5 best practices when investigating an employee complaint

Posted on January 31, 2020January 31, 2020 by CCG

All complaints will be swiftly and thoroughly investigated.” No doubt this sentence, or something similar, appears in your company’s employee handbook. Unfortunately, there will likely be a time when you’ll have to put those words into action. Whether an employee alleges discrimination or harassment, or reports a coworker for theft or fraud, you’ll need to handle the complaint appropriately.

Keep these five best practices in mind to avoid unnecessary legal complications:

1. Maintain confidentiality. Take every precaution to keep details of the allegation private — especially the identities of the accused and the accuser. Remind managers that they need to have all conversations behind closed doors, store all meeting notes securely and speak only to those people who are necessary to the investigation. Assure workers involved in the investigation that it will be held in strict confidence and inform them that they aren’t free to talk about any part of the process.

2. Conduct productive interviews. Be prepared with an opening statement that describes what’s being investigated, then ask open-ended questions that encourage employees to say more than “yes” or “no.” Ask all interviewees the same questions so that you can compare answers, identify patterns and uncover discrepancies. Also, have a witness present to verify what occurred during the interviews.

3. Avoid bias. Keep an open mind while gathering facts. Just because an employee has a reputation around the office as a “troublemaker” or “crank,” doesn’t mean that person is lying or guilty of an impropriety. Consider hiring a third-party investigator, such as a fraud expert, to handle interviews. This can help preserve impartiality and show all parties that the investigation is being taken seriously.

4. Document activities. Make detailed notes on all the steps of your investigation. Include the dates and times of workspace searches, computer forensic activity and conversations. After every interview or action taken, review your notes to ensure they capture all relevant information.

5. Close the loops. Even if an investigation turns up no evidence of misconduct or criminal behavior, you need to follow up and close the loop with those involved. When complaints are found to have merit, take appropriate action as quickly as possible. You may be able to handle some minor issues with in-house personnel. But consult your legal and financial advisors — and possibly law enforcement — in more serious cases.

Cents-per-mile rate for business miles decreases slightly for 2020

Posted on January 24, 2020January 24, 2020 by CCG

This year, the optional standard mileage rate used to calculate the deductible costs of operating an automobile for business decreased by one-half cent, to 57.5 cents per mile. As a result, you might claim a lower deduction for vehicle-related expense for 2020 than you can for 2019.

Calculating your deduction

Businesses can generally deduct the actual expenses attributable to business use of vehicles. This includes gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases depreciation write-offs on vehicles are subject to certain limits that don’t apply to other types of business assets.

The cents-per-mile rate comes into play if you don’t want to keep track of actual vehicle-related expenses. With this approach, you don’t have to account for all your actual expenses, although you still must record certain information, such as the mileage for each business trip, the date and the destination.

Using the mileage rate is also popular with businesses that reimburse employees for business use of their personal vehicles. Such reimbursements can help attract and retain employees who drive their personal vehicles extensively for business purposes. Why? Under the Tax Cuts and Jobs Act, employees can no longer deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.

If you do use the cents-per-mile rate, be aware that you must comply with various rules. If you don’t, the reimbursements could be considered taxable wages to the employees.

The rate for 2020

Beginning on January 1, 2020, the standard mileage rate for the business use of a car (van, pickup or panel truck) is 57.5 cents per mile. It was 58 cents for 2019 and 54.5 cents for 2018.

The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, such as gas, maintenance, repair and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the mileage rate midyear.

Factors to consider

There are some situations when you can’t use the cents-per-mile rate. In some cases, it partly depends on how you’ve claimed deductions for the same vehicle in the past. In other cases, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.

As you can see, there are many factors to consider in deciding whether to use the mileage rate to deduct vehicle expenses. We can help if you have questions about tracking and claiming such expenses in 2020 — or claiming them on your 2019 income tax return.

Does your team know the profitability game plan?

Posted on October 2, 2019October 2, 2019 by CCG

Autumn brings falling leaves and … the gridiron. Football teams — from high school to pro — are trying to put as many wins on the board as possible to make this season a special one.

For business owners, sports can highlight important lessons about profitability. One in particular is that you and your coaches must learn from your mistakes and adjust your game plan accordingly to have a winning year.

