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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]

Estate Planning

Retirement-income Planning

By Greg Sheehan

Most working Americans have only one source of steady income before they retire: Their jobs. But when you retire, your income will likely come from a number of sources, such as retirement accounts, Social Security benefits, pensions, and part-time work.

When deciding how to manage your various assets to ensure a steady retirement-income stream, there are two main strategies to consider: the total-return approach and the investment pool — or bucket — approach.

The Total-return Approach

With the total-return approach, you invest your assets in a diversified portfolio of investments with varying potential for growth, stability, and liquidity. The percentage you allot to each type of investment depends on your asset allocation plan, time horizon, risk tolerance, need for income, and other goals you may have.

The objective of your investment portfolio generally changes over time, depending on how close you are to retirement.

• Accumulation phase: During this phase, your portfolio’s objective is to increase in value as much as possible, focusing on investments with growth potential.

• Approaching retirement-age phase: As you near retirement, your portfolio becomes more conservative, moving toward more stable and liquid assets in order to help preserve your earnings.

• Retirement phase: Once you retire, the idea is to withdraw from your portfolio at an even rate that allows you to enjoy a sustainable lifestyle.

A widely quoted withdrawal rate for the first year of retirement has usually been 4%. Ideally, that 4% should be equal to the amount left over after you subtract your yearly retirement income (e.g., pensions, Social Security) from your total cost of living, including investment-management fees. Each year, you will most likely increase your withdrawal percentage to keep up with inflation. Keep in mind, however, that the appropriate withdrawal rate for you will depend on your personal situation as well as the current economic environment.

The Bucket Approach

The bucket approach also begins with a diversified portfolio, following the total-return approach throughout most of the accumulation period. Then, as retirement approaches, you divide your assets into several smaller portfolios (or buckets), each with different time horizons, to target specific needs.

There is no ‘right’ number of buckets, but three is fairly common.

• The first bucket would cover the three years leading up to retirement and the two years following retirement, providing income for near-term spending. It would likely include investments that historically have been relatively stable, such as short-term bonds, CDs, money-market funds, and cash.

• The second bucket would be used in years three through nine of retirement. Designed to preserve some capital while generating retirement income, it would include more assets with growth potential, such as certain mutual funds and dividend-paying stocks.

• The third bucket, designated to provide income in year 10 and beyond, would contain investments that have the most potential for growth, such as equities, commodities, real estate, and alternatives. Although the risk profile of this bucket is typically higher than the other two, its longer time horizon can help provide a buffer for short-term volatility.

As you enter the distribution phase, you draw from these buckets sequentially, using a withdrawal rate based on your specific lifestyle goals in a particular year.

The Big Picture

Many people are familiar with the total-return approach, but the bucket approach has been gaining popularity, thanks in large part to its simplicity. It also accounts for different time periods during retirement, potentially allowing you to allocate money more effectively based on your personal situation.

Perhaps the greatest benefit of the bucket approach is that it can help provide a buffer during times of market volatility. If the value of the investments in buckets two and three fluctuates due to market conditions, your immediate cash income is coming from bucket one, which is likely to be less volatile. This may also alleviate the need to sell investments that have lost money in order to generate retirement income.

While the bucket approach has its advantages, some investors feel more comfortable using the total-return approach. The best strategy for your retirement is unique to you and your personal preferences and needs. However you choose to pursue your retirement dreams, it’s important to work with a financial professional who can help you create the most appropriate strategy based on your goals and situation.

Note that diversification does not assure against market loss, and there is no guarantee that a diversified portfolio will outperform a non-diversified portfolio. 

Greg Sheehan is an accredited investment fiduciary and partner at the Wealth Transition Collective, a Northampton-based financial-advisory and planning firm. The firm offer securities and advisory services as a registered representative and investment adviser representative of Commonwealth Financial Network, Member FINRA/SIPC, a registered investment adviser; (413) 584-1805; [email protected]

Estate Planning

Now Is the Time to Plan

By Gina Barry

In recent times, many committed couples are choosing not to get married, especially if they have been previously divorced or widowed.

