Wages and Overtime: Determining Who is Exempt

How does an employer determine if an employee is exempt under the FLSA and Wisconsin law?

Determining if an employee is exempt under the Fair Labor Standards Act (“FLSA”) and Wisconsin Department of Workforce Development (“DWD”) regulations is a multi-step process.  Additionally, an employee may be exempt under the FLSA as to overtime, but may not be exempt as to overtime under Wisconsin law.  Therefore, a multi-prong analysis is required to ensure that an employer is complying with both federal and Wisconsin law.

Step 1: Does the employee make at least $455.00\week on a salary basis (or $27.63\hr for Computer Employees)?  If the employee makes less than $455.00\week, they are not exempt from the FLSA, and the analysis stops there.

Step 2: Can the employee, via their actual job functionsbe defined as occupying an “exempt role”?  Note, that job description alone won’t meet the requirements – the actual day-to-day job functions must be inline with the exempt categories.  (i.e. if a company hires an employee for an “exempt” role, but their actual job functions are different, the employee may not qualify as “exempt” any longer).

In two weeks, we will discuss a few different exempt roles, most specifically – the Executive and Administrative Employee!

Who’s The Boss?

When setting up an LLC, whatever or whoever is helping you with the Articles of Organization asks a simple question: Is this going to be member-managed or manager-managed?  This question is often met with a somewhat blank stare.  So, if you did the same thing right now, you are not alone.  You should see what happens when I ask a sole member LLC owner which they are.

If you choose to have a member-managed LLC, all of the members participate in running the business.  All members play an active role in the day-to-day management of the company.  That means that all members are authorized to act as agents of the company and can make the company obligated to do things.  The members can sign contracts, take on liabilities, and generally act for the company.  Usually, there is an operating agreement talking about what decisions need to be made by majority, super-majority, and unanimous votes.

If you choose a manager-managed LLC, designated people are delegated responsibilities to operate the business so that all the members don’t have to chime in on business decisions.  The manager can be a member, or nonmember (yeah, an outsider) or a combination of members and nonmembers.  There can be one or several managers. The non-manager members in a manager-managed LLC are passive investors who are not involved in most business operations unless the operating agreement says their vote matters.  Usually, there is an operating agreement talking about which decisions the manager can make and which decisions are reserved to the members.

For example, some duties that might go to a manager are:

  1. Buy, sell, and lease Company property that does not represent a material part of the Company’s aggregate property;
  2. Insure the Company’s activities and property;
  3. Negotiate and sign all agreements, contracts, and other instruments or documents that are necessary or appropriate in the course for the Company’s regular business or that are authorized by general or specific action of the Members;
  4. Pay from the Company’s funds the consideration required under contracts or agreements;
  5. Establish and maintain books and records for the Company;
  6. Perform all other acts or activities customary or incident to the routine and day-to-day operation of a business such as that conducted by the Company;

Some duties that may remain reserved for members are:

  1. Sell, transfer, or otherwise dispose of all or substantially all the assets of the Company or its subsidiaries, whether in one or a series of related transactions;
  2. Borrow money or procure financing or refinancing, or mortgage or subject to another security interest any material portion of the Company’s assets;
  3. Issue additional Ownership Units;
  4. Enter into a merger transaction involving the Company in which the Members do not hold a majority of the economic and voting interests of the surviving entity;
  5. Amend the Articles of Organization or amend or revoke an Agreement.

Therefore, it is important (required even) from the very beginning to figure out who is calling the shots: members or managers for the LLC.  Operating agreements can then help refine that decision.  So, if you don’t know which you are, pull out your best Tony Danza impersonation and look at your Articles of Incorporation.  Then, realize it was the kids in charge all along.

