The recent outcome of the Sullivan v. Sleepy’s LLC et al. civil case, and the Massachusetts Supreme Judicial Court’s (SJC’s) interpretation of the Mass General Laws has clarified how employers are required to pay commissioned retail employees.
On May 8, 2019, the SJC issued a unanimous opinion that, under Massachusetts law, salespeople who are paid solely on draws and commissions are entitled to separate and additional overtime and Sunday pay. Prior to the SJC’s decision, retailers had been hanging their hat on two opinion letters issued by the Massachusetts Department of Labor Standards (DLS) over ten years ago that suggested employers did not need to make separate and additional overtime and Sunday payments to 100% commission employees, provided that the employees receive an amount equal to at least 1.5 times the minimum wage for all overtime and Sunday hours worked.
The SJC’s decision has marked the end of paying non-exempt, retail employees on a commission-only basis in Massachusetts. State law entitles these employees to separate and additional overtime payments, beyond draws and commissions, of at least 1.5 times the Massachusetts minimum wage (currently at $12.00/hour); and premium pay for Sunday work, also equal to no less than 1.5 times the minimum wage. The court also explained that employers are barred from retro-actively repurposing, or renaming, draw and commission payments as overtime or Sunday payments.
The SJC’s decision is already impacting Massachusetts retailers and other companies that pay on 100% commission/draw basis. Now that it’s clear that draws and commissions cannot substitute for other wage and hourly entitlements such as overtime and Sunday pay, employers must carefully examine their pay policies to ensure compliance. Additionally, they are now obliged to recalculate and pay the amounts their employees are entitled to in overtime pay before a lawsuit is filed — failure to do so could have a significant financial impact. Under the Massachusetts Wage Act, sales people not paid for the shortfall prior to filing suit are entitled to automatic treble damages plus attorney fees.
For more information regarding the most recent developments in Massachusetts Overtime Statute and the implications it may have on your business, please contact us.
The implementation of the Tax Cuts and Jobs Act in late 2017 has significantly impacted the way companies depreciate their assets. If you own real estate or a business, or if you operate in the real estate or construction industries specifically, you need to learn more about the recent, potentially major changes to the depreciation and expensing rules for business assets.
Section 179
Section 179 of the IRS tax code allows businesses to deduct the purchase price of qualifying equipment and/or software purchased or financed during the tax year. For tax years beginning after December 31, 2017, the allowable IRC Section 179 deduction has almost doubled from $510,000 to $1 million. The maximum asset spending phaseout has also increased from $2.03 million to $2.5 million.
Under the former tax law, qualified improvement property was not eligible for Section 179. However, under the TCJA all leasehold improvements, provided they are made to the interior portion of nonresidential rental property after the building has been placed in service, will be eligible for immediate Section 179 expensing. Any improvements to a building’s interior qualify if they are not attributable to the enlargement of the building, any elevator or escalator, or the internal structural framework of the building. Before the TCJA passed, certain types of building improvements did not normally meet the definition of qualified improvement property because they are improvements made to a structural component of a building. However, under the TCJA the qualifying property for Section 179 expensing has been expanded to include the following improvements to non-residential real property: roofs, heating, ventilation, air conditioning, and fire/alarm protection systems.
Bonus Depreciation
Prior to the TCJA, bonus depreciation was limited to 50% of eligible new property. However, the TCJA reform extends and modifies bonus depreciation to allow businesses to immediately deduct 100% of eligible property placed in service after September 27, 2017 and before January 1, 2023. When 2023 hits, the amount of bonus depreciation will decrease by 20% per year until the end of 2026. Qualified improvement property, which now includes restaurant and retail improvements, as well as tenant and building improvements, has been added as eligible property. Eligible property has also been expanded to include used property, which is a significant and favorable change from previous bonus depreciation rules. Additionally, the TCJA eliminates the requirement that the original use of the qualified property must begin with the current taxpayer. This means that businesses can take bonus depreciation on assets that are acquired from a previous user, as long as the current taxpayer did not previously use the acquired property and the property was not acquired from a related party. The TCJA also added qualified film, television, and live theatrical productions as types of qualified property that are eligible for 100% bonus depreciation. In addition, there is no limit to asset spending in a given year and no limit on the deduction amount that can be taken.
Things to Remember
Businesses must keep in mind that not all states allow bonus depreciation, and therefore, the deduction may need to be added back to income on the respective state return(s). Also, businesses do not have the option to select specific items for the deduction. In a given year, taking bonus depreciation on one asset requires the company to take bonus depreciation on all assets that fall into that respective asset class.