Gina Barry

By Gina M. Barry, Esq.

Although these couples are not married, many present themselves as a married couple. They live together, while sharing their assets and debts. While this arrangement may allow the happy couple to live in bliss while each partner is alive and well, trouble begins when one of the partners loses their competency or passes away.

Your partner does not have the same legal rights as would your spouse. In fact, their legal rights are usually no more than a stranger would have. Fortunately, with proper planning, an unmarried partner can be provided with some legal rights.

The first potential issue to be addressed is incapacity. If you lose your capacity, your partner will have no power to handle your financial affairs unless you have executed a valid durable power of attorney. This is a document in which you designate someone to make financial decisions for you. At a minimum, naming your partner in this document will allow your partner to pay bills, manage real property and other assets, and deal with government agencies, such as MassHealth.

Similarly, if you lose your capacity, your partner will have no power to make medical decisions for you unless you have executed a valid healthcare proxy, a document in which you designate someone to make healthcare decisions for you in the event that you are incapacitated and unable to make your own healthcare decisions. Language addressing your end-of-life decisions, which is known as a living will, is normally included within the healthcare proxy.

This language usually states that you do not want extraordinary medical procedures used to keep you alive when there is no likelihood that you will recover. Having a living will in place lets loved ones know your wishes and should reduce conflict should such a situation arise.

“Although these couples are not married, many present themselves as a married couple. They live together, while sharing their assets and debts. While this arrangement may allow the happy couple to live in bliss while each partner is alive and well, trouble begins when one of the partners loses their competency or passes away.”

Further, if you have not properly planned your estate and you pass away, you may unintentionally disinherit your partner. Your probate estate consists of any assets held in your name alone at the time of your passing that do not have a designated beneficiary. When you die without a will, the heirs at law of your probate estate are your spouse and your blood relatives. As your partner is neither your spouse nor a blood relative, your partner would not receive any assets from your probate estate if you die without a will.

While your partner may receive assets held jointly with you or the assets on which you have named your partner as beneficiary, your partner will not receive anything from your probate estate unless you have a last will and testament naming your partner as your beneficiary. Another reason to establish a will is so that you may name your partner as the personal representative of your estate, which will give your partner the authority to handle your estate for you.

If you have a taxable estate, which at the present time in Massachusetts means an estate greater than $1 million, you will not be able to take advantage of estate-tax laws that favor married couples. The unlimited marital deduction allows a deceased spouse to leave assets of any amount to the surviving spouse without having to pay any estate tax. Since this deduction may be taken only with respect to assets left to a surviving spouse, it is not available to your estate if you leave assets to a partner.

As such, it may be necessary for you to address your tax issues in other ways, such as by gifting, using the annual gift-tax exclusion of $15,000 per person in 2019, or by establishing an irrevocable trust that owns life insurance meant to replace the wealth that will be lost on estate tax.

Even though you may have committed to your partner, if you have not taken the legal steps necessary to protect your partner’s interests should you lose your capacity or pass away, you have overlooked a very important aspect of your relationship.

Once you have lost your capacity or passed away, it is too late to protect your partner. For the love of your partner, plan now, and ensure their legal rights.

Gina M. Barry is a partner with the law firm Bacon Wilson, P.C.. She is a member of the National Assoc. of Elder Law Attorneys, the Estate Planning Council, and the Western Mass. Elder Care Professionals Assoc. She concentrates her practice in the areas of estate and asset-protection planning, probate administration and litigation, guardianships, conservatorships and residential real estate; (413) 781-0560; [email protected]

Law

Attention to Details Matters

By Timothy Netkovick, Esq.

As attorneys, we often hear comments like these: ‘we don’t need you to draft our handbook, we got one online,’ or ‘we got one from a third party.’

We also hear the same thing about employee trainings: ‘we don’t need an attorney to do our employee trainings; our HR department conducts our trainings,’ or ‘we’re having an outside contractor conduct the trainings.’