 

 

Wages and Overtime: Flexible Compensation and Salaried Employees

This is the first post in a series about wages and overtime, when it applies, and how to avoid costly mistakes.  As your company expands beyond the initial founders, keeping abreast of the multiple (and sometimes confusing!) wage and overtime regulations covering employees becomes incredibly important.  Here are two questions I’ve gotten recently, along with their answers:

Can a company compensate employees with Paid Time Off (“PTO”) in lieu of additional wages when said employee works overtime?

No: Unless specifically exempted, employees covered by the Fair Labor Standards Act (the “Act” or “FLSA”) must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than time and one-half their regular rates of pay. There is no limit in the Act on the number of hours employees aged 16 and older may work in any workweek. The Act does not require overtime pay for work on Saturdays, Sundays, holidays or regular days of rest.

Because the FLSA also sets the Federal minimum wage at $7.25 – “pay” means cash, not additional benefits like PTO or flexible work schedules.  Also note, that “averaging” employee hours to be ~40 in a one week period is not allowed.   So, if an employee generally works 80 hours in a pay period, he\she would still be entitled to overtime for any hours worked in excess of 40 in a week – even if the average is still 40 hours.

Note: This could change in the future though, the “Working Families Flexibility Act of 2017” would have allowed PTO compensation at 1.5x in lieu of overtime pay at the same rate – but failed to pass both chambers of Congress – the Bill could be reintroduced at any time.

All employees who receive a salary are exempt from minimum wage and overtime requirements under the FLSA and Wisconsin DWD regulations, right?

No: A salaried employee is not an exempt employee by virtue of being paid a salary. The individual must meet the tests established for being an executive, administrative, professional, outside salesperson or computer employee (under the FLSA). Being paid a salary is also not synonymous with being paid on a salary basis. To be paid on a salary basis, the employee must be guaranteed a set amount of wages regardless of the amount of time the individual works each week so long as he or she works at least one hour in the week. An employee is not paid on a salary basis if there are deductions from the guaranteed amount other than deductions made for either of the following reasons: absence of at least a full day for purely personal purposes when earned sick time has been exhausted under a bona fide sick plan or suspension for a serious violation of a safety policy.

Additionally, Wisconsin has slightly stricter requirements than the FLSA and very rarely exempts any employee from minimum wage requirements, but does (mostly) mirror the FLSA as to the overtime exemptions.  In other words, an employee may be exempt from overtime under federal law, but may not be similarly exempt under Wisconsin law.

In two weeks, we will tackle how to figure out which employees are “exempt.”

Is This Something?

Much like Letterman used to ask, “Is this anything?“,  clients often ask “Is this a trademark?” The answer to that depends on the answers to the following questions:

  1. Is whatever it is connected to the good or service being sold?  Will the customer see your product and the proposed mark together at the time they are buying the product?  If they can’t connect the two together, then no, it isn’t a trademark.
  2. Will the customer see the proposed trademark on the product at a later date and think, “Oh, the same people who made that last time must make this, too!” For example, they see your thing in Walgreens in Platteville then see it at Target in Green Bay, they will think “Yeah, I like that stuff from last time I had it. I’ll buy it again” and have confidence it came from the same source.  If instead, they think “Hmm, peanut butter.  This jar says its creamy, and that’s what I like. Chunky is the worst. Guess I’ll go with this one” and you thought “Creamy” was your mark, then no, it isn’t a trademark. It is a description of your product.
  3. Can people use the proposed mark to distinguish you among the sea of competitors?  Again, your customer is cruising the aisles looking for soap this time.  If all of the boxes of soap look the same, are they going to pick out yours? Or what if yours and someone else’s look awfully similar, are you sure they are putting yours in their cart instead of your competitor?  If you can’t help them distinguish (Go for the green box. Or the bottle has a giant D on it.), how do expect them to pick you? If they can’t use it to Pick Me! Pick Me!, then no, it isn’t a trademark.

The fun part is that almost anything allowing those three things to occur can be a trademark.  It can be a color – when you see pink insulation, you think Owens Corning.  It can be a smell –  a chocolate scent at a jewelry store selling Le Vian diamonds.  Don’t forget the iconic shape of Coca-Cola bottle. Of course, logos, slogans and brand names work, too.

