Have you recently hired a new employee? Did you know you need to report the new hire with the State of Minnesota? Minnesota Statute 256.998 and the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, 42 U.S.C. 653A, require all employers to report newly hired and re-hired employees to a state directory within 20 days of their hire date.
New hire reporting legislation
New hire reporting legislation requires all “employees” be reported – no exceptions. There are three general categories of employees:
The employer must report all employees who reside or work in Minnesota to whom they anticipate paying wages. Employees are reported even if they only work one day and are terminated before filing the new hire report. Domestic employees (such as caregivers, maids, or babysitters) who are subject to federal income tax withholding are employees and must be reported.
Re-hire or Re-called Employees
An employer must report all re-hires or employees who return to work after being laid off, furloughed, granted a leave without pay, or terminated from employment for at leach 60 consecutive days.
The temporary agency is responsible for reporting any employee they hire. Temporary agencies must report the employee once; employees do not need to be re-reported each time they are placed with a new client. If there is a gap in wages (or a break in service), the employee may have to be reported as a re-hire.
There are a few ways to report new hires. However, the New Hire Reporting Center encourages employers to report new hires electronically.
You can either report new hires using the website.
By Mail: Minnesota New Hire Reporting Center: PO Box 64212, St. Paul MN 55164
Tip: Electronic reporting eliminates paperwork, increases the accuracy of the reports, allows faster processing, and can save on postage and other costs. The reporting through the website also provides printable confirmations of all new hires you report during a session.
An employer is required to report the following:
Federal Identification Number
Name of Employee
Social Security Number
Date of Hire
Date of Birth (optional)
New hire reporting is mandated by law in all 50 states
Note: Electronic reporting can also qualify multi-state employers to report new hires directly to one state.
If you have never reported new hires, you should report any new employees you have hired within the last 180 days. Then, continue to report any new hires within 20 days of their hire date.
All the information provided is highly sensitive; therefore, the use of this information falls under strict Federal and State laws. Minnesota’s child support computer system matches new hire information against open child support cases to locate non-custodial parents to establish paternity and child support orders and enforce existing orders. Once these matches are completed, the new hire information is sent to the National Directory of New Hires and is utilized by Child Support Agencies nationwide. Employers are not required to report terminated employees. However, if the terminated employee had an Income Withholding Order (IWO) for child support, the termination should be reported to the agency that issued the order.
States can also use new hire information to help notice and stop fraudulent payments to receivers of unemployment insurance, worker’s compensation, and welfare benefits. The use of this information provides financial support for Minnesota’s deserving families and works towards a decrease in welfare and unemployment insurance costs.
Questions about reporting a new employee?
If you have additional questions or comments about when you should report your new hires, what information to report, or where you send the information, contact us at [email protected].
The pandemic has caused severe financial and operational disruption in the manufacturing industry. Our industry experts have created and compiled several resources to help you tackle these challenges to navigate these unprecedented times. Here is a list of the top questions we hear from industry clients and peers.
Q: WHAT ARE THE TOP THREE CONCERNS WE HEAR FROM OUR MANUFACTURING CLIENTS?
Maintaining a full-time, healthy workforce.
Material price increases.
Downward pressure on demand, production, and revenues.
Q: WHAT HAVE WE ADVISED OUR MANUFACTURING CLIENTS TO DO TO MEASURE THEIR BUSINESS PERFORMANCE IN THE COVID-19 ENVIRONMENT?
A: The pandemic has made it difficult for companies to measure their current performance, as events and government policies have changed how businesses can operate. The use of benchmarking and key performance indicators is vital to correctly measuring performance during the pandemic. As historical standards across the manufacturing industry have seen significant changes under the pandemic, companies will have to focus on more short-term information. Monthly or weekly information for your company can be compared to previous time periods during the pandemic. The shorter time frame can help to measure pandemic performance better and to help make more proactive decisions. Also, industry reports available online can be used to compare your manufacturing company’s performance to others in the industry during the pandemic. Click to read: Metrics & Benchmarking for Manufacturing Companies
Q: WHAT HAVE WE ADVISED OUR MANUFACTURING CLIENTS TO DO TO LESSEN THE IMPACT ON THEIR BUSINESS?
A: We have advised our clients to think long-term. We can still weather the storm with proper planning and thoughtful decision-making. We recommend the following:
Cashflow analysis and projections are vital. We recommend creating a 14-week cash flow forecast.
Be aware of alternate funding sources, such as SBA loans or other federal or state programs.
State and local funding allocated to industry services is expected to be impacted over the coming years. Therefore, we recommend planning for additional shortages and reforecast financial plans.
Q: WHAT TAX RELIEF OPTIONS ARE AVAILABLE FOR MY MANUFACTURING COMPANY?
