News & Articles

Know Your OSHA Obligations if COVID-19 Strikes Your Business

Posted on Wed, Apr 14, 2021

Not all employers are bound by the recordkeeping and reporting requirements established by the Occupational Safety and Health Administration (OSHA). Generally, an employer must have more than 10 employees to be subject to those legal obligations, unless OSHA specifically instructs you otherwise.

Your company also must be in an industry that's considered hazardous, such as manufacturing, construction, utilities, agriculture and wholesale trades. Examples of non-hazardous industries include retail, financial services, and real estate. OSHA classifies industries using the Census Bureau's North American Industrial Classification codes. If you're uncertain about your status regarding OSHA, contact the agency.

Reporting requirements can vary by each business establishment — defined as "a single location where business is conducted or where services or industrial operations are performed." That means if you have multiple locations with varied functions, it's possible that one location is subject to OSHA recordkeeping (maintaining an OSHA log) and reporting requirements, and another isn't.

OSHA "General Duties Clause"

Beyond administrative requirements, all employers large enough to be subject to regulations specific in the Occupational Safety and Health Act (regardless of industry) are covered by the law's "general duties clause." This clause specifies that employers must give employees a place to work "free from recognized hazards that are causing or likely to cause death or serious physical harm."

Also, 28 states have their own laws and regulations governing occupational health that might be more stringent than OSHA's. Perhaps you operate in one of them.

If you're subject to OSHA's recordkeeping and reporting requirements, how does COVID-19 fit into that picture? According to OSHA, the following conditions must be met before you are required to record an employee COVID-19 case:

  • Most basic: The employee's ailment is, indeed, proven to be COVID-19,

  • The case "involves one or more of the general recording criteria" laid out in OSHA regulations, including, for example, that the condition can't be remedied with basic first aid procedures, and

  • The disease was contracted in conjunction with the employee's work.

Determining What's "Work-Related"

OSHA concedes that "in many instances, it remains difficult to determine whether a COVID-19 illness is work-related, especially when an employee has experienced potential exposure both in and out of the workplace." With that challenge in mind, OSHA has laid out some "enforcement guidance" for its investigators to determine violations applicable to COVID-19 cases.

Here are three highlights included in that guidance:

  1. A discussion of the reasonableness of the employer's investigation into work-relatedness. "Employers, especially small [ones], should not be expected to undertake extensive medical inquiries, given employee privacy concerns."

  2. An examination of the evidence available to the employer. Employers shouldn't be penalized for good-faith determinations when limited evidence was at hand to draw an accurate conclusion about whether a COVID-19 case was work-related.

  3. A look at how available evidence is interpreted.

The OSHA enforcement guidance offers several illustrations of evidence that is likely to lead to a reasonable conclusion that a COVID-19 case was work-related. One example is when several employees who work closely together all come down with COVID-19 and there's no alternative explanation. Another involves the employee whose job duties "include having frequent, close exposure to the general public in a locality with ongoing community transmission."

Recordable vs. Reportable

As with other workplace-related illnesses and injuries, a work-related COVID-19 case may be "recordable" (and thus logged), but not "reportable" — that is, promptly reported to OSHA. To be recordable, an illness or injury must be too serious to be remedied with basic first aid and involves time away from work. COVID-19 cases often fit that description.

To be reportable, the case either involves in-patient hospitalization or, in the ultimate example, death. However, that standard isn't as clear-cut as it might appear with COVID-19. That's because to meet the "reportable" standard, the hospitalization must occur within 24 hours of the incident. In the COVID-19 case, the incident is exposure to the SARS-CoV-2 virus that leads to the disease. It's unlikely that someone who is exposed to the virus one day would be hospitalized within 24 hours.

You'd also need to know that the employee was hospitalized and that the COVID-19 case was work-related. Knowing both promptly may be improbable. However, as soon as you do determine that the case was work-related, you've got 24 hours to report it to OSHA.

When an employee dies of a confirmed COVID-19 case, and the death occurs within 30 days of exposure to the virus, you have an eight-hour window to report it to OSHA from the time you know "both that the employee has died, and that the cause of death was a work-related case of COVID-19," according to a Q&A provided by agency.