Whatever it is, it is what helps your customers call to their spouse while the spouse is at the store, tell them to pick up an item, and the spouse successfully accomplishes the task.  If that can happen, yeah, that’s something.

Real Estate Terms Worth Knowing

Over the past few weeks, we have gotten a bunch of questions from clients in regard to real estate transactions and some of the terms that inevitability come up in almost every deal.  This article aims to provide a quick and easy to understand guide to some of the terms we see most often.

Tenancy by the Entireties

This is a type of concurrent real estate ownership reserved for married couples.  The important distinctions with this type of ownership are as follows:

  • Not recognized in Wisconsin – but the same goals can be achieved with a contract that is recorded with the real estate
  • Reserved for married spouses
  • Creditors can only attach (a\k\a come after) the property for a joint debt of the spouses, not an individual debt of either one
  • Once created, a tenancy by the entirety cannot be terminated without the consent of both spouses. 

Tenancy in Partnership

This is also a special type of ownership of both real estate and personal property that is reserved for individuals working together in a partnership (of the business variety).  The important distinctions with this type of ownership are as follows and will largely be decided by the terms of the partnership agreement the partners have signed:

  • Reserved for Partners in a business partnership
  • Breaks down the “rights of ownership” in the partnership assets as follows:
    • Economic – a right to participate and share in the profits and surplus
    • Management – a right to manage the affairs (i.e. vote) of the partnership
    • Ownership – the right to “own” partnership assets, assign them, and the ability of creditors to attach to said assets for an individual partner’s debt

Tenancy in Common

Tenancy in Common is the most “common” (ha!) form of land ownership.  The important distinctions are as follows:

  • Between 2 or more people!
  • Each owner (tenant) has the ability to transfer or assign their interest in the property to someone else
  • Each tenant can own different percentages of the property.  For example, we could own property together – Collin: 20% You: 80%
  • There is no right of survivorship – when one tenant passes away, their ownership interest in the property is transferred via their Will.  (i.e. the other tenant does not get my share of the property automatically.)
  • Everyone, regardless of ownership percentage, is allowed full use and enjoyment of the property – in other words, I might only own 20%, but I still get to have a party at the property with all my friends!

Joint Tenancy

If you are married in Wisconsin, your primary residence is probably owned by you and your spouse, as joint tenants, with the right of survivorship – here are the details:

  • Ownership between 2 or more people!
  • Each person owns an equal interest in the property – for example, if there are 2 owners – each owns 50%; if there are 3 owners – each own 33.33%; if there are 4 owners – 25%
  • There is a right of survivorship – meaning, when one joint tenant passes away, their ownership interest automatically transfers (without a Will) to the other joint tenants.  If you die first, your spouse will automatically own the house without a court or lawyer having to get involved.
  • The joint tenancy can be terminated during life and will then convert to a tenancy in common.  This is an important distinction from Tenancy by the Entirety that we discussed above.

Future Interest

A future interest is a legal right to property ownership that does not include the right to present possession or enjoyment of the property.

So for example, if a minor child has land in trust that they can’t access until the age of 25, then the minor has a “future interest” in the property.

Fee Simple Absolute

If you ever have looked at the title policy from your last real estate transaction, the words “fee simple” are on there for sure.  This is a fancy word(s) that means “I own absolutely everything!” (as it relates to this property)

The greatest possible estate in land, wherein the owner has the right to use it, exclusively possess it, commit waste upon it, dispose of it by deed or will, and take its fruits. A fee simple represents absolute ownership of land, and therefore the owner may do whatever he or she chooses with the land.

Fee Simple Determinable

Fee Simple Determinable means ownership in land that will end automatically when a stated event or condition occurs and revert to the grantor or the heirs of the grantor.