Looking Ahead
The TCJA will help businesses with cash flow issues in particular, because it could potentially reduce their taxable income in the year of the deduction, therefore lowering their tax liability. However, even if your business is not experiencing cash flow issues the TCJA can still be a boon. The TCJA is the biggest tax overhaul since the Tax Reform Act of 1986 and these specific depreciation and expensing changes can have a profound effect on your business taxes. You do not want to miss an opportunity to expense 100% of certain assets and improvements, especially if you are in the real estate or construction industry.
To learn how you can achieve the greatest benefit for your business today, contact John J. Rainone, CPA/MBA, CCFIP at 401-921-200 or jrainone@disantopriest.com.
The Maker Movement Takes Hold
One hundred and fifty-two small, medium, and large manufacturers ranked their most pressing concerns in the areas of growth, talent, product development, and operations in a 2017 poll taken by Polaris MEP, a non-profit organization that guides RI manufacturers towards sustainable growth. The poll questions that received the most buzz contained phrases like “breaking into new markets”, “understanding new market applications”, and “meeting entrepreneurs with an idea that needs to be manufactured”. Clearly, RI manufacturers are approaching growth with an entrepreneurial perspective and are acutely aware of the risks of becoming stagnant and uncompetitive.
These topics are strongly related to the Maker Movement, which became popularized due to its focus on innovation, artistry, and collaboration. Originally spurred in the early 2000s by a “hacker” social culture and the advent of universal, affordable accessibility to technology, the Maker Movement has propelled DIY entrepreneurs to produce specialized quality goods in communal workspaces for niche consumer markets.
On the surface, this movement’s low overhead model represents a more efficient and diametrically opposed alternative to the centralized, heavily capitalized, mass-production manufacturer. However, as the Maker Movement has gained ground and attention, mutually beneficial relationships have been forged between traditional manufacturers and entrepreneurial start-ups.
On one end of the spectrum, Makers gaining market share find themselves limited in production capacity: ideal production outputs are too high for the small-batch nature of their original makerspaces, yet too low to consider mass-production in China or Mexico. Traditional manufacturers have high output capacity but are paying an opportunity cost in R&D with a slow and deliberate process.
Makers and Manufacturers Collaborate
Through collaboration, small and medium-sized manufacturing firms can revitalize their presence in the marketplace with fresh ideas, while offering Makers production capacity and fabrication. In an article published by Business Horizons Volume 60, Issue 6, “Social manufacturing: When the maker movement meets interfirm production networks”, authors Hamalainen and Karjalainen, describe their findings from researching firm-individual collaboration in manufacturing industries, citing innovation and insight to new maker markets as key advantages for manufacturers: “Our findings suggest that firms working with individuals can potentially reap multiple benefits, including fresh ideas, broader design support, and quick delivery times.”
Skeptical members of the private business sector might be persuaded by some big manufacturers that have taken a keen interest in the value of what today’s Makers have to offer. In 2014, GE invested in bridging the gap between the Maker Movement and the mass market by opening FirstBuild, a micro-factory for household appliances where innovators team up with the global conglomerate to create prototypes. Another example is Chevron, who supports STEM education by offering free access to its CAD software to makerspaces and local educators. Communities across the country have fostered the growth of the Maker Movement by offering space and educational opportunities to encourage creativity.
Hope & Main in Warren, RI, offers food makers: “…a low-risk opportunity to test, scale and develop without the cost and liability in equipping, managing and maintaining your own commercial facility”. In addition to kitchen space and educational support, Hope & Main have teamed up with The Food Resource Business Exchange, a one-stop-shop experience where members can partner with industry professionals to access the resources and services they need to grow their businesses.
Leaders addressing the challenge of rebuilding US manufacturing would be wise to learn from these examples. In a Brookings Institution article, Five Ways the Maker Movement Can Help Catalyze a Manufacturing Renaissance, Muro and Hirshberg write, “…[for] the nation’s manufacturing and technology industries, making is stimulating a new, more creative approach that is reinventing the sector and making it more competitive. Ultimately, the movement is one modest way to renew the economy with broad engagement and experimentation at a time of uncertainty and division.”
Navigate the challenges affecting your business by browsing accounting white papers written by our experienced professional team of local CPAs.
We Can Help Your Financial Future Reach New Heights
You’re an established presence in the Manufacturing, Distribution, or Retail industry, which means your days are focused on combatting tough operational issues with innovative and streamlined processes such as Lean Manufacturing. With cost-conscious customers and the pressure to keep prices competitive, you need a relevant advisor who will strengthen your financial foundation as you experience your next level of growth. There is a way to execute orders on time and on budget today while also planning for your company’s future, and that’s why we are here to help. Whether it be retaining skilled labor or coping with an uncertain national economy, we have solutions that will help ease your burdens and help you reach your future goals.
