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Surveying the Landscape

The National Assoc. of Landscape Professionals (NALP) recently released its annual list of the top 2019 landscape trends.

Drawing upon the expertise of the industry’s 1 million landscape, lawn-care, irrigation, and tree-care professionals, NALP annually predicts trends that will influence the design and maintenance of backyards across America in the year ahead. NALP develops its trends reports based on a survey of its members. It also draws from the expertise of landscape professionals from across the U.S. who are at the forefront of outdoor trends.

“Homeowners yearn for beautiful outdoor spaces without the hassle of upkeep. With the rise of multi-functional landscape design and automated processes, consumers can spend more time enjoying their landscapes than ever before,” said Missy Henriksen, NALP’s vice president of Public Affairs. “This year’s trends reflect current lifestyle preferences as well as innovations happening in the industry that are transforming landscapes across the country.”

NALP listed the following five trends influencing outdoor spaces in 2019.

Two-in-one Landscape Design

Functional elements are becoming a necessity in today’s landscapes. Consumers desire stunning outdoor features that have been cleverly designed to serve a dual tactical purpose. An edible vertical garden on a trellis that acts as a privacy fence, a retaining wall that includes built-in seating for entertaining, and colorful garden beds that divide properties all combine function and style.

Automated Lawn and Landscape Maintenance

The latest technology and equipment allow tasks to be more streamlined and environmentally efficient than ever before. Robotic lawnmowers continue to rise in popularity among both homeowners and landscape professionals. Also, programmable irrigation systems and advanced lighting and electrical systems help outdoor spaces become extensions of today’s smart homes. Homeowners relish knowing these technological advancements give them more time to relax and enjoy their outdoor spaces.

Pergolas

A staple of landscape design for years, pergolas constructed of wood or composite materials are now becoming more sophisticated. They can now come with major upgrades, including roll-down windows, space heaters, lighting, and sound systems. When paired with a luxury kitchen, seating area, or fire feature, pergolas can become the iconic structure for outdoor sanctuaries.

Pretty in Pink

Pops of coral and blush are anticipated to add a more feminine touch to landscapes this year. With ‘living coral’ named Color of the Year by Pantone, a leading provider of color systems and an influencer on interior and exterior design, landscape professionals predict this rich shade of pink could bring fresh blooms of roses, petunias, zinnias, and hibiscus to flower beds. Experts also anticipate light blush tones to become the ‘new neutral’ and another option for hardscapes and stone selections.

Mesmerizing Metals

Whether homeowners want a bold statement or whimsical touch, incorporating metals can bring new dimensions to landscape design. Used for decorative art, water features, or furniture and accessories, creative uses of metals, including steel and iron, can make for lovely accents or entire focal points.

Law

Paid Family and Medical Leave

By John S. Gannon, Esq. and Amelia J. Holstrom, Esq.

John S. Gannon

John S. Gannon

Amelia J. Holstrom, Esq.

Amelia J. Holstrom

Businesses have had almost a year to prepare for the implementation of Paid Family and Medical Leave (PFML) in Massachusetts. Still, many questions remain, and the first critical date — July 1 — is right around the corner.

Here are five things that should be at the top of your to-do list as employers in the Commonwealth prepare for PFML.

Decide How to Handle Tax Contributions

PFML is funded through mandatory payroll contributions that begin on July 1. Currently, the contribution is set at 0.63% of an employee’s eligible wages. Because PFML covers two types of leave — medical leave and family leave — the state Department of Family and Medical Leave (DFML) has attributed a portion of the contribution (82.5%) to medical leave and the remainder (17.5%) to family leave. As if that wasn’t confusing enough, employers are permitted to deduct up to 100% of the family-leave contribution and up to 40% of the medical-leave contribution from an employee’s pay. Employers with 25 or more employees are required to pay the rest.

Although employers can pass on a lot of the contribution to the employee, businesses should consider whether to pay a portion, or even all, of the employee’s portion. When doing so, employers should consider the impact on morale, whether an employee is more or less likely to use the leave if they are paying for it, and whether the employer can afford to do more.

Provide the Required Notices

Employers are required to provide notice to employees about PFML on or before June 30. Two separate notices are required — a workplace poster and a written notice distributed to each employee and, in some cases, independent contractors. The mandatory workplace poster must be posted in English and each language that is the primary language of at least five individuals in your workforce if the DFML has published a translation of the notice in that language. Posters are available on the DFML website.

“It goes without saying that employees will have less incentive to return to work once PFML goes live. This undoubtedly will increase the amount of time employees are out of work.”

The written notice must be distributed to each employee in the primary language of the employee and must provide, among other things, employee and employer contribution amounts and obligations and instructions on how to file a claim for benefits. Employees must be given the opportunity, even if provided electronically, to acknowledge or decline receipt of the notice. The DFML has issued a model notice for employers to use.

Employers must get these notices out by June 30, but also within 30 days of an employee’s hire. Failure to do so subjects an employer to penalties.

Consider Private-plan Options

Employers who provide paid leave plans that are greater than or equal to the benefits required by the PFML law may apply for an exemption from making contributions by applying to the DFML. Employers can apply for an exemption to family-leave or medical-leave contributions, or both. Private-plan approvals are good for one year, and, generally, will be effective the first full quarter after the approval.

However, the DFML has made a one-time exception for the first quarter — July 1 through Sept. 30. Employers have until Sept. 20 to apply for an exemption, and any approval will be retroactive to July 1. Employers should consider whether this is a viable option for them before employees can begin taking leave on January 1, 2021.

There are benefits to doing so, but employers should consider the potential cost. If an employer chooses to self-insure its private plan, it must post a surety bond with a value of $51,000 for medical leave and $19,000 for family leave for every 25 employees. Employers may also have the option to purchase a private insurance plan that meets the requirements of the law through a Massachusetts-licensed insurance company.

Review Current Time-off and Attendance Policies

The principal regulator of frequent leaves of absence is the fact that employees are not getting paid for this time away from work, absent company provided paid time off like sick or vacation time. Once those company-provided benefits are used up, the employee is not getting a paycheck.