So for example, I could sell you land to open a museum – and state in the sale documents, “Buyer may keep the land and own it, as long as it is used as a museum.  Once it no longer is a museum, it reverts back to me.”  This is commonly used with historic buildings, or in legacy estate planning (i.e. very wealthy individuals.)

Life Estate

I bet you know this one already because Life Estates used to be a very common estate planning tool used in Wisconsin.  Due to some changes to how Estate Recovery is administered, though, Life Estates have become less useful in recent years.

A Life Estate works like this:

Mom and Dad own a house.  They have discussed, and they know they will leave the house to their son, Billy, when they pass away.  However, rather than wait until that happens – Mom and Dad decide to transfer the house to Billy now – while retaining a “Life Estate” in the property.  A “Life Estate” allows Billy to own the property “on paper” but allows Mom and Dad the right to live in the house until both of them pass away.  An easy way to remember is, “I get to live my LIFE in my ESTATE and when I die, the property is Billy’s.”

Life Estates are a great tool to execute some of your estate plan prior to passing away and to help manage the inter-generational transfer of wealth by spreading it out over time.  Life Estates were also a popular Title 19 planning tool (nursing home planning) but as of 2014, Life Estates are now subject to Estate Recovery in Wisconsin – so their flexibility is limited.  More information is available here. 

We handle a ton of transactional work at OGS – whether it be an entire business, a piece of valuable intellectual property, or a piece of land.  If you have real estate and have questions – want to sell – or want to integrate your property into a comprehensive plan for the future – we can help!

“Its” Mystery Is Solved

 

I get this question probably once a year: What does I T S mean under my signature on the contract?

They are looking at the signature block at the end of an agreement and see this:

SELLER:

By:_______________________________________

Name: ___________________________________

Its:_______________________________________

Yeah, right there. I T S, otherwise, better known as “its,” the possessive form of “it.”  The blank is for the person signing the contract to write in his or her title to show why they have authority to bind the company to the contract.  So it might be its president, its managing member, or its chief marketing officer.

The reason for the title to be there is to confirm that the person signing CAN actually sign and obligate the company to act in accordance.  If the person signing is the slushie-machine filler, they probably don’t have the authority to make a decision about a commercial during the Super Bowl.  It’s a way to make sure the contract is binding.  The reason it says “Its” instead of “Title” is a choice of the drafter.  It doesn’t have to be “Its,” and most people don’t even notice or ask about it.

However, those who do notice, are puzzled, and ask are the best clients.  They are the ones actually reading and thinking about the contract.  They want to understand what is going on, and by asking, they are sending the signal that they care.  Once I explain the “its,” I usually get an embarrassed, “Oh, jeez! That was a stupid question. I should have known” in response.  But I always assure them that it wasn’t stupid to ask and to ask more questions.  Nothing is worse than not understanding what you are signing.  It is never a stupid question if it helps you understand your contract.

That means if you have a question, ASK!  I promise it won’t be the silliest one that I have heard.  I would rather you ask and know the answer, than you sit and wonder what something means.  Trust me, we will look much more stupid if the question comes up in litigation due to a misunderstanding than it does before everything is signed.

South Dakota v. Wayfair, Inc.: Taxation in the Digital Age

Remember the days of the tax free Internet purchase?  Me neither, because those days never really existed.  That said, in the wake of the recent U.S. Supreme Court decision in South Dakota v. Wayfair, Inc,  the risk of non-collection for said taxes has shifted from consumer to company – and anyone who makes an online sale should sit up and take notice.

A Few Things Before We Get Started

As with most of my posts, I like to set a few baselines before we dive in:

1) Use Tax: The reason the tax free Internet purchase never really existed.

Use Tax is the tax you’re supposed to pay (and remit yourself!) on purchases from out-of-state retailers.  That’s right! You’re supposed to keep track of your out-of-state purchases, note if that business collected Wisconsin sales tax with your purchase, and if not, remit the appropriate tax yourself! Don’t believe me?  Here’s the link to the Department of Revenue FAQ.