Spot the fumbles

More specifically, your business needs to identify the profit fumbles that are hurting your ability to score bottom-line touchdowns and, in response, execute earnings plays that improve the score. Doing so is always important but takes on added significance as the year winds down and you want to finish strong.

Your company’s earnings game plan should be based partly on strong strategic planning for the year and partly from uncovering and working to eliminate such profit fumbles as:

Employees interacting with customers poorly, giving a bad impression or providing inaccurate information,
Pricing strategies that turn off customers or bring in inadequate revenue, and
Supply chain issues that slow productivity.

Ask employees at all levels whether and where they see such fumbles. Then assign a negative dollar value to each fumble that keeps your organization from reaching its full profit potential.

Once you start putting a value on profit fumbles, you can add them to your income statement for a clearer picture of how they affect net profit. Historically, unidentified and unmeasured profit fumbles are buried in lower sales and inflated costs of sales and overhead.

Fortify your position

After you’ve identified one or more profit blunders, act to fortify your offensive line as you drive downfield. To do so:

Define (or redefine) the game plan. Work with your coaches (management, key employees) to devise specific profit-building initiatives. Calculate how much each initiative could add to the bottom line. To arrive at these values, you’ll need to estimate the potential income of each initiative — but only after you’ve projected the costs as well.

Appoint team leaders. Each profit initiative must have a single person assigned to champion it. When profit-building strategies become everyone’s job, they tend to become no one’s job. All players on the field must know their jobs and where to look for leadership.

Communicating clearly and building consensus. Explain each initiative to employees and outline the steps you’ll need to achieve them. If the wide receiver doesn’t know his route, he won’t be in the right place when the quarterback throws the ball. Most important, that wide receiver must believe in the play.

Win the game

With a strong profit game plan in place, everyone wins. Your company’s bottom line is strong, employees are motivated by the business’s success and, oh yes, customers are satisfied. Touchdown! We can help you perform the financial analyses to identity your profit fumbles and come up with budget-smart initiatives likely to build your bottom line.

Conflicts of interest: When employees aren’t on your side

Posted on May 29, 2019May 29, 2019 by Justine O'Sullivan

One of the governing principles of the employee/employer relationship is that employees have a fiduciary duty to act in their employer’s interests. An employee’s undisclosed conflict of interest can be a serious breach of this duty. In fact, when conflicts of interest exist, companies often suffer financial consequences.

Ignorance isn’t bliss

Here’s a fictional example of a common conflict of interest: Matt is the manager of a manufacturing company’s purchasing department. He’s also part owner of a business that sells supplies to the manufacturer — a fact Matt hasn’t disclosed to his employer. And, in fact, Matt has personally profited from the business’s lucrative long-term contract with his employer.

What makes this scenario a conflict of interest isn’t so much that Matt has profited from his position, but that his employer is ignorant of the relationship. When employers are informed about their workers’ outside business interests, they can act to exclude employees, vendors and customers from participation in certain transactions. Or they can allow parties to continue participating in a transaction — even if it runs contrary to ethical best practices. But it’s the employer’s, not the employee’s, decision to make.

Cut off at the pass

Sometimes employees simply neglect to inform their employers about possible conflicts of interest. In other cases, they go to great lengths to hide conflicts — usually because they’re afraid it will jeopardize their jobs or they’re financially benefiting from them. These latter cases can be difficult to detect, which is why your company might fare better by playing offense.

For example, develop conflict of interest policies and communicate them to all employees. Provide specific examples of conflicts and spell out exactly why you consider the activities depicted to be deceptive, unethical and possibly illegal. Don’t forget to state the consequences of nondisclosure of conflicts, such as immediate termination.

Disclosing all

You might also require workers to complete an annual disclosure statement on which they list the names and addresses of their family members, their family’s employers and business interests, and whether the employees have an interest in those entities (or any others).

To help ensure accurate statements, provide employees with a hotline to call if they:

Have general questions or concerns about the policy,
Don’t understand how the policy relates to their unique circumstances, or
Want to report someone who appears to have a conflict of interest.

Also protect your business from conflicted vendors and customers. Before entering into a new agreement, compare the names and addresses on your employee disclosure statements with ownership information provided by prospective business partners.

