- DOL Offers Assistance with Resolving Wage and Hour Violations
- PEO Clients and the 20 Percent Tax Deduction for Pass-Through Entities
- Paychecks in Bitcoin: Fad or Trend?
- What Perks Do Employees Really Want?
WASHINGTON, D.C. – The Wage and Hour Division of the U.S. Department of Labor is announcing a new pilot program, the Payroll Audit Independent Determination (PAID) program, which expedites resolution of inadvertent overtime and minimum wage violations under the Fair Labor Standards Act.
The PAID program will ensure that more employees receive back wages they are owed—faster. Employees will receive 100 percent of the back wages paid, without having to pay any litigation expenses, attorneys’ fees, or other costs that may be applicable to private actions.
The PAID program facilitates resolution of potential violations, without litigation, and ensures employees promptly receive the wages they are owed. Under this program, the Wage and Hour Division will oversee resolution of the potential violations by assessing the amount of wages due and supervising their payment to employees.
The Division will not impose penalties or liquidated damages to finalize a settlement for employers who choose to participate in the PAID program and proactively work with the Division to fix and resolve their potential compensation errors. Employers may not participate in the PAID program if they are in litigation or currently under investigation by the Division for the practices at issue. Employers likewise cannot use the pilot program repeatedly to resolve the same potential violations, as this program is designed to identify and correct potentially non-compliant practices. Settlements will be limited in scope to only the potential violations at issue. The program further requires employers to review the Division’s compliance assistance materials, carefully audit their pay practices, and agree to correct the pay practices at issue going forward. These requirements improve the employers’ compliance with their minimum wage and overtime obligations, which helps ensure employees’ rights are protected.
The Division will implement the pilot program nationwide for approximately six months, after which it will evaluate the pilot program and consider future options. The Division encourages employers to proactively audit their compensation practices to identify potential non-compliant practices. More information concerning the pilot program is available at www.dol.gov/whd/paid. It is the mission of the Division to promote and achieve compliance with labor standards to protect and enhance the welfare of the nation’s workforce.
The tax reform bill recently signed by President Trump creates a new income tax deduction for certain types of business owners. Specifically, this new deduction allows taxpayers to deduct, solely for federal income tax purposes, the “combined qualified business income amount” from a pass-through entity in an amount up to 20 percent of the taxpayer’s taxable income, after the deduction of any net capital gain.
Because of the wording of the new law, some accountants have indicated to their clients that are structured as pass-through entities that a PEO relationship might conceivably jeopardize the client’s eligibility for this new 20 percent tax deduction. Some accountants have gone as far as advising their clients to end the PEO relationship to ensure eligibility for this tax deduction.
NAPEO does not agree that a PEO client would be ineligible for this deduction. NAPEO believes that clients of PEOs that are pass-through entities are eligible for the 20 percent tax deduction, based on past IRS interpretations of tax deductions for PEO clients, as well as the intent of Congress and past IRS findings.
Prior to enactment of the tax reform bill, the Internal Revenue Code (IRC) Section 199 domestic manufacturing deduction (which was repealed by tax reform) was also limited based on wages paid, using for all relevant purposes the same definition of “W-2 wages” as the pass-through tax deduction. Regulations under IRC Section 199 subsequently clarified that taxpayers “may take into account any wages paid by another entity and reported by the other entity on Forms W-2 with the other entity as the employer listed in Box c of the Forms W-2, provided that the wages were paid to employees of the taxpayer for employment by the taxpayer.” In other words, the fact that a particular entity pays the wages and reports those wages on its W-2 is not necessarily dispositive of which entity should take those wages into account in claiming the deduction.
PEO clients have, for many years without IRS objection, used W-2 wages paid by the PEO to worksite employees to calculate the Section 199 deduction claimed by the client. In addition, the IRS has—in regulations under IRC Section 3504—made clear that both the PEO and the client may have responsibility for the payment of wages by a PEO in a traditional PEO co-employment relationship.
Another point in favor of PEO clients taking the 20 percent deduction comes from quotes in a recent article in Tax News. Specifically, the article reports that those responsible for writing the new pass-through tax deduction were quoted saying that in drafting the new Section 199A of the IRC, they borrowed from the old Section 199, and intend for the new deduction to be modeled on Section 199 of the IRC. It logically follows that the same rules for reporting by other entities under Section 199 will be a part of the new rulemaking.
Finally, the IRS has historically found PEO clients to be employers for purposes of taking deductions.
For these reasons, NAPEO believes that a pass-through PEO client is safe in taking the 20 percent tax deduction. While NAPEO cannot definitively answer this question (only the IRS can), we believe that the precedent of past tax deductions structured in a similar manner, coupled with congressional intent, should provide enough reassurance for pass-through clients of PEOs that they are eligible to take this tax deduction.
Is bitcoin, a digital currency, becoming accepted as a form of compensation? Japanese web-business GMO Internet, which has 4,000 employees, has announced it will offer employees the chance to receive pay in this most popular of cryptocurrencies, reports the law firm of Fisher Phillips. Already some small tech businesses are doing the same. Might others follow suit?