2) Quill is Dead: If you’re an online retailer I’m sure you’ve heard this old adage: “I don’t have a location in Wisconsin, and I don’t even have any storage facilities there, so I don’t need to collect sales tax!”  If you’d made that statement a few months ago, you might have been right (or mostly right), but not anymore.

The Good Ol’ Days

In the days pre-Wayfair, the risk of non-collection for out of state sales tax rested with the consumer.  If I made an online purchase at NewEgg.com for $5,000.00 and didn’t report that purchase on my state tax return, I was at risk for underpayment, audit, penalties, etc. – but not NewEgg.

The reasoning was: If NewEgg didn’t have a “substantial nexus” (a.k.a. some type of operation) in Wisconsin, the State, via the Department of Revenue, couldn’t compel NewEgg to collect and remit the tax appropriately.  Quill Corp. v. North Dakota.  The basis for that reasoning – the Commerce Clause of the U.S. Constitution – and the previous difficulty companies had calculating and remitting taxes to all 50 states (and myriad municipalities).

The Problem

The problem for State governments: Most people didn’t pay Use Tax, budgets are tight, and in the age of the online purchase, a big piece of taxable pie is missing.

The Wayfair Decision and What it Means

This has been a long time coming and did not happen by chance.  Many State legislatures passed new laws compelling “out of state” retailers to collect tax – purposely trying to force the U.S. Supreme Court to revisit its decision in Quill. and eventually, the Supreme Court did.

What does that mean for you?

1) Don’t freak out!  Implementation of the new rules won’t go into effect in Wisconsin until October 1, 2018.  It’s not a huge amount of time, but it’s not tomorrow either.  You have time to craft a solution!

2) Visit the DOR website here for more information.

3) A “small-seller” exemption applies! Because what rule would be complete without an exception! If your business makes only $100,000 of sales in Wisconsin; or only has 199 total transactions with Wisconsin consumers, you don’t need to worry! Does the exception apply to you?

4) Regardless of whether or not the exception applies, it’s time to fortify your business for the future, and more taxation is inevitable.  Schedule a meeting with your accountant, investigate software platforms that make it easy to remit tax to various states, and schedule an appointment with your favorite attorney to discuss in more detail.  Your situation will be unique!

If you need help, OGS is here to assist you!

*Note to the legal nerds: Of course, the Quill decision is much more nuanced than I’ve detailed here.  If you want to talk nerdy about it – I’d love to – just not in this blog post!

Learning to Read the Harmonized Tariff Schedule

I’ve written about this before on LinkedIn – full disclosure, but over the past few weeks, I’ve gotten multiple questions about customs costs, and how they are assessed, from clients who are importing products from abroad and re-selling them in the United States.  Each client’s situation is unique, but a critical step one in all situations is learning to read the Harmonized Tariff Schedule – the massive index that assigns almost every conceivable product a duty rate.

A little background before we get started:

First, the United States does not levy a huge amount of tariffs on a lot (but not all!) of overseas goods.  That said, tariffs are political tools – so you will often see a 0 % import duty levied on products from countries like Germany (or the many other counties the US has a free trade agreement with) but a 40% duty on the same product from Cuba.  Therefore, choosing where to import a certain product is an important consideration.

Second, it’s easier than ever to import.  Go to Alibaba.com and click “order.”  But, with increased ease comes increased risk because the law still imposes all the same requirements on you, the individual importing widgets from China, as it does a Fortune 500 with millions of imports each year.

The Harmonized Tariff Schedule

The first step to figuring out “what” and “from where” to import comes by learning how to read the Harmonized Tariff Schedule.  The HTS is a HUGE catalog that categorizes imports by number and then assigns their respective duty rates.  Back in the day, the HTS was available in print, and it took a while to search, but now it’s an online searchable database here.

When looking at the HTS, you’ll see 2 columns after the “description” column; these are the the particular ones we will be discussing today.