While you create tomorrow’s products, we lay the groundwork for your future success. As an established, full-service firm with some of the largest and most recognized manufacturers in New England, DiSanto, Priest & Co. can help your financial future to new heights. Our unique hybrid tax, assurance, and advisory services were designed for established Manufacturing, Distribution, and Retail companies like yours. You get one team with the training and credentials to handle all of your needs. And as your company grows, our specialized tax, audit, and advisory services grow with you.
Helping You Keep Your Competitive Edge
You’re constantly innovating, reinventing and improving your processes and products in order to stay on the cutting-edge. But it takes more than great products and processes to stay competitive in today’s business and political landscape. Whether it’s understanding compliance and regulatory restrictions or managing costs and budgeting, the future of your company depends on addressing these challenges. Our local RI CPAs have the strategic skillset and financial foresight to help your company stay ahead of the curve. Life’s too short. Plan proactively so you can enjoy today instead of worrying about tomorrow.
Our Local CPAs Make Your Products Our Business
We’re one of Rhode Island’s top accounting firms, and we pride ourselves on understanding the Manufacturing, Distribution, and Retail industry and the unique challenges you face in today’s ever-changing business and political landscape. Our network of industry-specific professionals offers valuable experience in the unique compliance and regulatory requirements that affect your ability to stay competitive. We’re even members of manufacturing organizations, such as Rhode Island Manufacturers Association (RIMA). Because you don’t need just another accounting firm – you need a relevant financial advisor who specializes in Manufacturing accounting.
Dealing with the Changing Landscape in the Manufacturing Workforce – Part 2
In Part 1 of this series, we outlined the transitional and educational challenges that the manufacturing workforce is facing. We identified two specific tactics to address these challenges: 1) enticing baby boomers to stick around longer; and 2) proactively planning for a changing work culture. The majority of the manufacturing workforce can retire at any moment. Many of the potential replacements for these retirees are not projected to enter the manufacturing field. What else can the manufacturing industry do to combat this employment gap?
Break the Stereotypes
Through history textbooks, media, and conversations with grandparents, today’s young workforce has come to believe that a career in manufacturing is a dirty, unappealing, and unstable career. Why work with machinery when it has led to diseases early in life? How would a maintenance job impact my social status? When will my job be moved overseas or replaced with technology? These questions are disheartening when, in fact, many manufacturing firms are now pristine, filled with some of the most cutting edge technology of our time, and offer loyal employment. The social and economical benefits of a career in manufacturing need to be broadcast. Jobs are returning to the United States amidst the tax reform and economical boost. Today’s manufacturers need to spread this news, include it in their recruitment, and break the stereotypes.
Develop STEM Skills
Many state governments, including here in New England, have identified STEM skills as critical for the future health of the economy. In 2018, Real Jobs Rhode Island (http://www.dlt.ri.gov/srealjobs) has three partnership programs for the manufacturing industry:
- Leadership Development Partnership of Rhode Island
- Phoenix Partnership
- Rhode Island Manufacturing Growth Collaborative
These partnership programs foster collaboration among manufacturers, universities, and other agencies to train and develop STEM skills in the young workforce. Local manufacturers have recently turned their attention to high school recruitment. By expressing interest in teenagers, these manufacturers hope to build up early desires to pursue math and science – two areas of study that have recently seen low scoring. Manufacturers need to engage the young work force and provide opportunities for training and education. The development of STEM skills is vital if the industry hopes to maintain a consistent work force supply.
The landscape in manufacturing is definitely changing. The actions taken by the industry in the next decade will be critical to its health. There are many great resources available to manufacturing companies – and even more that can be created. Let us do what we can to build up the next generation with knowledge and experience.
Manufacturers are facing transitional and educational challenges in their workforce, now more than ever. Finding and keeping skilled employees has been a constant struggle for many manufacturers, and recent surges in the economy have added to the challenge of keeping up with production. Close to one third of manufacturing employees are over the age of 55, which means companies have to strategize on how to deal with the imminent gap in knowledge and experience. Management has had to consider some creative tactics to retain its human capital. In this two part series, we will identify specific tactics to consider in addressing these challenges.
Entice Baby Boomers to Stick Around Longer
Though it appears to be somewhat of a short-lived solution, some manufacturers are making company policy changes to delay retirement for the most loyal and experienced employees in their workforce. Programs like flexible schedules and job-sharing are making potential retirees re-consider making a clean break at 65. Creative manufacturers are taking measures to make their workplace more physically comfortable for this generation by making ergonomic adjustments to shop facilities. If these efforts to keep baby boomers working prove successful, companies can reap the advantage of having these “veterans” mentor and teach the younger, less experienced employees. Smart managers see these boomers as playing a crucial role in their succession plan.
