Changes to the overtime rules that were supposed to go into effect in December 2016, but were delayed by litigation and changes in presidential administration, are now modified and finalized and scheduled to go into effect January 1, 2020. The Department of Labor estimates that 1.3 million workers nationwide will become newly eligible for overtime pay when the rule takes effect.
These changes will almost certainly affect small business owners, so it is important to understand them and possibly get legal review of your employment policies if you are in doubt about how they affect you.
The Cost of Getting Overtime Pay Wrong
If an employee files a lawsuit claiming they should have been paid time and a half for overtime hours and wins, you as the employer could be on the hook not only for the unpaid amounts but for two or three times the unpaid amounts, plus the employee’s costs and attorneys’ fees. That is on top of having to pay a lawyer yourself to defend the claim. So it is important that you understand the rules- old and new- and how they could affect you and your business.
Under the old rules, an employee could be exempt from overtime if they (i) are paid on a salary basis (the same amount each week or biweekly pay period); (ii) earn at least $455 per week, or a little over $23,000 per year; and (iii) perform duties that are considered “exempt” under overtime law (more on exempt duties further down).
The “salary basis” and “exempt duties” requirement has not changed, but the minimum earnings to be exempt from overtime have gone from $455 per week ($23,660 annually) to $684 per week ($35,568 annually).
The second change allows an employer to bring employees up to the minimum salary through the use of non-discretionary bonuses and incentive payments, so long as those payments do not represent more than 10% of the employee’s salary.
Why The New Overtime Rules Are Important
Prior to the implementation of the new rule, virtually every employee in Massachusetts met the salary minimum to be considered exempt from overtime, as $455 per week for a 40 hour week is less than $12 per hour, the current minimum wage in Massachusetts. The new minimum is the equivalent of a little over $17 per hour, so there should be plenty of workers in Massachusetts who right now earn enough to be exempt from overtime but will not by January 1, 2020. This means for anyone earning less than the minimum amount, they will have to be paid overtime for hours worked over 40 in a week no matter what their salary arrangement and no matter what kind of job they do for your company.
Why You Still Need to Pay Attention to the Old Rules
The minimum salary is only a piece of the puzzle. What has not changed are the old rules that also require the employee to receive regular, consistent amounts, and to be engaged in duties that are considered exempt. This means that even if your employees are salaried, they may or may not be exempt from overtime.
The list of specific exemptions under Department of Labor regulations is lengthy, but in broad strokes someone is exempt (meaning they do not have to be paid overtime) if they are a licensed professional (think lawyer, doctor, CPA, some nurses and some social workers), executive (supervising and managing at least two employees) or administrative (someone who supports the business in a role like HR and exercises independent judgment on matters of significance). If you are in doubt about your employees’ duties and whether they are exempt, it is important to consult a lawyer because the lines are not always clear between “exempt” and “non-exempt” duties.
What Small Business Owners Can Do
First, look at all of the people who work for you who at times put in more than 40 hours a week. If their regular salary is less than $684 per week, without doing any further overtime analysis, you already know that you will have to either increase their base salary (or catch them up with nondiscretionary bonuses or incentive pay), find a way to control whether and when they are working more than 40 hours a week, or resign yourself to paying time and a half for hours worked over 40.
You can control hours, by having and enforcing a policy that requires management approval to work more than 40 hours, and by implementing time reporting that allows you to monitor the time put in by your employees. You may occasionally have to pay out overtime if something slips through the cracks, but you can avoid having potentially owed amounts add up over a long period of time.
You can use one time payments to bring people up to the required minimum salary. Because this rule is so new, there is little guidance on how it will be interpreted, but typically a “non-discretionary bonus” is something that is tied to an objective metric- commissions, or specific amounts paid out when a person, team or department meets certain milestones in the business.
Even before the rules changed, overtime laws were often confusing for employers, especially small business owners without a full HR department or in-house counsel. We can help- give us a call at (413) 667-2322 for a free, no obligation consultation to help you understand if you need to make any changes to your employment policies before the new year.
An "estate" does not mean you have a huge house on sprawling grounds, or many hundreds of thousands of dollars in the bank. An "estate" is simply everything you own at the time of your passing, however big or small.
Many people are unsure about what they need in an estate plan, and worry about whether the investment of time and money in making a plan is worth it, especially if they feel they do not have a lot of assets. The truth is, there is a "right-sized" estate plan for everyone. Here are some common scenarios:
A family with young children and modest or minimal assets: Without a will, in most cases the law will distribute all of your assets to your surviving spouse. If this is what you want, the main things you need to be concerned about are: (i) designating a guardian for your children if something were to happen to both parents; (ii) designating a personal representative to make the probate process simpler and less expensive; and (iii) making sure you and your spouse have health care proxies and durable powers of attorney so that someone can make medical and legal/financial decisions if you are incapacitated. This can be accomplished at a relatively low cost by drafting a simple will, health care proxies, and powers of attorney.
A "blended" family: If your family includes children who are not all the children of both you and your spouse, making a will becomes even more essential, as the decisions the state will make about how assets are divided between your spouse and your children may not be what you want. You can take care of the division of assets with a will, but may also want to consider establishing a trust to hold assets for your children, especially if they are minors.