A Little Perspective

OSHA's enforcement guidance — and common sense — indicate that proper recording and reporting take a back seat to a basic concern for employee health. "In all events," the guidance states, "it is important as a matter of worker health and safety, as well as public health, for an employer to examine COVID-19 cases among workers and respond appropriately to protect workers, regardless of whether a case is ultimately determined to be work-related."
Read More

Tags: OSHA, Business Owner, COVID-19

The Evolution of the Employee Retention Credit

Posted on Fri, Mar 26, 2021

The pandemic has adversely affected many sectors of the U.S. economy, causing widespread job losses. At the start of the national emergency, Congress created a novel tax break — the Employee Retention Credit (ERC) — to entice employers to retain employees. But three different laws have created and changed the credit, which has led to significant confusion. Here's a summary of how the ERC has evolved over the last year from the CARES Act to the American Rescue Plan Act (ARPA).

New Tax Break under the CARES Act

The CARES Act, which was enacted in March 2020, introduced the ERC for employers that kept workers on their payrolls. It was designed to help curb layoffs during the COVID-19 pandemic.

Under the CARES Act, the tax credit amount equaled 50% of qualified employee wages paid by an eligible employer in an applicable 2020 calendar quarter. It was subject to an overall wage cap of $10,000 per eligible employee per year. Originally, the ERC only covered wages paid between March 13, 2020, and December 31, 2020.

Changes under the CAA

In December 2020, the Consolidated Appropriations Act (CAA) extended and greatly enhanced the ERC. Specifically, the CAA extended the covered wage period to include the first two calendar quarters of 2021, ending on June 30, 2021.

In addition, for the first two quarters of 2021 ending on June 30, the CAA:

  • Increased the overall covered wage ceiling to 70% of qualified wages paid during the applicable quarter (versus 50% under the original CARES Act rules), and

  • Increased the per-employee covered wage ceiling to $10,000 of qualified wages paid during the applicable quarter (versus a $10,000 annual ceiling under the original rules).

Important: For the first two quarters of 2021 ending on June 30, 2021, these changes effectively increase the maximum per-employee credit from $5,000 (50% x $10,000 of qualified wages) to $14,000 (70% x $10,000 of qualified wages x 2 quarters).

For the first two quarters of 2021 ending on June 30, the CAA included a liberalized employer eligibility rule based on a required more-than-20% decline in gross receipts, compared to the corresponding 2019 quarter (versus a required more-than-50% decline under the original CARES Act rules).

For the first two quarters of 2021 ending on June 30, the CAA also stipulated that for employers with 500 or more employees (versus 100 or more under the original rules), the ERC can only be claimed for qualified wages paid to employees who are unable to work due to a suspension of the employer's business or a lack of business. This change will allow more medium-sized employers to claim the credit in 2021.

In a retroactive change, the CAA stipulated that the ERC can be claimed for qualified wages paid with proceeds from Paycheck Protection Program (PPP) loans that aren't forgiven. This retroactive change goes back to the day the CARES Act was signed.  

Another Extension and Expansion under the ARPA

The ARPA was enacted on March 11, 2021. The new law extends 1) the ERC from June 30, 2021, until December 31, 2021, and 2) the rate of the credit at 70% for this time period. Qualified wages are generally limited to $10,000 per employee per calendar quarter in 2021. So, the maximum ERC amount available is generally $7,000 per employee per calendar quarter or $28,000 per employee in 2021.

Employers who got a PPP loan in 2020 can still claim the ERC. But, when calculating the credit, the same wages can't be used both for seeking PPP loan forgiveness or satisfying conditions of other COVID-relief programs, such as the restaurant revitalization grants enacted as part of the ARPA. (See "Important Rules and Restrictions for 2021" below.)

Need Help?

The ERC provides struggling employers with a valuable tax break when they need it most. Contact your EHTC Tax Advisor to help you understand the rules and maximize your credit in 2020 and 2021.

Important Rules and Restrictions for 2021

A qualified employer is eligible for the Employee Retention Credit (ERC) if it experiences a significant decline in gross receipts or a full or partial suspension of business due to a governmental order. For 2021, small employers (with up to 500 full-time employees) can claim the credit without regard to whether the employees for whom the credit is claimed actually perform services. But, except as discussed below, large employers (with more than 500 full-time employees) can only claim the credit with respect to employees that don't perform services. 