Naturally, this gives employees motivation to get back to work and on the payroll. Unfortunately, when Jan. 1, 2021 comes around, businesses will lose this regulator as PFML will be paid time off, up to a cap of $850 per week (and up to a whopping 26 weeks of paid time off per year).

It goes without saying that employees will have less incentive to return to work once PFML goes live. This undoubtedly will increase the amount of time employees are out of work. Therefore, businesses should be reviewing their current time-off and attendance policies to determine whether changes should be made in light of this forthcoming law. Are you providing too much paid time off already? Should you develop stricter requirements surrounding absenteeism and employee call-out procedures?

The time is now for discussing these changes as modifications to leave and attendance policies take time to think through and implement.

Plan for Increased Staffing Challenges

Many businesses and organizations throughout the region are currently dealing with significant staffing difficulties due to historically low unemployment rates. This challenge is only going to increase when the leave protections of PFML kick in on Jan. 1, 2021.

We recommend that employers try to get out in front of this by having meetings and possibly forming committees tasked with planning for expected workforce shortages. Consider increasing per-diem staff as regular staffers are likely to have more time off and call-outs from work. Consult with staffing agencies to explore whether temporary staffing will be an option if (and when) employees take extended PFML. Whatever you do, don’t wait until late next year to address potential staffing problems.

Bottom Line

PFML is certainly going to be a challenge for employers to deal with, particularly smaller employers who are not already familiar with leave laws like the federal Family and Medical Leave Act. Although it may seem as though the sky is falling on employers, with proper and careful planning and guidance from experts, transitioning into the world of PFML should be reasonably manageable.

John S. Gannon and Amelia J. Holstrom are attorneys with Skoler, Abbott & Presser, P.C., one of the largest law firms in New England exclusively representing management in labor and employment law. Gannon specializes in employment litigation and personnel policies and practices, wage-and-hour compliance, and non-compete and trade-secrets litigation. Holstrom devotes much of her practice to defending employers in state and federal courts and before administrative agencies. She also regularly assists her clients with day-to-day employment issues, including disciplinary matters, leave management, compliance, and union-related matters; (413) 737-4753; [email protected]; [email protected]

Law

Navigating Short-term Rentals

By Ryan K. O’Hara, Esq.

Ryan K. O’Hara

Ryan K. O’Hara

Maybe you’ve spent a lazy July week with your family in a cottage overlooking Cape Cod Bay.

Maybe you’re letting Janice from work use Grandma’s cabin in Otis for a long fall weekend – you weren’t going to use it then anyway, and who would say no to an extra $200?

Maybe you’ve temporarily filled your empty nest with an Angolan physicist and a Chilean biologist attending a two-week academic conference put on by the Five Colleges.

Whatever the specifics, without actively realizing it, many Massachusetts residents have been party to a short-term rental (that is, a temporary rental of a living space that isn’t in a hotel, motel, lodging house, or bed and breakfast).

While short-term rentals are nothing new, they have become much more prevalent with the rise of entities like Airbnb. Short-term rentals can be an exciting source of income, and powerful online tools have made participation in the market easier than ever. Together with that increased participation, however, comes increased regulation.

Airbnb, Vrbo, and other companies like them act as third-party platforms where property owners can list premises for rent, and prospective renters can find a place that meets their needs. Both renters and property owners can now enter the market and operate with relative ease and informality. The market has also expanded to include a wide range of rental offerings — not only traditional houses and apartments, but also cottages, cabins, “micro” homes, campers, and even letting out vacant rooms in owner-occupied homes.

“While the notion of creating an online account and letting the rental income flow is very appealing, property owners should be aware that there is much more responsibility involved than a first glance at a website might suggest.”

While the notion of creating an online account and letting the rental income flow is very appealing, property owners should be aware that there is much more responsibility involved than a first glance at a website might suggest. Particularly in areas where the rental property is in close proximity to non-renting neighbors, conflicts and complications can arise.

Neighbors worry about vetting the renters, frequent turnover, and increased noise, traffic, and litter from transient visitors who don’t have the same investment in the neighborhood as those who live there. State and local governments are concerned with the number and density of rentals, the loss of tax revenue through unreported rental income, and the movement of customers away from traditional lodging options like hotels (and the excise-tax revenue that comes with them).

In response to these concerns, in December 2018, Massachusetts enacted “An Act Regulating and Insuring Short-Term Rentals” (Mass. Acts 2018, c. 337). This law defines short-term rentals, establishes and imposes obligations on both owners and renters, and empowers local governments to regulate short-term rentals on a town-by-town basis. The act goes into effect on July 1, making it critical that anyone interested in the short-term rental industry familiarize themselves with this new law.

The first thing to understand is whether your property is covered by the act. The act applies to any property that is not a hotel, motel, lodging house, or bed-and-breakfast establishment, and where at least one room or unit is rented, and all rentals are reserved in advance. The next question is whether a specific rental is in fact a short-term rental. Owners beware: if the space is rented for more than 31 calendar days to a given renter, it is no longer a short-term rental, but a residential tenancy, which carries vastly different obligations and duties.

If your property constitutes a short-term rental within the act’s definitions, you are considered an ‘operator,’ and are obligated to register with the Department of Revenue, file special tax returns showing rental income, and pay a 5% state excise tax on rents received. Cities and towns can also choose to impose an additional excise tax of up to 6% (or 6.5% for Boston properties). For Cape and island towns and cities, an additional 2.75% excise tax may be added.

The act also authorizes cities and towns to pass ordinances or bylaws regulating operators. These regulations may, among other things, limit the existence, location, and/or number of operators and the duration of rentals; require local licensing and registration; require health and safety inspections; or even prohibit future rentals where violations are found. Operators must consult with town authorities before operating any short-term rental, to ensure compliance with local regulations.

Per the act, operators must maintain liability insurance of $1 million or greater to cover bodily injury and property damage relative to each short-term rental, unless the rental is offered through a platform such as Airbnb or Vrbo that has equal or greater coverage. Operators must also notify their own property insurer that they will be operating a short-term rental at their premises.