The “Unit of Quantity” column tells you how imports on that particular product are assessed.  For example, vinyl flooring is assessed by meters squared – while commodity goods are often assessed by kilogram.  Therefore, in the case of vinyl flooring (HTS Code 3918.10.20) – you will get charged a 5.3% duty on the invoice value of each square meter imported.

The “Rate of Duty” column is next and is broken down into 3 parts.  The first part, “Column 1,” tells you the “general duty” rate, which – in layman’s terms means – “the general duty the US charges other countries we get along with but don’t have a free trade agreement with.”  For legal nerds, this is really called “Most Favored Nation” treatment or a country with which the US has “Normal Trade Relations” and is a cornerstone concept of the World Trade Organization.

The second part is the “Special” duty rate which the US charges countries with which it has a special free trade agreement.  There are a lot of free trade agreements out there, so be sure to check if your country of origin applies – because most “free” trade agreements set the duty rate at 0!

The third part is the “Column 2” or the “bad boy” duty rate that the US charges on imports from countries which we do not have normal trade relations with.  The most recent example of a country moving from Column 2 to the MFN column is Vietnam.  The only countries remaining on the list are North Korea and Cuba.

As you have probably noticed, this post assumes you have already figured out which HTS code applies to the product you are importing, but that is often the hardest (and most legally significant) part of the process.  If you’re interested in reading more on that point, check out the case of “mutants” or “humans” –  Marvel won in 2003!

If you need help expanding internationally or taking a look at your current import process, OGS can help!

That Which We Call A Rose

That which we call a rose
By any other word would smell as sweet

Juliet argued that it didn’t matter what Romeo’s name was for she would love him anyway.  And, by the way, if he wasn’t Romeo, they could be married.  But as we know, that’s not what happened.  Let’s just say, it went downhill for them.

But what about names in contracts?  How important is it to get Romeo Montegue’s name right? Would the deal smell so sweet if he signed it under a pseudonym?  Well, (here it comes!) it depends.

Contracts are promises between parties to act.  You need to be able to identify who promised what, and if they fail to follow through on their promise, be able to enforce the action.   Therefore, the better the identification, the better the ability to get the correct party to act in accordance with the contract.  After all, you don’t want a valid defense to be one sung by Shaggy (It wasn’t me!).

For businesses, that means knowing the company’s name, entity designation and often the address and state of incorporation.  For example, Simple Soaps for Simple Folks, LLC, a Minnesota limited liability corporation located at 1121 Co Rd 10 NE, Dover, MN 55929.  I now know what the official name is, where to find it, and if it moves (or changes name) where to look for its new information – Minnesota’s Business Search.

If there is a trade name involved, you can note that simply by saying the company does business by that name:  Alphabet Inc. d/b/a Google.

For people, it is pretty similar.  We want their name, state of residence, and an address.  For example, Mr. Bruce Wayne, a New Jersey resident, living at  1007 Mountain Drive, Gotham City, New Jersey.

Mr. Wayne, however, may be better known by an alias.  Often, you simply note that much like the trade name:  Mr. Bruce Wayne a/k/a Batman.  Or if it is a nickname, we might put it this way: Katherine (Kate) Mulgrew.  Still easy to recognize who really is held to the promises.

Every once in a while, a person wants to only disclose the pseudonym.  Fears of FOIA may prevent Mr. Wayne from disclosing his name in his contract with Gotham PD.  As we have learned, some people stick by pseudonyms.  It doesn’t prevent them from being held to the contract; it just can make it harder to be sure that you are chasing after the correct party.  Some parties are pretty well known.  J.K. Rowling likely doesn’t need Joanne spelled out.  However, having the actual name makes the Shaggy defense much harder.

Therefore, if you are confident that you can identify who each party is and can use it to enforce a contract against that party, then it works.  The easiest way to do so is to identify the party with details.  And, good luck getting “It Wasn’t Me” out of your head.