An eligible employer can claim the refundable ERC against "applicable employment taxes" equal to 70% of the qualified wages it pays to employees in the third and fourth quarters of 2021.

Under the American Rescue Plan Act (ARPA), beginning in the third quarter of 2021, the following modifications will apply to the ERC:

  • Applicable employment taxes are the employer's share of Medicare (equal to 1.45% of the wages) and the amount of the tax under the Railroad Retirement Tax Act payroll tax that's attributable to the employer's Medicare tax rate. For the first and second quarters of 2021, "applicable employment taxes" are defined as the employer's share of Social Security tax (equal to 6.2% of the wages) and the amount of the tax under the Railroad Retirement Tax Act payroll tax that was attributable to the employer's Social Security tax rate.

  • So-called "recovery startup businesses" are qualified employers. A recovery startup business is generally a business that began operating after February 15, 2020, and meets certain gross receipts requirements. A recovery startup business will be eligible for an increased maximum credit of $50,000 per quarter, even if the business hasn't experienced a significant decline in gross receipts or been subject to a full or partial suspension under a government order.

  • A "severely financially distressed" employer who has suffered a decline in quarterly gross receipts of 90% or more compared to the same calendar quarter in 2019 will be able to treat all wages (up to the $10,000 limitation) paid during those quarters as qualified wages. This rule will allow a large employer (with over 500 employees) under severe financial distress to treat those wages as qualified wages regardless of whether its employees actually provide services.

  • The statute of limitations for assessments relating to the ERC won't expire until five years after the date that the original return claiming the credit is filed or treated as filed.

Contact your EHTC Tax Advisor for more information.

 

About EHTC

EHTC is a dedicated, full-service CPA firm in West Michigan that focuses on helping clients to achieve their full potential through comprehensive accounting, finance and tax services. We are a local firm with large firm resources, using a team approach to proactive client service that helps our clients gain a competitive advantage through our ability to develop strategies and present realistic solutions that build value.

Read More

Tags: Employers, Business Owner, cares act, ERC

Who Will Run Your Business After You?

Posted on Mon, Jul 13, 2020

If you're a business owner, do you have a plan in place that names who'll follow you as head of your company? You may feel you're too busy running the business today to waste time on long-term plans that seem so distant. But there may be more reasons than you think to make decisions, some of which will benefit you today. A well-thought-out plan will:

  • Allow you to shape the fate of your business,

  • Preserve the value of your business during a transition,

  • Reduce income and estate taxes, and

  • Minimize the risk of intrafamily discord, when children play a role in your business.

Whatever you decide to include in your business succession plan doesn't need to be cast in stone. But just like a last will and testament, while you can, you need to make your future wishes known, and still allow for changes during your lifetime. Depending on the particulars, you can modify your plan as circumstances change. The trick is to be careful not to make promises you might not be able to keep.

Also similar to creating a will, you don't have to reveal the full contents of your business plan to all impacted parties immediately, though some plans should be made apparent early on. That's especially true if you decide you'd like to pass your business to heirs and need to start preparing them for that contingency.

Are you wondering about the value of your business and how much it is worth? EHTC is here to help with our Transaction Advisory Services team. Email Erik Olson at eriko@ehtc.com or call the EHTC office at (616) 575-3482 for any business valuation needs, especially in West Michigan.

Define Your Bottom Line

Perhaps the most fundamental question that a succession plan needs to address is: how much value will you need to take out of the company to meet your retirement and estate planning needs? The answer will influence whether you'll need to sell the company or transition some or all of the ownership to your heirs, assuming you have heirs willing and able to do so. If transitioning ownership is the plan, you can employ technical experts to use tax-efficient strategies, such as gifting, to achieve that goal.  

If you lack suitable heirs, an alternative to selling the company to an outside buyer is trying to facilitate the purchase of the business by your key employees. That can't be accomplished overnight and typically involves "nonqualified" (limited tax breaks) executive compensation plans, loans and possibly a "key man" life insurance policy.

Suppose you aren't trying to pass the business on to your heirs and you want to pursue employee ownership of your company. A leveraged employee stock option plan (ESOP) could be a viable succession planning/ownership transition mechanism.