Finally, the act makes clear that Massachusetts’ anti-discrimination statute applies to short-term rental operators. Any unlawful discrimination could expose operators to significant liability. For this reason, it may be advisable for operators to obtain training and legal advice on housing and rental discrimination.

Operating a short-term rental business can be a profitable endeavor that carries less expense and exposure than operating traditional, long-term residential rentals. However, it is vital that any operator understand and abide by the laws and regulations that govern this growing industry. Those who arm themselves with knowledge — whether by reviewing the law on their own or consulting legal counsel familiar with the industry — give themselves a fantastic chance at profitability and success with minimal complications.

Ryan K. O’Hara is an associate with Bacon Wilson, P.C. and a member of the firm’s litigation team. His legal practice is focused on contract and business matters, landlord-tenant issues, land-use and real-estate litigation, and accidents and injuries; (413) 781-0560; [email protected]

Women in Businesss

Exchange of Ideas

President Carol Leary (right) and other Bay Path leaders

President Carol Leary (right) and other Bay Path leaders with the group of visitors from Jissen Women’s University in Tokyo.

Bay Path University has a long history of forging paths for women to work together, and this year that involved helping students cross oceans and continents to learn from one another.

Six students from Jissen Women’s University in Tokyo, Japan recently ventured to Bay Path to partake in a week of learning, adventure, and cultural interchange as a part of a new hybrid exchange program between the two universities. Bay Path was selected as one of only two U.S. institutions to take part as part of the TEamUP project pairing U.S. and Japanese institutions together to develop a dual hybrid exchange program and Collaborative Online International Learning (COIL) course.

During their weeklong stay, students from Jissen were able to visit the Bay Path campus, where they met with students, took in a student theater production, and had tea with Bay Path President Carol Leary. They also visited New York City, Boston, Northampton, the Springfield Museums, LEGO, and Yankee Candle, and ended their trip at the Bay Path Women’s Leadership Conference and a farewell dinner at Red Rose Pizzeria. Next month, students from the American Women’s College (TAWC) at Bay Path will visit Japan.

The program, made possible by support from the Japan-U.S. Friendship Commission, goes beyond international travel and includes student collaboration in an online course that the Japanese and American students will take together, with curriculum to be jointly developed by the partners. This aspect of the program gives these students, in particular the adult non-traditional students of TAWC who may have work commitments or children at home, a chance to experience another culture firsthand.

“This innovative model for international exchange will offer women, who might not otherwise have the opportunity, the ability to participate in a culturally rich and diverse learning experience,” said Veatrice Carabine, deputy chief for Partnership Development at the American Women’s College. “We are grateful for the generous support of the Japan-U.S. Friendship Commission in supporting this exciting opportunity for our students.”

Advancing the Mission

Advancing the higher education of women and preparing them for leadership roles in their professions and communities is central to the respective missions of TAWC and Jissen Women’s University, and the education this collaboration hopes to provide will extend far beyond their trips. Students will examine values related to women’s moral and ethical leadership in Japan and the U.S., including issues of social justice, diversity, and service to others. Through an experiential learning lab, students will assess leadership styles in these cultural contexts and think critically and creatively about the necessity of vision, trust, and cultural awareness to gain strategic competitive advantages for action in a global world.

“Students will have impactful opportunities to share and exchange global perspectives, compare and contrast women’s roles and leadership, and use technology tools to complete projects across time and space — not to mention develop relationships with Japanese friends.”

“I’m thrilled to partner with the Japan-U.S. Friendship Commission and Jissen Women’s University to share collaborative, cross-cultural learning experiences to students at the American Women’s College, both through the course content and learning activities, as well as through the travel and hosting opportunities,” said Maura Devlin, deputy chief learning officer at the American Women’s College. “Students will have impactful opportunities to share and exchange global perspectives, compare and contrast women’s roles and leadership, and use technology tools to complete projects across time and space — not to mention develop relationships with Japanese friends.”

In a time of increasing globalization, bringing together women of different ages, backgrounds, and nationalities to learn from one other and equipping them with a greater sense of confidence, leadership, cultural awareness, and connectedness to a global world can be a powerful strategy for empowering women to address the world’s most challenging issues, and that has always been at the heart of Bay Path’s mission, she added. For the students involved, this experience will broaden their understanding of how women’s leadership can be applied to influence organizational change in differing global contexts, as students’ own leadership skills, cultural awareness, and confidence in engaging with others globally are developed.

This article first appeared on the Bay Path University blog; www.baypath.edu/news/bay-path-university-blogs

Accounting and Tax Planning

Looking Back — and Ahead

April 15 has come and gone, and many people are not looking back on the recent tax season with fond memories. Indeed, for many there were surprises and refunds lower than expected. One of the keys to not being surprised or disappointed is planning, as in year-round planning.

By Danielle Fitzpatrick, CPA

Many taxpayers think about taxes only once a year, and that one time is when they are filing their income-tax return. However, taxpayers should be thinking about their taxes year-round.

Many people do not consider how a change in their life may affect their taxes until they see the outcome the following year. Surprises may be avoided if they were to seek the advice of their tax professional ahead of time.

Seeking the advice of a tax professional throughout the year is very important. Certified public accountants (CPAs) who specialize in tax are not just tax preparers. CPAs can be trusted advisors who can help meet your personal wealth-creation, business-management, and financial goals.

Danielle Fitzpatrick

Danielle Fitzpatrick

The 2018 tax-filing season brought some of the biggest tax-law changes that we’ve seen in more than 30 years, and left many taxpayers surprised with their tax outcome. Perhaps you were pleasantly surprised by the additional money you received because you have children, or maybe you were one of the many who were shocked because of the reduced refunds or liability that you owed for the very first time.

If you were unhappy with the results of your 2018 tax return, you now have an opportunity to plan for the future. Review your 2018 income-tax return and determine if changes need to be made. Did you owe money for the first time because your withholdings decreased too much, or because you are now taking the standard deduction due to the loss of several itemized deductions?

Consider this — if your income and deductions were to remain relatively the same in 2019 as they were in 2018, would you be happy with your results, or do you wish they were different?