A family whose main assets are real property: This is a common scenario- the net worth on paper is high because of a family home, a farm, or other real estate, but those assets are not "liquid," and in many cases the individual or family does not want to sell the property. If the value of the real property, combined with other assets, life insurance policies, and retirement savings might make your net estate worth $1 million or more, it is essential to make an estate plan that can shelter as much as possible from Massachusetts estate tax. If your assets are worth $1 million at your passing, your estate will owe approximately $36,000 in taxes, but if the assets are worth $999,999, your estate will owe nothing.
Even if you are nowhere near the $1 million threshold, if it is important to you to keep a home, farm, or other real estate in your family, there are other estate planning tools you can consider, such as a realty trust which will pass the title to your beneficiaries without the need for probate.
Individuals and families without children: Without a will, the state will divide your assets among your spouse, your parents, if they are living, and siblings or descendants of siblings if your parents are no longer alive. If this is not what you want, or if you have other people in your life you want to take care of, you will need a will to make your wishes clear and enforceable.
Small business owners: your business has a value, and will be part of your estate. You may want to have the business liquidate on your passing and maximize the value to your heirs, or you may want to make it possible for family members or others to inherit and continue to carry on the business. Without a clear plan, your family members may struggle trying to run a business they are not used to running, or scrambling to get maximum cash value from the business. A will, powers of attorney, and review of your company's corporate form and governing documents can help eliminate this confusion and achieve your goals for your business and your family.
Whatever your situation, we are here to help you find the solution that meets your needs and your budget. Give us a call at (413) 667-2322, or click here to request a call back from a member of our team.
After two weeks at our new office in Chester MA, it has become clear that there are a few questions that seem to be on the minds of people running small businesses in the hilltowns: when should you be registering your business name or logo as a trademark, and what are the things you should consider about forming an LLC or an S Corporation instead of continuing to operate as a dba ("doing business as").
What a trademark is: Once you begin using a name or a logo (a "mark") in business, you have some protection for that mark even if you do not register for trademark protection, if you are the first to use the mark and if it does not violate another company's registered or established mark. The danger is that those are two very big "ifs," and you might find yourself building a following around your brand name only to be met with a cease and desist letter from some company you have never heard of who had previously registered that trademark- something that has happened to at least one hilltown business in recent years.
Why register a trademark: Registering a trademark will do 3 things for you:
What qualifies as a trademark: In order to get trademark protection, your mark must be distinctive, not generic. For example, you cannot trademark the word "food," but trademarks have been granted for names like "myfoods," "bliss foods," and "food made fabulous." If you have a distinctive logo, that can also be protected, with or without words.
How to apply for a trademark: You can apply on your own using instructions from the USPTO. The filing fee is $250 for each classification you are seeking protection in. For example, if you were to register "xyz foods" as only "staple food products," you would pay one filing fee, but if you wanted to register it also under "meat and processed food products," you would pay a second filing fee. If you choose to only do one, all that means is that you only have protection in that classification, and someone else could come along and register "xyz foods" under the second classification.
Should you use a lawyer? You have a range of options. You can do it all on your own, in which case your only cost is your time and the filing fees to the USPTO. There are also online services that offer filing packages and a basic search for existing marks. What is missing from both of those is a specific legal analysis of the likelihood that your mark will be accepted if there are other, previously trademarked names or logos that are similar to yours. This could leave you out the $250 filing fee (or more if you are seeking multiple classifications) if the USPTO rejects your application as too similar to another registered mark. If cost is a concern, you might consider hiring a lawyer to do that analysis for you, but actually submitting and following up on the application yourself, to minimize legal fees.
Why incorporate: You are not required to incorporate (as an LLC or S Corporation) in order to do business, but there are good reasons to do so. The primary reason is liability protection. If you are operating as a dba and your business incurs a significant liability (a debt or a lawsuit, for example), your personal assets are at risk. We often hear people saying they will incorporate as soon as they start earning real revenues, but it is important to remember that your business is likely to owe people money before it becomes profitable, which are exactly the liabilities you don't want to attach to your personal assets.
LLC vs. S Corporation: An LLC is a limited liability company authorized by Massachusetts law. For tax purposes, it is considered a "pass through entity," which means you as the owner only pay taxes once on the revenue. An "S Corporation" is a corporation formed under Massachusetts law that is entitled to the same kind of pass-through tax treatment under a section of the federal tax code for small businesses that meet certain criteria. From a legal and liability perspective, the benefits are the same with either type of entity, but there can be some differences in tax consequences that you should discuss with an accountant. When in doubt, keep in mind that it is easier to change from an LLC to an S Corporation than it is to go the other way, which is why many of our clients choose to begin as an LLC.
How to incorporate: if you are the only owner of your business, the process of forming a single member LLC in Massachusetts is pretty straightforward, and not difficult to do on your own or through an internet provider. Even if you decide to do it on your own, however, it is a good idea to consult with a lawyer at least initially. If you have a business partner and/or the business is operated by more than one person, you should consult a lawyer to make sure your operating agreement or shareholders agreement addresses all of the things you need to have clarity between the partners on key business and governance terms.
Give us a call at (413) 667-2322 and we can schedule you for a call or meeting to help you understand your options.
Emily Smith-Lee is an attorney and owner and founder of slnlaw.