We've gathered articles from SHRM Online and other trusted resources on bitcoin to examine whether this might be an emerging trend.
Bitcoin Has Its Skeptics
Some warn that bitcoin is too volatile to be relied upon. Its valuation has soared and dropped over the past few months and "a bitcoin crash could have serious global implications," cautioned Harold James, a professor of history and international affairs at Princeton University. "Financial institutions' current exposure to the cryptocurrency is unclear, and probably would not be fully revealed until after a financial disaster. It is eerily reminiscent of 2007 and 2008, when no one really knew where the exposure to subprime-mortgage debt ultimately lay." (Project Syndicate)
Pros and Cons of Paying Bitcoin
Paying in bitcoin has advantages though. It's easy to use—when a payment is made the payee gets it instantly. Administrative or processing fees are low as well. However, federal and state wage and hour laws may not permit employers to use bitcoin to pay employees' salaries. Compensation in bitcoin should be an optional benefit that employees may receive in addition to their standard U.S. dollar-based compensation. A further challenge is that the IRS considers bitcoin to be property, complicating payroll reporting, tax withholding, and capital gains and losses reporting. Third-party services can help ease the resulting administrative burden. (Fisher Phillips)
[SHRM members-only toolkit: Complying with U.S. Wage and Hour Laws and Wage Payment Laws]
Bitcoin So Far Is Secure
Because bitcoin is a blockchain product it so far is secure, as blockchains have not yet been hacked. Blockchain is a decentralized database that stores a ledger of assets and transactions across a peer-to- network and uses its network to authenticate transactions. Transactions are secured and stored in blocks of data, which in turn are linked and secured. Once on a blockchain, data cannot be removed. It is nearly impossible to change any transaction information once it is validated and becomes part of a block. (Fisher Phillips and Forbes)
Global payments through bitcoin may be particularly advantageous, as international payroll can be costly and delayed because of the numerous intermediary banks and third parties involved in the process. Bitwage, based in San Francisco, is one company that already uses technology to facilitate cross-border payments through the use of bitcoin. Australian company Chronobank also uses blockchain-type technology to pay workers without going through banks. (SHRM Online)
Unions Operated Based on Blockchain
Blockchain technology will have uses other than being the building blocks for such cryptocurrencies as bitcoin, experts predict. For example, in the future there may be unions that are organized and operated based on blockchain. With blockchain, every worker could be given a secure and anonymous right to vote on issues relating to the workforce. As issues arise, each member would cast a digital vote that would be recorded without revealing the name of the voter, using such technology as zk-SNARKs, which is being used by the cryptocurrency Zcash.
Dog-friendly offices? Craft beer on tap? Or maybe, just maybe … A healthy 401(k) match.
Which perks are today’s workplaces offering, and which ones do employees want? According to a new study, employers are moving away from salary and focusing more on “lifestyle” benefits. Luckily, so are employees.
Wages and salary now make up just 68% of employees’ total compensation, according to a new analysis of Bureau of Labor Statistics data, by Bank of America BAC, -0.10% Merrill Lynch.
That’s a dip from a high of about 72.5% of total compensation in 2000.
At the same time, employers have increased other perks, Bank of America found. More than 43% offered “wellness programs” to help workers improve their fitness and health in 2017, up from 34% in 2010.
The shift toward non-monetary benefits seems to be line with what workers want.
- A survey of 2,000 employees by content marketing firm FRACTL found that 88% would consider a lower-paying job to get perks like better health insurance and more flexible hours, Bank of America’s report said.
- The share of employees who say having paid time off is “very important” increased to 63% in 2015, up from 53% in 2011, according to the Society for Human Resource Management.
- The top three benefits that employees want (in order) are health insurance, vacation and paid time off and a 401(k) retirement plan, according to a Glassdoor analysis of more than 1,200 U.S. employees. Notably, Glassdoor did not directly ask about salary in the survey.
“In general, people are taking benefits into more consideration in an overall compensation package,” said Alison Sullivan, a Glassdoor career trends expert. “Employers should be paying attention to making sure they have a well-rounded compensation package.”
While workers aren’t getting pay raises, they are getting one-time bonuses. In 2017, one-time bonuses accounted for 12.7% of the rise in total labor costs, and salary raises accounted for just 2.9%, Bank of America’s report said, citing research from the consulting firm Aon Hewitt.
That’s good for employers: Offering employees benefits including days off, flexible hours and gym memberships can be less expensive than raising salaries. “We are not surprised that companies are moving in this direction — not only doe it help recruit talent, it makes sense for the bottom line,” the report authors wrote. And during economic downturns, halting bonuses is much easier to do than cutting wages, the report’s authors noted.
Separately, Glassdoor has researched which perks most correlate with employee satisfaction with benefit packages and found that health insurance came out on top. Close behind are vacation and paid time off, pension plans, 401(k) plans, retirement plans, dental insurance and maternity and paternity leave.
Flashier perks like free food or access to a company car finished much lower, ranking 16 and 19, respectively.
“At the end of the day, free food and dog-friendly workplaces aren’t really enough to attract the top talent that today’s job market demands,” Sullivan said.