“If you were unhappy with the results of your 2018 tax return, you now have an opportunity to plan for the future.”

After you have looked at your 2018 income-tax return, you should then consider what changes may need to occur in 2019. Your tax accountant can help you determine how an expected change can impact your tax liability and try to ensure that you are safe-harbored from potential underpayment penalties.

Individuals may be subject to underpayment penalties on both their federal and state returns if they do not meet specific payment requirements each year through withholdings and/or estimated tax payments. Your accountant can also help you determine if a change in withholdings at work or through your retirement is necessary, or whether there is a need to adjust or make estimated tax payments.

These changes can help you avoid, or reduce, any potential underpayment penalties.

There are so many changes in a person’s life that could impact their tax return. Some changes include, but are not limited to, getting married or divorced, having a baby, sending a child to college, retiring, or starting a new job.

Maybe you have decided to start your own business and now are responsible for self-employment tax. Or maybe you have decided that you need to sell that rental property or second home you have had for many years. Perhaps you are a beneficiary of an estate for a loved one who passed away or have decided to sell stock through your investments. These are all examples of changes that could significantly impact your taxes.

Businesses also experience changes that could have an impact on their business returns. These changes include, but are not limited to, purchasing or selling a business, investing in a new vehicle or piece of equipment, or maybe the company has grown and you want to start providing benefits to your employees.

All the above examples could have a major impact on your individual or business income-tax returns, and that impact could be reduced if you were to reach out to a tax professional for advice before the next tax season. Besides the changes briefly mentioned above, here are two lists of questions (personal and business) that may be helpful in your next discussion with your tax professional.

First, some questions to ask your accountant in relation to your personal taxes:

• How much should I be contributing to my retirement, and which type of retirement best suits my needs?

• Am I adequately saving for my children’s education, and should I consider an education savings plan?

• Do I have adequate health, disability, and life insurance?

• When should I start taking Social Security benefits?

• When do I sign up for Medicare?

• Have I properly planned for Medicaid?

• Do I need a will, or when should my existing will be updated?

• Should I consider a living trust?

• Are my bank accounts, retirement accounts, and investment accounts set up appropriately so they avoid probate if I pass away?

• Are my withholdings and/or estimated tax payments adequate?

• When should I sell my rental property, and how much should I expect to pay in taxes?

• Can I still claim my child as a dependent even though they are no longer a full-time student?

• I’m inheriting money from a loved one who passed away; will this affect my taxes?

• I’m thinking about starting my own business; how will this impact my taxes going forward?

• My financial advisor told me I would have significant capital gains; how will this affect my tax liability?

Here are some questions to ask your accountant in relation to your business:

• What business structure is most appropriate for my circumstances?

• How do I know if my business is generating a profit?

• Am I pricing my products and services properly?

• How would my business function if my bookkeeper left tomorrow?

• What controls should I have in place to prevent employees from misusing company funds?

• Should I upgrade my accounting software?

• Do I need compiled, reviewed, or audited financial statements?

• Are my withholdings and/or estimated tax payments adequate?

• Can I claim a deduction for an office in my home?

• Should I buy a new truck or equipment before year-end?

• Should I buy or lease a vehicle?

• Should I implement a retirement plan before year-end?

• What is the overall value of my business?

• What should my exit strategy be?

• What are the tax consequences of selling my business?

Whether you are experiencing a major change in your life or want to plan for your future, do not forget to reach out to your tax professional to determine how it may affect your income taxes. u

Danielle Fitzpatrick, CPA, is a tax manager at Melanson Heath. She is part of the Commercial Services Department and is based out of the Greenfield office. Her areas of expertise include individual income taxes and planning, as well as nonprofit taxes. She also works with many businesses, helping with corporate and partnership taxes and planning

Accounting and Tax Planning

A Proactive Step That Adds Up

By Joe Lemay, CPA

I’m sure you’ve heard by now, but there were quite a few changes to the tax law in 2018. When the Tax Cuts and Jobs Act (TCJA) was signed into law into December 2017, it took an axe to many itemized deductions on your personal return.

Of these, the deduction for unreimbursed employee business expenses, such as business travel or car expenses, tolls, and parking, is one of significant note. However, despite the lost deduction, there may be an alternative solution that can be a win-win for employers and employees.

Prior to the TCJA, unreimbursed employee business expenses were deductible as a ‘miscellaneous’ deduction on an individual’s return. All miscellaneous deductions were deductible in excess of 2% of adjusted gross income (AGI).

For example, if your AGI was $100,000 in 2017, you could claim only a deduction for the amount of your total miscellaneous expenses that exceeded $2,000. If you had a total of $3,200 of unreimbursed employee expenses, you would have been able to deduct $1,200 on your personal return in 2017. Now fast-forward to 2018, and the $3,200 of unreimbursed employee expenses are not deductible at all on the individual return.

The Solution

You may be thinking the changes noted above sound unfair. However, a company can establish an ‘accountable plan,’ which may serve to remedy this change. An accountable plan is a reimbursement or other expense-allowance arrangement between an employer and employee, which reimburses employees for business expenses that are not recorded as income to the employee and are generally deductible by the employer as business expenses.

If the accountable plan is followed properly, the company reimburses an employee for substantiated business expenses, and then, in turn, the company deducts those business expenses on its income-tax return. The reimbursements are excluded from the employee’s gross income, not reported as wages or other compensation on the employee’s W-2, and are also exempt from federal income-tax withholding and employment taxes.

The company can negotiate with the employee to reduce the employee’s wages in exchange for the reimbursement, thereby saving the company payroll taxes, which includes Social Security tax of 6.2% on gross wages, capped at $132,900 (for 2018) and Medicare tax of 1.45%. By executing this transaction appropriately, the employee receives full reimbursement for business expenses, while seeing no change in their overall income, and the company benefits by saving on payroll taxes.

For example, Johnson Inc. has a sales team, which includes its ace salesman, Dave. During 2017, Dave earned $105,000 in base compensation and had $7,000 of unreimbursed business expenses. Assuming Dave’s base compensation of $105,000 is also his adjusted gross income, Dave would have been able to deduct $4,900 of his unreimbursed business expenses on his personal tax return in 2017. The remaining $2,100 of unreimbursed business expenses is a lost deduction.