I could go on for hours talking about the importance of up-to-date employment trainings and making sure your employment policies are concise, to the point, and tailored to your company. But a recent case from Maine underscores this point better than I could.

By now you may have heard about the so-called ‘Oxford comma case,’ more formally known as O’Connor v. Oakhurst Dairy, which was filed in the U.S. District Court for the District of Maine. In the case, employees of Oakhurst Dairy filed suit against their employer alleging they were due unpaid overtime pay.

Timothy M. Netkovick

Timothy M. Netkovick

Oakhurst Dairy claimed that it did not have to pay overtime wages due to a qualifying exemption in the Maine overtime law. The entire case boiled down to the placement of a comma in the Maine overtime law. If Oakhurst Dairy was correct, it would incur no further expenses other than the time, expense, aggravation, and attorney’s fees incurred in defending the case. If the employees were correct, that meant that Oakhurst Dairy was in violation of the Maine overtime law, and could have had to pay the employees a substantial sum of money.

The case has reportedly settled for $5 million, an extremely hefty sum to pay based upon differing interpretations of the placement of a comma.

While the Oxford comma case dealt with the interpretation of a law, the lesson for employers is simple — attention to detail matters. In this age of cost cutting in HR departments and legal departments (both in-house counsel and the use of outside counsel), providing trainings for employees and having clear, concise employment policies can save your company immeasurably in the long run.

The Oxford comma case shows that even misplaced or missing punctuation could end up costing your company dearly. Trained legal counsel can provide comprehensive training that will help guide your employees, aid in defending your company in the event of litigation, and also review your handbook policies and give quality advice regarding updates that may be needed in the ever-changing world of employment law.

Holding off on trainings and handbook updates may save your company money in the short term; however, doing so invites the risk of unnecessary litigation based upon both naïve employees and outdated policies. Litigation can last for several years and can be a tremendous drain on your company, not only in terms of legal fees, but also in business disruption caused by the need to gather documents and comply with other discovery requests, including employee depositions.

A company’s managers are its first line of defense. Having regular trainings can help your managers identify potential issues and resolve them before the situation gets out of control. Likewise, having an annual review of your employee handbook can help ensure that all of your company’s policies are up to date and in compliance with applicable laws.

As the old saying goes, an ounce of prevention is worth a pound of cure.

Timothy M. Netkovick, an attorney at Royal, P.C., has more than 15 years of litigation experience, and has successfully tried several cases to verdict. In addition to his trial experience, he has specific experience in handling labor and employment matters before a variety of administrative agencies. He also assists employers with unionized workforces during collective bargaining, at arbitrations, and with respect to employee grievances and unfair labor practice charges; (413) 586-2288; [email protected]

Technology

Attack the Problem

By Sean Hogan

Over the course of my time as a business owner, I’ve been asked many times, ‘what keeps you up at night?’

In the early days, I would have said ‘payroll, employees, and sales,’ and maybe not necessarily in that order. Today my answer would be ‘cybersecurity.’

As things have advanced in technology, the web, connectivity, and social media, we have created an easy avenue to our data. Our exposure to hacking is one port away on your firewall, and in some cases, someone may have already breached that firewall.

Security practices in the past do not hold up to complex hacking attacks that are constantly barraging the internet. It used to be adequate to have complex passwords and updated computers with all the patches and security updates. The hackers have concentrated on the lowest-cost and easiest way to infect your computers.

Sean Hogan

Sean Hogan

In most cases, it’s a phishing attack. Phishing attacks are e-mails disguised as a reputable company with a clickable link or some embedded malware. The cyberthieves send out thousands of these attacks and lie in wait until some innocent victim opens the e-mail and clicks on the link or attachment. The malicious robot servers automatically churn out these e-mails, and before they know it, their device and network are infected.

Many of these attacks are designed to install ransomware or access all your critical data. The ransomware will lock down the machine and encrypt your data. They will contact you and request bitcoin to then release your data. Some hackers will pull your data, including contacts and personal information, and post or sell your data to the dark web.