The ESOP trust borrows funds to purchase company stock from the business owner. Then units of stock are periodically awarded to eligible employees and, over time, vested. When those employees retire, their shares are repurchased by the ESOP, allowing those employees to benefit from any increase in the company's value. Meanwhile, the company makes tax-deductible ongoing cash contributions to the ESOP trust to cover the loan it took out to buy the owner's shares.

Secure Senior Management

Even if you expect to sell the company to an outside buyer, you could enhance and preserve its value if you downsize your role and transition management responsibility to your senior executives, including an heir-apparent CEO. Assuming the new team is successful, an outside buyer wouldn't consider your departure as big a risk to the ongoing success of the company or worry about the need to make immediate changes to protect the investment.

Unless you plan to sell or hand off your business to children soon, it's crucial to avoid planning solely by looking at the company as it's structured today. Think instead about how various functions will be performed before your departure.

Suppose, for example, you're thinking about stepping out of the picture in 10 years, and your business evolves along the lines you're hoping it will until then. Would your organizational chart look the same then as it does now? What new roles and areas of expertise will be required a decade hence to run the business successfully?

If your business today is too small to accommodate your adult children on the payroll in key positions, perhaps it will then. Keep that in mind as you start to build your succession plan. At the same time, give children enough of an opportunity to receive proper training and demonstrate their capabilities and passions. If they aren't up to the job, all stakeholders suffer, including your children.

Similarly, don't limit your planning to focus exclusively on a future CEO. Think about the next management tier, and who'll be filling those slots, and how they can develop the skills and experience to fill them well. Those decisions will be informed not only by looking at your company's present needs, but the challenges you expect it to face in the future.

A Place for the Kids?

Whether you expect leadership roles and ownership stakes to be assumed by your heirs or by key employees, those stakeholders need to play a role in the succession planning process. It's particularly critical in the case of children who may not have had much involvement with the company. In that situation, you can't make assumptions about their desires, nor their capabilities, when folding them into a succession plan.

In a privately held company, it's only natural for nonfamily member employees to wonder what will happen to their jobs when the principal owner retires. As noted, while you shouldn't make promises that you may not be able to deliver on, key players will be reassured about their future if they believe you value them and expect them to remain on board after you leave the scene.

Today is Tomorrow for Your Business

Your succession plan should be a general roadmap for the future of your business without you, as well as to help inform your decisions about the business today. While it will likely require some precise legal arrangements (such as trusts, employment contracts, life insurance policies and executive compensation plans), don't let the tail wag the dog. As noted, your succession plan can evolve as circumstances dictate. Having a plan is the goal, but don't paint yourself into a corner.
Read More

Tags: Succession Planning, Business Succession, Valuation, Business Owner

Family Business Tax-Saving Moves in The COVID-19 Era

Posted on Wed, Jun 03, 2020

Many family businesses have been adversely affected by the novel coronavirus (COVID-19) pandemic. But there's a silver lining: Proactive tax planning can help your family business take advantage of potential opportunities in the COVID-19 era. Here are some tax-smart ideas to consider whether you live in the West Michigan community or elsewhere in the United States. 

Read More

Tags: Business Owner, COVID-19, Paycheck Protection Program

Should You File a Business Interruption Claim for COVID-19 Losses?

Posted on Thu, Apr 23, 2020

With much of the country currently on lockdown due to the novel coronavirus (COVID-19) crisis, many nonessential businesses have been shuttered. As a result, millions of small business owners find themselves on the brink of financial disaster. For those with business interruption insurance policies in place, now may seem like the ideal time to submit a claim.

Read More

Tags: Business Owner, COVID-19

Myths and Truths about Business Valuation

Posted on Thu, May 16, 2019

The business valuation profession has grown rapidly since 1980. Over the decades, it has developed from a rudimentary process into a highly sophisticated mix of art and science to determine the value of a business or business interest. However, many business owners and investors fail to understand the valuation process and its results. Here are some common business valuation myths and the underlying truths.

Myth: You appraised the "fair market value" of my business. When I sell my business interest, this is the price I will receive.

Truth: Fair market value (FMV) is different from a transactional (or strategic) value. FMV is hypothetical. If you look at the definition, FMV requires consideration of the universe of hypothetical buyers and sellers. The resulting value determination can be looked at as a "most likely" value given the hypothetical considerations. A transaction value, on the other hand, is a verifiable amount, a price at which the business actually changes hands and not an estimate of value that is the result of FMV. Transactional value may be significantly higher (or lower) than fair market value, depending on the circumstances.