Now let’s assume Johnson Inc. establishes and properly follows an accountable plan in 2018. During 2018, Dave earns the same $105,000 reduced by the elective expense allowance of $7,000 to a new taxable base of $98,000. Under the accountable plan, Dave is reimbursed in full for his business expenses; therefore, his net income, subsequent to reimbursements, remains the same as 2017 at $98,000. However, in this scenario, the company saves Social Security and Medicare tax in the amount of $535 (7.65% combined tax rate multiplied by $7,000 of reduced wages). While this savings may not seem like a lot, imagine a sales team of 25 employees; that is a potential savings of $13,375. Think about what you could do with that savings as a business owner.

How to Establish an Accountable Plan

The following criteria must be met for the plan to be accountable:

The accountable plan must prove the business connection for the reimbursements and/or allowances. The typical allowable deductions are travel, supplies, local transportation, meals incurred while away on business, and lodging.

The accountable plan must also have adequate support and records (such as itemized receipts) that substantiate the expense’s amount and purpose. The substantiation should be examined and approved by a manager or supervisor. The plan also requires the employee to return any advances back to the company which are not business expenses. Excess advances must be returned to the company within a reasonable period after the expense is paid or incurred. If excess advances to employees are pocketed by the employee, the excess advances are subject to federal income-tax withholdings and employment taxes.

The business-connection requirement is satisfied if a plan only reimburses employees when a deductible business expense has been incurred in connection with performing services for the company and the reimbursement is not in lieu of wages that the employees would otherwise receive. The company cannot simply shift taxable wages to the employee to non-taxable reimbursements without adequately proving the business connection.

There is no specific IRS form used to adopt an accountable plan, nor does the tax law require an accountable plan to be in writing; however, it would behoove employers to write down a formal plan.

Costs and Benefits of an Accountable Plan

The benefits produced from an effective accountable plan are clear. The employee is reimbursed in full for business expenses, and the company can save on payroll taxes, a win all around for everyone. However, the costs of implementing an accountable plan must also be factored in.

The company must have an organized process for tracking employee reimbursements, maintaining appropriate support that substantiates the business connection of employee reimbursements and is timely with reimbursements and requests for payback from its employees.

Companies with highly functioning accounting and/or human-resource departments will not have an issue with meeting these tasks; however, companies with low-functioning accounting and human-resource departments could struggle with appropriately maintaining an accountable plan.

Conclusion

Utilizing an accountable plan is an overall win for employers and employees. But consistency must be maintained throughout the year in order to yield the benefits.

Joe Lemay, CPA is a senior associate with the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3520; [email protected]

Accounting and Tax Planning

When Experts Become Victims

By Julie Quink

Julie Quink

Julie Quink

As professionals who counsel clients on best practices relative to fraud prevention and detection techniques, we unfortunately are not immune to fraud attempts as well.

The schemes that individuals and companies have fallen victim to are many, but here are two schemes we feel are important to mention for which we have recent personal experience.

The Fake Check Scheme

In a fake check scheme, the fraudster can obtain a check for the company and replicate the check using software that can be acquired easily on the Internet. The replicated check may look like an authentic company check written to a legitimate vendor.

By creating a replica of a legitimate company check, the fraudster now can generate a check payable to themselves or another entity for any amount. The check is entered into the banking system, deposited or cashed like a normal, routine check. If the check is negotiated at an out- of-state bank, it can take longer to move through the clearing process, and the fraudster can get the funds before the company or bank, which the company uses, is notified.

In this scheme, the original, authentic check is kept intact, and a fake replacement is generated using the information from the original check with slight modifications.

The Forged Payee Scheme

The forged payee scheme is a scheme whereby a fraudster intercepts a company check paid to a vendor for a legitimate invoice and washes the check to remove the original payee, amount, and sometimes date. The washing is done through a chemical process that removes the unwanted information so that the check becomes ‘blank’ again and can be modified with the information that the fraudster includes.

“It is always best practice to keep blank checks secured and accessible to only those who need access, thereby limiting the opportunity to generate fake checks.”

The original, authorized check signer’s signature is still on the check, so on its face, the check appears authentic to the bank clearing the check, and the fraudster can negotiate the check through deposit or check cashing. On its face, most times the check does not look to be altered or modified, so visually it is difficult to determine that the check is not a valid, authentic check.

Effects of Fraudulent Checks

In addition to the possible loss of company funds to the fraud, a level of business interruption can occur as a result of these schemes. The fraudster now knows the company’s routing information, bank account, name, and other critical information on the check and can continue to attempt to perpetuate the fraud. It is best practice to change the bank account to assist in preventing the fraud from continuing to occur.

Changing a bank account may not seem a significant interruption, perhaps, but if you consider all the transactions that occur within that account, it can be significant. Many companies use outside payroll firms that automatically withdraw funds from their account. Clients or customers may pay their bills automatically through ACH transactions. Vendors may also be paid electronically through the bank account.

The changing of the bank account requires consideration of all the transactions and activities that occur within that account and making the appropriate notifications to those parties to ensure the correct bank account information is provided to ensure continued operations.

Detection and Prevention Techniques

It is always best practice to blank checks secured and accessible only to those who need access, thereby limiting the opportunity to generate fake checks. Internal controls over the check-processing and mailing functions within a company are preventive measures to assist in minimizing the risk of forged payees.

These techniques can include a segregation of duties in the check-disbursement process to allow for appropriate oversight and control over the process.

Keep in mind that potential fraudsters can exist within a company as employees. They can also be external to the company. Consider that it is difficult at best to contemplate when a check, which has been mailed to a legitimate vendor for a legitimate expense, will be intercepted from the time it is mailed to the time it reaches a fraudster and is then replicated. The fraudster could be employed by the vendor that is receiving the company check.

In the age of electronic banking and ease of access to information, it is critical that bank-account activity be reconciled on a recurring, consistent basis to identify any unusual items. In addition, the reconciliation will identify older checks that have not yet cleared through the account but normally would clear in a timely fashion.