Hacking has evolved greatly within the past few years. In the early days, we would receive a letter from the Nigerian prince, looking to transfer $7 million to you just for good measure. Modern-day hacks and phishing e-mails are very complex; they quite often mimic FedEx, UPS, and customer e-mails so you are more prone to click on the bait.

“As things have advanced in technology, the web, connectivity, and social media we have created an easy avenue to our data. Our exposure to hacking is one port away on your firewall and in some cases, they may have already breached that firewall.”

The most successful program to prevent phishing attacks is training. There are several services that offer security-awareness training (SAT). When you sign up for this type of training, you will be taught what to look for in phishing e-mails and how to respond. The SAT will also include a ‘fake attack’ so you can measure the results at your business and use it as a teaching aid to prevent against future attacks.

Businesses need to embrace a cybersecurity strategy. There are three categories to cybersecurity: Protect, detect, and respond.

Protect

Ask yourself, do you lock your car? Do you lock your front door? Think of your connection (router) as your front door to the web.

Securing this device is the first step in preventing hackers from getting in. Not only should you have the best-in-class router, you also need to maintain the patches and security updates, so the unit does not fall to the constant attacks from the internet.

Beyond the firewall, you need to secure your ethernet switches and your wireless access points. Access points are an easy target for rogue hackers; they often log into a weakly secured access point, and once they have entered, they can navigate your entire network.

Most often, malicious attacks are delivered via e-mail. Logically, it is critical to have very updated anti-spam software, as well as antivirus and malware protection.

It is also critical to have current backups; best practices recommend a full on-site backup with a virtual cloud backup. It is crucial to know that your backups are tested; if you are backing up corrupted data, then your backups are useless.

Detect

Early detection can save lots of time and potential loss of data. Most breaches are not detected for more than 100 days after the breach. Once you detect a breach, you can contain and react to that breach. This begs the obvious question: how can you detect a breach?

There are several ways to go about detecting a breach within your system. First is to engage in a dark-web monitoring service. These services have ‘crawlers’ that are constantly scanning the dark web. They will scan your company and your personal information. When they find your data on the dark web, the service will alert you and let you know what that information is and where it came from, but don’t get your hopes up; you cannot remove your information once it is on the dark web. For instance, LinkedIn was breached more than 10 years ago, and if you had a LinkedIn account in that time frame, your username and password are available on the dark web.

Respond

It’s not a matter of if, but when you are a victim of a cyberattack. Rapid response to a breach or infection is critical, and the faster you respond, the faster it will reduce your exposure. In some cases, you will need a support team to assist in cleansing machines, loading backups, and scanning your network.

The proactive approach is to engage a security operations center. This is a team of security professionals that will monitor your network and device. In the case of an infection or breach, the team will jump into recovery mode and secure your data.

Bottom Line

Above all, it’s important to stress that cybersecurity is more of a culture than a service. Cyberattacks cannot be prevented, but they can be avoided by having the proper procedures and training. Cybersecurity requires awareness and the ability to eliminate your personal and company exposure. All the tools in the world won’t prevent someone from clicking on malware in an e-mail. It is important for a company to have a stable cybersecurity policy and program in place.

Don’t wait until you are hacked to implement a cybersecurity prevention and awareness program.

Sean Hogan is president of Hogan Technology, a full-service managed IT, structured cabling, and cloud-services provider; (413) 779-0079.

Opinion

Opinion

By Tricia Canavan

United Personnel Services is a staffing company specializing in professional, information technology, and manufacturing placement throughout Massachusetts and Connecticut. We experience firsthand the impact of the achievement gap on our young people and their ability to succeed at work and in post-secondary education. We also clearly understand how these educational deficits contribute to the significant skills gap that exists between the jobs available in the Commonwealth and the qualifications of many of our residents.