Myth: As a business owner, I have the best idea of what my business is worth.

Truth: While the business owner might know the most about their business, that knowledge alone isn't enough to qualify the owner to value the business. Valuation has developed into a profession with accreditations, standards, and professionals with experience and knowledge in how to determine the value of a business. The valuation professional also is an objective third-party. Business owners tend to view their businesses differently than outsiders -- often through "rose-colored" glasses. Owners need to understand how outsiders view the business -- because it's hypothetical investors that determine FMV.

Myth: If a business is worth $1 million, my 10 percent interest should be worth $100,000.

Truth: Owning a minority (or less than controlling) interest in a business diminishes the interest's value from the pro rata value of the entire business. A minority interest cannot determine policy, set compensation for officers and other owners, or decide when and whether to sell the business or significant assets of a business. There are many other items that cannot be controlled by a minority owner. The diminished value can be materially less than the pro rata value, depending on the facts and circumstances.

Myth: The owner's contributions to a business enhance the value of the business.

Truth: An owner's contributions often enhance the value of a business, but there's a major exception. Owners may possess talents, relationships or other intangible assets -- often referred to as "personal goodwill" -- that cannot be transferred to buyers. Owners who contribute personal goodwill diminish the value of the business to an unrelated party. For example, if the owner has contacts with long-term customers that are not likely to transfer to a new owner, the business will likely lose those customers when the current owner leaves the business. That, of course, will reduce the value of the business.

Myth: Value is value, so I can use a valuation report for multiple purposes. For example, I could use a report that is prepared for estate planning purposes to get a loan, settle a divorce or support value on a gift tax return.

Truth: A business valuation is prepared for a specific business as of a specific date and for a specific purpose. If any of those parameters change, the valuation is no longer valid. Different purposes for a valuation might require a different standard or basis of value. For example, the valuation of a minority interest for gifting purposes cannot be used to determine the asking price of the business when the owner wants to sell the entire business two years later. It's important that the user of a valuation report understand its use limitations.

To attain a better understanding of business valuation, owners and investors should discuss the valuation process and various options with an EHTC appraisal professional. Please contact Erik Olson at ErikO@ehtc.com or by calling (616) 575-3482.

Read More

Tags: Valuation, Business Valuation, Business Owner

7 Year-End Tax Planning Moves for Small Businesses

Posted on Mon, Oct 29, 2018

Business owners still have time to significantly reduce their tax bills for 2018. Here are seven year-end moves to consider, taking into account changes included in the Tax Cuts and Jobs Act (TCJA).

Read More

Tags: Tax Planning, Business Owner, Tax Cuts and Jobs Act (TCJA)

When Is Service Business Income Eligible for the New QBI Deduction?

Posted on Wed, Sep 12, 2018

The IRS has issued much-anticipated regulations addressing the new deduction of up to 20% of qualified business income (QBI) from pass-through entities. The QBI deduction was a major piece of the Tax Cuts and Jobs Act that was signed into law in December 2017.

Read More

Tags: Business Owner, Qualified Business Income (QBI)

Is it Time to Rebid Your Vendor Contracts?

Posted on Mon, Aug 27, 2018

While it's great to have a good rapport with your vendors, it's important to ensure the relationship remains businesslike. Vendors who know there is a threat that they could lose your contract are more likely to focus on staying competitive.

Read More

Tags: Business, Small Business, Business Finance, Business Owner

QBI Deduction Provides Tax Break to Pass-Through Entity Owners

Posted on Fri, Aug 24, 2018

The IRS recently issued proposed reliance regulations to help clarify the new qualified business income (QBI) deduction that was introduced as part of the Tax Cuts and Jobs Act. This guidance is complex and hundreds of pages long. As part of the proposed regs, the IRS explained that, if certain requirements are met, individuals, estates and trusts (all referred to as "individuals" by the proposed regs) that own interests in more than one qualifying trade or business can (but aren't required to) aggregate them, by treating them as a single trade or business.

Read More

Tags: IRS, Business Owner, Tax Cuts and Jobs Act (TCJA), Qualified Business Income (QBI)