Through routine and timely reconciliation of bank accounts, items such as unusual, unauthorized checks can be easily identified and quickly investigated.

Many banks offer a service, which is most commonly referred to as ‘positive pay.’ This service requires the company to send over a check-disbursement list to the bank indicating all checks written. The bank will use the list to determine which checks will clear the company bank accounts. It is a higher-level control that can assist in preventing unauthorized checks.

Bottom Line

A heightened sense of awareness and evaluation of internal controls in place, including reconciliations, in addition to feeling comfortable with your banking partners and their controls, is critical to ensuring that your accounts are protected.

Julie Quink, CPA is managing principal of the West Springfield-based accounting firm Burkhart Pizzanelli; (413) 734-9040.

Employment

Understanding PFML

John Gannon says there are always hot topics within the broad realm of employment law. And sometimes — actually quite often these days — there are what he called “sizzling hot” topics.

The state’s Paid Family and Medical Leave (PFML) law certainly falls in that latter category. Provisions of the bill, specifically the contributions to be paid by employers, go into effect on July 1. The actual law itself doesn’t take effect until Jan. 1, 2021, but the time between now and then will go by quickly, said Gannon, an employment-law specialist with Springfield-based Skoler, Abbott & Presser, adding that employers should do whatever they can to be ready. And there are things they can do, which we’ll get to in a minute.

First, the law itself. Gannon used the single word ‘scary’ to describe it, and he was referring to the reaction of employers large and small who simply don’t know how this piece of legislation, which makes the acronym PFML a new and important part of the business lexicon, will affect their business but have a good right to be scared because of how generous it is.

“This is a payroll tax at its core. So I think employers are going to have questions about how and whether they’re going to be billed, what their tax contributions are going to be, and other concerns.”

Gannon is expecting the Paid Family and Medical Leave Law to be among the main focal points of conversation at the firm’s annual Labor and Employment Law Conference, set for May 21 at the Sheraton Springfield. The conference is staged each year to help local businesses stay abreast of laws and regulations relating to labor issues, said Gannon, and this year there will certainly be a number of issues to discuss. Indeed, breakout sessions are slated on a host of topics, including PFML; wage-and-hour mistakes; harassment, discrimination, and why employers get sued; a labor and employment-law update, how to handle requests for reasonable accommodations (there will be a panel discussion on that topic); and how to conduct an internal investigation.

But Gannon told BusinessWest that paid family and medical leave will likely be the focus of much of the discussion and many of the questions, primarily because the law represents a significant change in the landscape, and business owners and human resources personnel have questions about what’s coming at them.

The first of these questions concerns the contributions to start July 1.

“This is a payroll tax at its core,” he explained. “So I think employers are going to have questions about how and whether they’re going to be billed, what their tax contributions are going to be, and other concerns.”

A 30-page set of draft regulations was recently released by the Executive Office of Labor and Workforce Development’s Department of Family and Medical Leave, and that same office has issued a toolkit for employers with information on everything from remitting and paying contributions to notifying their workforce to applying for exemptions.

There’s quite a bit to keep track of, said Gannon, adding that, under the new law, Massachusetts employees will be eligible to take up to 12 weeks of paid family leave (up to 26 weeks in certain circumstances) and up to 20 weeks of paid medical leave. In most cases, leave may be taken intermittently or on a reduced-schedule basis.

Family leave can be taken to bond with a new child, for qualifying exigency related to a family member on (or called to) active duty or to care for a family member who is in the service, or to care for a family member with a “serious health condition.” Medical leave can be taken for the employee’s own “serious health condition.”

 

John S. Gannon

John S. Gannon

“Someone has a medical impairment, and they need a new chair, or someone needs to change their schedule — they can’t work mornings anymore — or whatever the change in job structure they’re requesting … these matters can get complicated. How do companies handle these requests? Do they have to grant them? How do they work with employees? These are all questions this panel will address.”

In most cases, the annual cap for family leave is 12 weeks, 20 weeks for medical leave, and 26 weeks total cap for both, if needed.

The employee must give at least 30 days notice of the need for leave or as much notice as practicable. The weekly benefit amount maximum is $850 to start; in future years, it will be capped at 64% of state average weekly wage. The weekly benefits will be funded by contributions from payroll deductions into a state trust fund. The initial rate will be 0.063% of the employee’s wages. Employers may require employees to contribute up to 40% toward medical leave and up to 100% for family leave. Employers with fewer than 25 employees are exempt from paying the employer share of the contributions.

Employers must continue employee health-insurance benefits and premium contributions during any period of family or medical leave, said Gannon, and they must restore employees who return from leave to their previous, or an equivalent, position, with the same status, pay, benefits, and seniority, barring intervening layoffs or changed operating conditions.

There are many other conditions and bits of fine print, he told BusinessWest, adding that, while Jan. 1, 2021 is a long seven business quarters away, business owners and managers can and should start to prepare themselves for that day.

They can start by asking questions and getting answers, he said, adding that small businesses with fewer than 50 employees have not had to deal with federal family medical leave regulations and thus are treading into uncharted waters.

“They’re going to have to start thinking about how they’re going to manage this from a staffing perspective,” he said, adding that he is expecting a number of queries along these lines at the May 21 conference and the months to follow.

“Employers have to start thinking about this and getting ready for this now because of how generous the leave portion of this is,” he explained. “This is going to be a real challenge for employers.”

But overall, it’s just one of many challenges facing employers in the wake of the #metoo movement and other forces within employment law, all of which can have a significant impact on a business and its relative health and well-being.

Handling requests for reasonable accommodations is another area of concern, he noted, and that’s why the conference will feature a panel of experts addressing what has become a somewhat tricky subject for many business owners and managers.

“Someone has a medical impairment, and they need a new chair, or someone needs to change their schedule — they can’t work mornings anymore — or whatever the change in job structure they’re requesting … these matters can get complicated,” he explained. “How do companies handle these requests? Do they have to grant them? How do they work with employees? These are all questions this panel will address.”

For more information on the conference, visit skoler-abbott.com/training-programs.