Maintain standards

Conflicts of interest aren’t always clear cut because what one employer considers a serious conflict might seem negligible to another. But in general, the best way to promote your business’s success is by holding all stakeholders to the highest ethical standards. Contact us for more at 205-345-9898 and info@covenantcpa.com.

Are your employees ignoring their 401(k)s?

Posted on March 4, 2019June 4, 2019 by Justine O'Sullivan

For many businesses, offering employees a 401(k) plan is no longer an option — it’s a competitive necessity. But employees often grow so accustomed to having a 401(k) that they don’t pay much attention to it.

It’s in your best interest as a business owner to buck this trend. Keeping your employees engaged with their 401(k)s will increase the likelihood that they’ll appreciate this benefit and get the most from it. In turn, they’ll value you more as an employer, which can pay dividends in productivity and retention.

Promote positive awareness

Throughout the year, remind employees that a 401(k) remains one of the most tax-efficient ways to save for retirement. Regardless of investment results, the pretax advantage and any employer match make a 401(k) plan an ideal way to save.

For example, point out that, for every $100 of pay they defer to the 401(k), the entire $100 is invested in the plan — not reduced for taxes as it would be if it were paid directly to them. And any employer match increases investment potential.

At the same time, make sure employees know that your 401(k) plan operates under federal regulations. Although the value of their accounts may go up and down, it isn’t affected by the performance of your business, because plan assets aren’t commingled with company funds.

Encourage patience, involvement

The fluctuations and complexities of the stock market may cause some participants to worry about their 401(k)s — or to try not to think about them. Regularly reinforce that their accounts are part of a long-term retirement savings and investment strategy. Explain that both the economy and stock market are cyclical. If employees are invested appropriately for their respective ages, their accounts will likely rebound from most losses.

If a change occurs in the investment environment, such as a sudden drop in the stock market, present it as an opportunity for them to reassess their investment strategy and asset allocation. Market shifts have a significant impact on many individuals’ asset allocations, resulting in portfolios that may be inappropriate for their ages, retirement horizons and risk tolerance. Suggest that employees conduct annual rebalancing to maintain appropriate investment risk.

Offer help

As part of their benefits package, some businesses provide financial counseling services to employees. If you’re one of them, now is a good time to remind them of this resource. Employee assistance programs sometimes offer financial counseling as well.

Another option is to occasionally engage investment advisors to come in and meet with your employees. Your plan vendor may offer this service. Of course, you should never directly give financial advice to employees through anyone who works for your company.

Advocate appreciation

A 401(k) plan is a substantial investment for any company in time, money and resources. Encourage employees to appreciate your efforts — for their benefit and yours. We can help you assess and express the financial advantages of your plan. Call us at 205-345-9898 or email us at info@covenantcpa.com.

Take caution when including employees in your estate plan

Posted on November 3, 2018June 4, 2019 by Justine O'Sullivan

If you’re the owner of a small business, you may think of your tight-knit group of employees as a family. If you wish to include them as beneficiaries in your estate plan, it’s critical to be aware of possible unintended tax consequences.

Unraveling the (tax) code

Generally, money or other property received by gift or inheritance is excluded from the recipient’s income for federal tax purposes. But there’s an exception for gifts or bequests to employees: Under Internal Revenue Code Section 102(c), the exclusion doesn’t apply to “any amount transferred by or for an employer to, or for the benefit of, an employee.”

Certain gifts to employees aren’t taxable, including “de minimis” fringe benefits, employee achievement awards and qualified disaster relief payments. Otherwise, the IRS generally views transfers to employees as “supplemental wages” subject to income and payroll taxes.

U.S. Supreme Court weighs in

Despite Sec. 102(c), it may be possible to make a gift to an employee that avoids income taxes. According to the U.S. Supreme Court, such a gift must be made under “detached and disinterested generosity” or “out of affection, respect, admiration, charity or like impulses.” In contrast, if a gift is intended to reward an employee for past performance or serve as an incentive for future performance, it’s considered compensation and is subject to income and payroll taxes. Unfortunately, the intent behind a gift can be difficult to prove.

Keep in mind that treating a gift or bequest as compensation isn’t necessarily a bad thing. In some cases, the income and payroll taxes may be less severe than the gift, estate and generation-skipping transfer taxes that otherwise would apply. And you can always “gross up” the transferred amount to ensure that the recipient has enough cash to pay the taxes.