Many young adults are entering the job market without the knowledge and skills needed to secure living-wage jobs, never mind the high-wage, high-potential jobs that would move them and their families on an upward trajectory. This disconnect impedes our economy, limits opportunities for future economic development, and, most importantly, is a real injustice to our kids here in Massachusetts. In our gateway cities in particular, student achievement and mastery of key skills lag behind those of their peers at a sometimes-staggering rate through elementary and high school.

Consider the fact that 72% of jobs will require a career certificate or college degree by 2020. In Springfield, 23% of our kids don’t graduate from high school in four years. Only 17% of our ninth-graders earn a post-secondary degree or credential within six years of high-school graduation, in part because many graduate unprepared for post-secondary success. For those students who do pursue higher education, a huge number require remedial classwork, wasting valuable time and financial aid on classes that don’t get them closer to a degree.

Massachusetts needs to build upon its long tradition of educational excellence to ensure that all of our kids have the education they need to pursue the good jobs that exist in Western Mass. and throughout the Commonwealth. These are jobs like nurses, advanced manufacturing machine operators, web developers, and physical therapists — all sectors with hiring demands that exceed the supply of candidates — and all jobs that provide wages beyond the region’s median income.

The disconnect between the qualifications of our young adults and the jobs our employers need filled is the reason I co-chair Springfield Business Leaders for Education and serve on the boards of directors of the Springfield Regional Chamber and Associated Industries of Massachusetts. Like so many of my colleagues throughout the state, I am deeply committed to our kids and our Commonwealth and want to be part of the solution to these urgent issues.

We know that the way communities spend state education money has a direct impact on student knowledge acquisition and achievement. It is imperative, then, that any infusion of funding is tied to results — for our kids, their futures, and the economic strength of Massachusetts. We also know that innovative reforms, such as the Springfield Empowerment Zone model that has potential to be expanded statewide, must be accompanied by renewed investment in education.

But we must be cautious as we pursue increased financial resources for our schools. Springfield public schools have received large boosts in funding before, through the introduction of federal grant programs like Race to the Top. But these infusions have not translated to sufficient progress that adequately addresses all that our students need. If we are successful in changing the current funding for our schools without using it as a leverage to do better for our kids, we will have failed.

The cost of the status quo — the achievement gap, the failure to maximize our kids’ promise, the inability of businesses to find the workers they need — is huge. Additional money needs to be used strategically, informed by data and evidence, to accomplish specific goals. We deserve to know what those goals are and whether our schools are meeting them — and, if not, why.

Tricia Canavan is president of United Personnel Services in Springfield. This article first appeared in the blog of Associated Industries of Massachusetts.

Insurance

Culture of Coverage

Gov. Charlie Baker announced that the Massachusetts Health Connector completed Open Enrollment with the highest membership in the 13-year history of the state’s health-insurance exchange, covering more than 282,000 people with health insurance.

“The Health Connector just completed its most successful Open Enrollment since the start of the Affordable Care Act, signing up more than 65,000 new people with health insurance coverage,” Baker said. “Massachusetts leads the way with the best insured rate in the country, with over 97% of our residents covered due in part to the Health Connector’s strong efforts to create a culture of coverage in the Commonwealth.”

Lt. Gov. Karyn Polito added that “the Health Connector plays an important role in ensuring communities across the Commonwealth have access to affordable, high-quality healthcare. Over the last four years, the Connector has worked tirelessly to transform the exchange into a functional and reliable service, as is evident by its current milestone enrollment figures.”

“Massachusetts shines as a model for the rest of the nation when it comes to getting people enrolled in health insurance — and maintaining coverage. That success is built off outreach and education efforts that effectively and efficiently target the state’s underinsured communities and get more people covered. This year, the Connector made inroads in these tough-to-reach uninsured groups.”

The Health Connector held Open Enrollment from Nov. 1 to Jan. 23, twice as long as the federal government’s Nov. 1 to Dec. 15 open period, to ensure Massachusetts residents had as much time as possible to shop for affordable coverage. Throughout Open Enrollment, Massachusetts residents were encouraged to get covered or stay covered, provide security for their health and financial well-being, and comply with the state’s individual mandate. Assistance was available through community-based health navigators around the state.