— George O’Brien

Estate Planning

Preparing for the Next Stage

By Barbara Trombley, MBA, CPA, CDFA

Life — and business — can shift in unexpected ways, and an ownership transition can sneak up on even someone who expected to be at the reins for a long time. That’s why it’s good to start preparing for that possibility well in advance.

A succession plan is a vital part of a small business.

Most small businesses were built from the ground up, with a dedicated founder and owner, and it may be very hard for the owner to consider a succession plan. But retirement — or worse, sudden illness or death — can creep up on an owner and create havoc. Without a solid plan, a family may suddenly lose their income or the inheritance that was counted on, or the business may cease to exist.

“Many succession plans are not carefully planned out or are devised as a result of health event. A good succession plan is made when the owner can think rationally and formally devise a sort of buy-sell agreement.”

My personal experience with a succession plan is based on our financial- planning business. My father-in-law did what quite a few financial planners do. He brought my husband (his son) and myself into his business a few years before he retired. My mother-in-law had a bad health scare, and he could see that his years in the business were numbered.

In our case, my husband and I were good candidates to take over the family financial-planning business. We were both graduates of Duke University; I was a CPA, and my husband had recently retired from a first career in major-league baseball. We had the backgrounds and were ready to assume the responsibility of maintaining and growing the business that he started.

The transition wasn’t easy; my father-in-law’s mind knew that it was the best course of actions for his clients, but his heart wasn’t ready to leave. In hindsight, it was a great decision, because his health deteriorated quickly after we took over, and he passed away three years ago.

Many succession plans are not carefully planned out or are devised as a result of a health event. A good succession plan is made when the owner can think rationally and formally devise a sort of buy-sell agreement.

The buy-sell agreement is a legally binding contract that says what will happen if the owner passes away, falls ill, or wants to retire. It will formalize information like the company sales price, the value of each share in the business, and how the sale of the company could be funded.

 

Barbara Trombley

Barbara Trombley

“Many buy-sell agreements are funded with life insurance; the company or the individual co-owners buy policies on the other co-owners that allow them to buy shares in the company using the proceeds from the insurance after the owner or shareholder’s death.”

 

Perhaps the simplest example of a buy-sell agreement is if there is more than one owner. The agreement will state that the co-owners can purchase each other’s shares in the event the buy-sell agreement is triggered.

Many buy-sell agreements are funded with life insurance; the company or the individual co-owners buy policies on the other co-owners that allow them to buy shares in the company using the proceeds from the insurance after the owner or shareholder’s death. A term policy is often more inexpensive, but a permanent policy may be more suitable for a longer period of time.

What if you are the only owner? What makes a good succession plan?

A good succession plan will consider the human-resources side of the transition as well as the financial aspects. Do you want to keep the business in the family? Are your family members qualified and knowledgeable about your business? Do they desire and have the heart to keep your business going? Will you choose certain family members over others?

Most businesses do better with a single overall successor as opposed to splitting ownership of the business. It may be possible to appoint different heirs to manage separate departments. Many small-business owners assume their children want to take over. We have heard many stories about family in-fighting or entitled heirs assuming roles that they are not prepared for. Many a business has suffered or failed after a leadership change; a good succession plan will look with an objective view at different family relationships.

Another option to a family succession plan would be to have a key employee buy the business.

The buy-sell agreement could be executed over time, giving the other employees and customers time to get used to the idea, or it can be triggered by an event such as an illness or death of the owner. Of course, not many employees have the funds to purchase a company.

One idea would be to provide seller financing. A loan from the owner to the buyer could provide a stream of income to the owner as he enters retirement. Another option would be outside financing. This would be the best course if the owner desires his funds up front.

In our financial-planning business, we are constantly urged to set up a succession plan. This is mainly to ensure that a properly licensed advisor can quickly service our clients in the event of the death or disability of myself and my husband. Our plan is to set up a buy-sell agreement with another financial advisor that would be triggered in an emergency but fully changeable in case one of our qualified children would like to take over the business for a third generation.

Taking the time to consider the human-resource angle as well as the financial angle can ensure an agreement that is beneficial to all parties involved and ensure the business you have built will last for a long time.

Barbara Trombley, MBA, CPA, CDFA is an LPL financial planner with Trombley Associates Investment and Retirement Planning in Wilbraham; securities offered through LPL Financial; member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Trombley Associates and LPL Financial do not provide legal advice or services. Consult your legal advisor regarding your specific situation.

Law

A Sometimes Fine Line

By Marylou Fabbo, Esq.

There’s no doubt the #MeToo movement has brought positive change to the business world by creating a safer environment for women (and men) to come forward with accounts of sexual harassment. But what if the claims aren’t true, either because they don’t rise to the legal definition of harassment or they’re completely fabricated? The damage, to both individual and company reputations, can be significant.

Make no mistake. Subjecting an employee to sexual harassment in the workplace, at a company-sponsored event, or on a business trip is unacceptable and should be punished.

#MeToo has had a strong, positive impact on encouraging victims to come forward with valid claims that had been unreported or overlooked. Everyone who complains of sexual harassment should be heard, but should everyone be believed? Most people — men and women — are not sexual abusers, and yet most individuals would say they have experienced some form of sexual misconduct. Most also would agree that some sexual behavior, such as grabbing a co-worker’s breast, exposing oneself to another employee, or telling an employee that he or she will get a promotion if he or she sleeps with the boss are clear-cut cases of sexual harassment.

Marylou Fabbo, Esq

Still, even if sexual comments or behaviors are inappropriate for the workplace, not everything of a sexual nature rises to the level of illegal sexual harassment under the law. This leaves the door open to unfounded and/or, in some cases, intentionally false claims, which can have a damaging impact on company image and the accused person’s professional and personal life.

Sexual Harassment Defined

Title VII and Massachusetts law prohibit sex discrimination in the workplace, and sexual harassment is a form of sex discrimination. The harasser and the victim of sexual harassment can be the same or opposite gender and have the same or different sexual orientations.

Although this article addresses sexual harassment in the workplace, sexual harassment is also prohibited in places of public accommodation, educational facilities, and housing.

