s pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
• Workers hired after the date of introduction of the legislation (Feb. 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after March 18 receive the exemption for payroll taxes.

2. Extension of enhanced small business expensing.

• The new law gives one year of extra time to enhanced expensing rules, allowing qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering it via depreciation over a number of years.
• For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009, but without the HIRE Recovery Act, would have dropped this year to $134,000 and $530,000 respectively.
• In our next post, we’ll break down some of the benefits of the payroll tax incentives.

Will these incentives change the way you approach your staffing needs for the rest of the year?

For many years, employers have relied on independent contractors as a means of controlling payroll and benefits costs, as well as reducing the costs of recruiting and training new workers. The use of independent contractors was rarely challenged.

The U.S. Department of Labor (DOL) has recently made the misclassification of workers one of its top priorities, with an additional $25 Million allocated for the “Misclassification Initiative.” DOL plans to hire an additional 100 enforcement personnel to investigate claims of misclassifying workers as independent contractors. DOL is concerned that misclassification is denying workers employment protections, such as overtime under the Fair Labor Standards Act and leave under the Family and Medical Leave Act.

The Internal Revenue Service (IRS), however, is looking to collect an estimated $7 Billion in payroll taxes that will be lost over the next 10 years as a result of misclassification. Independent contractors do not pay unemployment taxes.

There is no clear-cut test for whether a person should be an employee or a contractor. The IRS has some guidelines. So does DOL.

A contractor typically can work for more than one person, provided his/her own tools, materials and supplies, works off-site, may hire assistance or subcontractors and have control over the timing and sequencing of the work. Contractors do not receive fringe benefits and are paid by the job.

An employee tends to be paid by salary or hourly wages for indefinite work (rather than being paid a set fee to complete a specific project), can be fired or quit without penalty, is reimbursed expenses, is required to do the job themselves and is given the tools to do the job.

Employers may raise red flags if:

• Independent contractors are performing work that is essential to the business.
• The contractor has no other clients or is required to dedicate all his time to the employer’s business.
• The industry typically uses employees for a certain job, and the employer is using contractors.
• Some duties are being performed by both independent contractors and employees.

It is essential that employers get the classification right. If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker, and perhaps even overtime pay. There could be interest and penalties, as well as bad publicity.

The extension:

• Extends eligibility for the federal 15-month, 65% COBRA premium subsidy to individuals terminated from employment through March 31, 2010. Otherwise, employees terminated or laid off after February 28 would not be eligible for the subsidy.
• Allows employees to be eligible for the subsidy if they first lost group coverage due to a reduction in hours and then were terminated after enactment of the original Act.

The Temporary Act also extends the time periods in which qualifying individuals may file for Emergency Unemployment Insurance (EUC) or Federal Additional Compensation to April 5, 2010.

A further extension of the COBRA subsidy and unemployment benefits (possibly until December 31, 2010) is expected to be debated in the coming months.

Employers and other health plan sponsors should revise their COBRA notices to reflect the new March 31, 2010 subsidy eligibility expiration date.

Payroll docking violates most state payroll laws (it is considered an unlawful forfeiture), including North Carolina. Here, deductions in pay must be agreed to (in writing) in advance.

If the amount of deduction is known, the employer must get a written authorization from the employee on or before payday stating the reason for the deduction and the amount to be deducted.

If the amount is unknown at the time the employee authorized deductions generally, the employer must give written notice before payday that there is going to be a deduction, the amount, and the reason. The employee must have opportunity to withdraw authorization.

In addition, the docking must not result in the employee’s pay dipping under minimum wage.

The practice also has some potentially serious consequences under the Fair Labor Standards Act. If the employee was an exempt employee (a salaried employee who is exempt from overtime), docking the pay cancels the exemption, and the employee would be converted to an hourly employee who is now deserving of overtime.

In addition, the company needs to make sure even if it correctly docking pay, it is not docking hours worked. In the Undercover Boss example, the employee was one minute late returning from lunch, but the company can only exclude that one minute from the number of hours she worked that week — it can’t exclude the “penalty minute” if she actually worked that minute.

Thus, all the time the employee actually works must be used to calculate whether she worked 40 hours and whether she is entitled to overtime compensation. It is unclear whether Waste Management docked just pay, or time as well.

We often joke internally that the FLSA is so complex that no company is ever in complete violation, but violations are significant.

The Department of Labor, which enforces the Fair Labor Standards Act, can go back three years to look for payroll violations, willful violations, and assess a civil penalty of up to $1,100 per employee.

An attorney review of your employment practices can be worth every penny.

What is an H-1B Visa?

Much like when in OPT (Optional Practical Training), an H-1B visa allows you to be employed by the company sponsoring the visa for up to six years (sometimes longer) in what United States Citizenship and Immigration Services (“USCIS”) calls “specialty occupations.” The regulations define a “specialty occupation” as requiring theoretical and practical application of a body of highly specialized knowledge in a field of human endeavor, and requiring the attainment of a bachelor’s degree or its equivalent as a minimum. Although the possibilities are endless, examples of common H-1B eligible positions are accountants, computer programmers, database administrators, general managers, marketing research analysts, medical technologists, software engineers, and teachers.

Is an H-1B Visa Only Used for Full-Time Employment?

No! The H-1B visa can be utilized for both full-time and part-time employment. Although there are wage issues to be considered, “part-time H-1B visas” may be a life saver for both employers under financial restraints and potential employees who are scared the troubled economy will keep them from finding an employer to sponsor their visa. It is also possible to have two companies sponsor an individual for two separate part-time H-1B visas.

When Should You File for Your H-1B Visa?

To be on the safe side, April 1st! Each year, employers begin filing H-1B visas on April 1st of each year for employees who will begin their employment with the company on October 1 of the same year (beginning of the new federal fiscal year). Currently, U.S. law limits the number of H-1B visas to 65,000 per fiscal year (with some exceptions). This limit is called the “H-1B Cap.” Over the past few years (apart from last year) the H-1B Cap was met by petitions filed on the first possible day of filing (April 1). Last year, due to the poor economy and restrictions on employers who received TARP funding, the H-1B Cap was not met until after the beginning of the federal fiscal year. This year is anyone’s guess.

For more information on H-1B visas or any other business, employment, or immigration issues, please contact our offices.

Employers may resume filing H-1B petitions on April 1, 2010 for year 2011 (employment beginning on or after October 1, 2010).

For more information on the H-1B cap, please see our previous blog posts.