“Massachusetts shines as a model for the rest of the nation when it comes to getting people enrolled in health insurance — and maintaining coverage,” said Health and Human Services Secretary Marylou Sudders, the Connector board chair. “That success is built off outreach and education efforts that effectively and efficiently target the state’s underinsured communities and get more people covered. This year, the Connector made inroads in these tough-to-reach uninsured groups.”

As of March 1, 282,114 people were enrolled in health insurance, including 209,973 people in ConnectorCare, the state’s innovative affordability program, through which state subsidies are made available on top of federal tax credits, resulting in lower premium costs for members — including $0 premiums for the lowest-income enrollees — while also offering no or low co-pays and no deductibles. Overall, Health Connector membership rose 13%, compared to a 4% enrollment decrease through the federal healthcare.gov platform. In addition, 18,000 individuals receive dental insurance through the Connector.

“With stable operations and a clear message to get covered and stay covered, this was our most successful Open Enrollment to date, with high retention rates and strong new enrollment,” said Louis Gutierrez, executive director of the Massachusetts Health Connector. “We are going to keep working to ensure that everyone in Massachusetts is covered.”

The Health Connector placed extra focus on outreach and public education about affordable coverage options in communities with higher rates of uninsurance and worked to raise public awareness about coverage generally. At the close of Open Enrollment, the Connector had enrolled more than 65,000 people who did not have coverage at the start of Open Enrollment, about 22% more than last year.

Banking and Financial Services

Understanding Section 199A

By Kristina Drzal-Houghton, CPA, MST

Kristina Drzal Houghton

Kristina Drzal Houghton

At the close of every year, most individuals and business owners begin to think about taxes. Currently, many are anxious to find out what their liability will look like considering the law change known as the Tax Cuts and Jobs Act (TCJA).

One major provision is a new tax deduction for passthrough entities (S-corporations, partnerships, and sole proprietorships) under Sec. 199A. The deduction generally provides owners, shareholders, or partners a 20% deduction on their personal tax returns on their qualified business income (QBI). Various limitations apply based on the type of business operated and the amount of income the business has.

While the calculation of the deduction amount is beyond the scope of this discussion, a summary follows of the limitations that apply to specified service trades or businesses (SSTBs) and other benefits which may be available.

The Internal Revenue Code has historically treated professional service businesses more harshly than any other type of business, and this continues with the Sec. 199A deduction. For example, before the TCJA, professional service corporations were taxed at a flat 35% tax rate rather than the graduated tax rates applicable to other C-corporations. Under the new rules, the same corporations will benefit from a flat 21% tax. Pass-through entities did not fare as well; the 20% deduction does not apply to certain enumerated SSTBs if the taxpayer’s taxable income is above certain threshold amounts.

The threshold amounts are $315,000 for taxpayers filing jointly and $157,500 for all other taxpayers, with a deduction-phaseout range, or limitation phase-in range, of $100,000 and $50,000, respectively, above these amounts.

SSTBs are broken into two distinct categories:

1.Trades or businesses performing services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of that trade or business is the reputation or skill of one or more of its employees (specifically excluded are engineering and architecture); or

2. Any trade or business that involves the performance of services that consist of investing and investment management, trading, or dealing in securities, partnership interests, or commodities.

QBI also does not include compensation, even compensation paid to the shareholders of an S-corporation, or any guaranteed payments paid to a partner for services rendered with respect to the trade or business, or any payment to a partner for services rendered with respect to the trade or business. As a result, if your practice is a partnership that pays out all of its income in guaranteed payments, you may want to switch to a model that instead specially allocates that income to the partners, as a special allocation of income is eligible for the 20% deduction, while the guaranteed payments are not.

This could allow individual partners whose income falls below the above thresholds to benefit from the QBI deduction even if the activity is otherwise an SSTB.