“Even if sexual comments or behaviors are inappropriate for the workplace, not everything of a sexual nature rises to the level of illegal sexual harassment under the law.”

There are two types of sexual harassment: ‘quid pro quo’ harassment and ‘hostile work environment’ harassment. Quid pro quo harassment includes sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature when a term of employment or employment decision depends on whether an employee accepts or rejects those advances.

Many of the accusations asserted against producer Harvey Weinstein fall into the quid pro quo category. Actors have come forward stating that Weinstein promised them career advances in exchange for a positive response to his sexual advances; they also have stated that Weinstein failed to help them out if they chose not to meet his sexual demands. That’s unambiguous quid pro quo harassment.

In Massachusetts, employers are strictly liable for quid pro quo harassment, which means the business is on the hook for damages even if it did not know about the harassment.

The other type of sexual harassment is hostile work environment sexual harassment. Under Massachusetts law, illegal sexual harassment occurs when “requests for sexual favors and other verbal or physical conduct of a sexual nature unreasonably interferes with an individual’s work performance by creating an intimidating, hostile, humiliating, or sexually offensive work environment.”

Complaints about Matt Lauer and Charlie Rose’s actions fall into the sexually hostile work environment category. Lauer is accused of exposing himself to staff, and the accusations against Rose included making lewd phone calls and groping women’s breasts. In both cases, the individuals’ employers have been accused of knowing about the harassment and doing little to stop it.

Subjective and Objectively Offensive

An employee who is offended by sexual behavior may file a claim of harassment with the Mass. Commission Against Discrimination (MCAD), believing that the actions were illegal simply because they were of a sexual nature.

However, to constitute illegal sexual harassment in the workplace, the behavior must be offensive both to the recipient and the general public. Ask yourself this question: if an employee shows co-workers vacation pictures on his phone that include friends in bikinis, is that sexual harassment? What about the long-term manager who refers to women as ‘girls,’ gives hugs occasionally, and makes jokes about the lack of sex in his long-term marriage?

Some may find those comments and actions offensive, and others may not. Is the manager just ‘old school’? If an employee subjectively perceives the behavior as hostile, intimidating, humiliating, or offensive, then the conduct may constitute sexual harassment. But that’s not enough — the question becomes whether a reasonable person in the employee’s position would find the conduct offensive.

“To constitute illegal sexual harassment in the workplace, the behavior must be offensive both to the recipient and the general public.”

Conduct of a sexual nature also must be unwelcome in order to constitute illegal sexual harassment, but it is almost impossible to be absolutely sure whether the conduct is welcome or unwelcome. The fact that an employee appears to be a willing participant in sexual discussions about weekend conquests may suggest that the employee was not opposed to the sexual discussions by the water cooler on Monday mornings. Yet, the employee may have actually been cringing on the inside.

Under the law, even if an employee makes sexual comments or jokes, or engages in sexual conduct, those actions do not automatically mean that all behavior is welcome. A disgruntled employee who appeared to be a willing participant may later claim that behavior that was welcome was in fact unwelcome.

Nimrod Reitman, a former NYU graduate student, accused his school adviser, Avita Ronell, of sexually harassing him over a three-year period. He claimed that she referred to him in e-mails by names such as “my most adored one” and “sweet cuddly baby,” and kissed and touched him repeatedly and required him to lie in her bed, among other things. Ronell did not deny the behavior but denied the harassment and claimed that the behavior had been welcomed.

While that case doesn’t arise in the employment context, it provides an example of one reason employers should implement zero-tolerance policies when it comes to sexual banter in the workplace. What may have been considered welcome sexual commentary or behavior may have actually have been unwelcome and could subject them to a lawsuit.

False Accusations of Sexual Harassment

Why would one make a false accusation of having been sexually harassed at work? It cannot be disputed that some people fabricate claims of sexual harassment in the workplace because alleged victims have admitted to making up allegations against co-workers or management for many different reasons.

In some cases, sexual-harassment claims may be made to ward off terminations because employers are fearful of being accused of illegal retaliation if they take (warranted) disciplinary action after an employee has come forward with a sexual-harassment complaint. Disgruntled employees have been found to have made false accusations against someone they believe is responsible for an adverse personnel action the employee received, such as a demotion or termination from employment.

Employees have admitted that they have intentionally made sexual-harassment complaints against co-workers for vindictive reasons or for attention.

Unfortunately, it is often difficult to determine whether specific allegations are true or false, as there usually are no witnesses or hard evidence. Because of this, businesses may overreact or react harshly without having all of the facts.

Nev Shulman, star of MTV’s Catfish, was accused of sexual assault. He denied the claims, but the show was suspended anyway. Upon a later investigation, the claims were deemed not credible, and the show was reinstated. A Sacred Heart University student falsely reported having been raped by two school football players and has since faced criminal charges. The leader of the New York City Ballet was accused of sexual harassment and retired. He was later cleared of any wrongdoing.

Collateral damage follows baseless accusations of sexual harassment. Valid harassment claims are devalued and may be looked upon skeptically. When it becomes known that an accusation was false, it raises the possibility in individual’s minds that the next allegation of a similar nature may also not be credible.

Being falsely accused of sexual harassment is also a downfall to the accused’s career. Prior to having their names cleared, alleged harassers may quit or be required to resign, and they sometimes remain under suspicion even after the complaint is found to have been fabricated. The fact that a sexual harassment lawsuit has been filed against a company may be covered in the media, but when, years later, it is dismissed by the court before it gets to the jury stage because the case is without factual support, that information often is not made available to the public — perhaps forever leaving a bad mark on the employer in the eyes of its customers as well as employees. u

Marylou Fabbo is an attorney with Skoler, Abbott & Presser, P.C., one of the largest law firms in New England exclusively practicing labor and employment law. She specializes in employment litigation, immigration, wage-and-hour compliance, and leaves of absence. Fabbo devotes much of her practice to defending employers in state and federal courts and administrative agencies. She also regularly assists her clients with day-to-day employment issues, including disciplinary matters, leave management, and compliance; (413) 737-4753; [email protected]