Proactively Plan for a Changing Work Culture
How will management deal with succession planning when the new hires don’t think like the outgoing generation? Baby boomers and millennials don’t play the same, and it stands to reason they don’t work the same either. Jack Finning, a partner at AAFCPA, summarizes this well in his industryweek.com article The Massive Retiree Wave Demands Manufacturers Embrace Planning: “…boomers are known for using a direct management style through which they dictate the process for workflow management. Younger generations, on the other hand, are more open to a holistic managerial approach… motivated by transparency, engaged with workers in the field and thriving off ideas that help move processes along or evolve in a new direction.” Generational differences can become barriers to transitioning from senior to more junior workforce. The most successful companies planning for the inevitable changing of the guard will do so by collaborating with their workforce to establish thought-out best practices, determine common expectations, and stay communicative.
For more information, the following links offer two perspectives on how today’s manufacturers are adapting to the changing landscape in America’s workforce.
http://www.standard.net/Business/2017/07/18/Factories-to-baby-boomers-Please-keep-working.html
http://www.industryweek.com/leadership/massive-retiree-wave-demands-manufacturers-embrace-planning
For tax years beginning after December 31, 2017, the Tax Cuts and Jobs Act (TCJA) provides a new permanent deduction for domestic C-corporations that generate income from serving foreign markets. The deduction would reduce the federal tax rate on such income from 21% to 13.125% (increasing to 16.41% after 2025).
The name of the new deduction provision, Foreign-Derived Intangible Income (FDII), is a bit misleading as this new incentive is not connected to the ownership of specific intangible property. Instead, the deduction applies to the above-routine return arising from the taxpayer’s foreign-derived income – i.e., income earned from providing goods and services to customers outside the United States for foreign use. The above-routine return is considered the “deemed intangible income” and is generally the excess of the taxpayer’s total income over a 10% return on its depreciable tangible property (the routine or “deemed tangible income” return).
An important step in determining the FDII benefit is identifying the income that is considered “foreign-derived” income. The key aspect is that the new deduction applies to taxpayers that generate income from export sales and services. The property must be sold, licensed, or leased to a foreign person (related or unrelated) for use outside the United States; and services must be provided to persons located outside the United States, or with respect to property located outside the United States.
It is important that corporations begin to assess whether they may qualify for this new tax deduction as it can lower estimated tax payments and will have financial reporting implications.
DiSanto, Priest & Co. is experienced in preparing detailed FDII calculations which involve a multi-step process with certain data inputs.
Setting up a data interface between your QuickBooks file and your bank can dramatically reduce the time burden created by the manual data entry of transactional activity. Downloading bank feeds directly into QuickBooks eliminates the need to post transactions individually, keeps records current, and allows more time to address more pertinent business needs.
Initiating online banking service through QuickBooks is the first step in setting up a bank feed. Depending on the bank, you may be required to download a bank statement through their online portal for security purposes. You can specify the date range on your bank’s website to be downloaded into QuickBooks, of which a maximum of 90 transaction days is available to download when you first link an account. In cases where there are more than 90 days of transactions, you may upload the files to QuickBooks online via WebConnect if your bank supports QuickBooks Online (QBO), Quicken (QFX), Comma-Separated Values (CSV), or Microsoft Money (OFX).
Transactions are added either in batch form or individually, and users have the opportunity to review all operations before the download is accepted and applied in QuickBooks. Subsequent transaction downloads will be automatically matched and posted consistently with prior postings. The risk of posting duplicate transactions is eliminated because QuickBooks only accepts transactions that were not previously downloaded. Unmatched transactions are classified as an uncategorized income or expense, at which point you can assign and approve the appropriate category before allowing them.
For more information on whether your business is a candidate for this feature and how it could be beneficial, please contact our DiSanto Priest & Co.’s Business Resource Center.
Rhode Island’s Commerce Corporation aims to help Rhode Island businesses flourish. They support local businesses in many ways by providing lucrative incentives such as tax credits and grant programs. One such initiative is the Innovations Voucher program which offers grants to companies performing research and development in partnership with local universities, research centers, or medical centers. New in 2018, this grant can also be given to Rhode Island manufacturers to fund internal R&D projects at their manufacturing facilities.
The grant is available to Rhode Island small businesses with 500 or fewer employees in the state. Awarded vouchers can range from $5,000 to $50,000 depending on the project. Similar to the federal research and development tax credit, the voucher must be used to fund new or more innovative products or processes. Businesses cannot use the grant money for ordinary and necessary business expenses such as marketing, website development, software purchases, etc.
Awarded vouchers can be used for the following activities:
- Technological development or exploration
- Product, service, or market development
- Services and activities including access to research or scientific expertise
- In-house research and development projects in a manufacturing facility
- Improved business practices that help grow the business and create operational efficiencies
Applications are accepted on a rolling basis, so it’s never too late to contact the Rhode Island Commerce Corporation.