What happens if a trade or business has multiple lines of businesses, where one of the lines is an SSTB? The regulations include a de minimis rule for this situation. If a taxpayer has $25 million or less in gross receipts for the tax year from SSTB activities, it will not be considered an SSTB if less than 10% of the receipts are generated by the SSTB activity. If the taxpayer has more than $25 million in gross receipts, it will not be an SSTB if less than 5% of those receipts are generated by the SSTB activity.

The regulations do provide a couple of anti-abuse provisions to prevent taxpayers from incorrectly trying to take advantage of the tax law. The first relates to a common question I am often asked at networking functions where an employee now desires to be treated as an independent contractor to take advantage of this new tax deduction. The regulations provide that former employees are presumed to still be employees even if subsequently treated as an independent contractor. The IRS provides several tests and factors to consider if a worker is an independent contractor or employee which should be considered by an employer before changing a worker’s classification.

The second anti-abuse provision has to do with related party businesses. Here the IRS has stated that, if a business that otherwise wouldn’t be considered an SSTB has 50% or more common ownership with an SSTB (including related parties) and is providing substantially all its property or services to the related SSTB, it will be considered an SSTB. ‘Substantially all’ is defined to be 80% or more of its total property or services to the related SSTB. This is designed to prevent taxpayers from shifting income to non-SSTB businesses by adjusting the purchase price on related party sales to take advantage of the tax break.

There are several other provisions of the TCJA that benefit all businesses regardless of form. These provisions are all effective Jan. 1, 2018 unless otherwise indicated and include:

• The maximum amount allowed to be expensed under Code Section 179 is increased to $1 million, and the phaseout threshold is increased to $2.5 million. These amounts are indexed for inflation after 2018.

• The definition of qualified real property under Code Section 179 is expanded to include certain depreciable personal property used in the lodging industry, as well as certain improvements to nonresidential real property after the date such property was placed in service, such as roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems.

• For property acquired and placed in service after Sept. 27, 2017 and before Jan. 1, 2023, the first-year deduction is increased to 100%.

• After 2022, the deduction percentage phases down by 20% per year until it sunsets after 2026.

• Most states, including Massachusetts, have decided to decouple from the new bonus-depreciation rules.

• No deduction is allowed for entertainment, amusement, or recreation; membership dues for a club organized for business, pleasure, recreation, or other social purposes; or a facility used in connection with any of the above.

• Costs for entertainment expenses such as tickets to sporting events, taking clients to play golf, and similar activities are no longer deductible.

• Meals provided for the convenience of the employer, through an eating facility or other de minimis food and beverage, are no longer 100% deductible, but now fall into the 50% category. They become non-deductible after 2025.

• Qualified transportation fringe benefits provided to employees continue to be excluded from the employees’ income but are no longer deductible by the business.

• Between Jan. 1, 2018 and Dec. 31, 2019, the TCJA allows a credit of 12.5% of the amount of wages paid to qualifying employees during any period during which such employees are out on family and medical leave, provided that the rate of payment is 50% of the wages normally paid to an employee. The credit increases by 0.25% (but not above 25%) for each percentage point by which the wages exceed 50%.

• Wage expense is reduced when the credit is taken as an alternative.

On Jan. 18, the IRS released guidance on many Sec. 199A issues when it issued final regulations. The IRS noted that the final regulations had been modified somewhat from the proposed regulations issued last August as a result of comments it received and testimony at a public hearing it held. The final regulations apply to tax years ending after their publication in the Federal Register; however, taxpayers may rely on the proposed regulations for tax years ending in 2018.

The combination of the proposed regulation and final regulations has altered some of the planning techniques originally thought to increase the tax benefits available to SSTBs under the provisions of Sec. 199A. If your business previously adopted planning techniques before the August and January regulations, you should revisit the projected benefits with your tax adviser.

Kristina Drzal-Houghton, CPA, MST is a partner at Holyoke-based Meyers Brothers Kalicka and director of the firm’s Taxation Division; (413) 535-8510.