Q: WHAT ARE COMMON TAX-SAVING OPPORTUNITIES AND CREDITS FOR THE MANUFACTURING INDUSTRY?
A: Manufacturing businesses need to know any tax savings opportunities that may arise from the previous year’s operations. Though many tax planning instances are on a case-by-case basis, this article highlights a few common strategies and credits that may apply to a typical manufacturing company.
Q: HOW CAN MANUFACTURING COMPANIES PREPARE FOR THE AFTERMATH OF COVID-19?
A: The future is unclear, but we know this much is true: knowledge is power. No matter what happens next, robust and flexible cost and margin data will help you make reliable decisions — the kind of decisions that help you thrive despite uncertainty. The post-pandemic recession and subsequent recovery will mean making tough but critical decisions about labor and expense cost adjustments, aggressive pricing on new work, and product and customer rationalization, to name a few. Each of these decisions requires an accurate understanding of costs and margins, with the ability to model and evaluate multiple scenarios. These scenarios demand different management responses to ensure the necessary resources (cash, people, machine capacity, supply chain, etc.) are in place to optimize the company’s financial performance and market position.
To solve the immediate challenges needed to keep the business afloat, many have formed rapid response teams to understand better their labor support challenges, supply chain ecosystem constraints, and production demand changes. On the other hand, many have also focused on building a future-proof business that uses new technology solutions to increase resilience, support workers, and sustain a competitive market advantage to accelerate business growth once the economy starts to rebound.
Q: WHAT OPTIONS ARE AVAILABLE TO MANUFACTURING COMPANIES THAT MAY NOT SURVIVE AN ECONOMIC DOWNTURN?
A: COVID-19 has been a trying time for businesses, and it may be the right time to take advantage of business transition opportunities. Smith Schafer can assist with an evaluation by performing a business valuation. There are three options for business valuations:
All three of these options are different in content and investment, and each will provide a value or range of values. The exercise of conducting a business valuation will provide the business owner with an estimate of how the pandemic has affected the value of their business and identify areas that have changed that directly affect value. A business owner can use this information to focus on key drivers to improve financial results and restore the value that may have been affected by the pandemic. In addition, this information will assist in strategically making decisions around business succession and transition.
Contact us today to work with a Smith Schafer expert to help you leverage opportunities and make the best decisions for your manufacturing business. Our team is committed to serving over 100 manufacturing companies. Smith Schafer has the experience and understanding of the industry to make a lasting positive difference in your future success.
As a business owner, it is easy to imagine how the company you have built can play an essential role in financing your retirement. But do you have a strategy to make the most out of your money? It is easy to put your financial plans on the back burner for the sake of growing the business. But it is important to have a retirement strategy that takes advantage of tax-saving opportunities that save for the future.
TYPES OF RETIREMENT ACCOUNTS FOR BUSINESS OWNERS
There are several retirement plans available to business owners, each with its requirements and restrictions. Here are three popular retirement account options:
SIMPLE IRA Plan. SIMPLE IRAs are available to companies with 100 or fewer workers. These plans are individually managed by employees and are funded by both the employee and employer.
SEP IRA Plan. SEP plans provide business owners with a simplified method of contributing toward employees’ retirement and saving for their retirement. SEPs are easy to maintain, there are no setup fees, and can be used by companies with any number of employees. These plans are entirely employer-funded, and employees make no contributions.
401(k) Plan. In general, 401(k) plans can provide more options and flexibility than other types of retirement plans. It allows employees to contribute a portion of their wages toward their retirement savings. It also allows, but does not require, employers to make contributions for each eligible employee. 401(k) plans are available to companies of all sizes.
The right retirement plan allows you to maximize your retirement savings while also benefiting your business and employees. To choose the right retirement plan, you need to weigh various factors, one of the most important being the goal(s) for the plan.
HERE ARE A FEW TIPS FOR BUSINESS OWNERS TO MAXIMIZE RETIREMENT CONTRIBUTIONS
A retirement plan only helps your retirement savings IF you choose to contribute to it. We recommend deciding how much you want to set aside to fund your retirement at the beginning of each month.
As a business owner, you have many responsibilities – budgeting, marketing, selling, and countless other tasks. It is easy to forget about retirement planning. To keep retirement contributions top-of-mind, record these as a separate line item on the company’s income statement.
Your future can be more secure with the help of a Smith Schafer advisor. We can help you select and implement the plan that is most appropriate for your business. We base our recommendations on your business’s unique characteristics, such as the owner’s retirement goals, how the company is set up, the number of employees, etc. We can also help you understand the legal, compliance, and tax advantages related to each type of plan. Contact our retirement experts at [email protected] to schedule a free consultation today!
Whether you are setting up a new company or you have been in business for years, you need to evaluate which legal structure is best for your enterprise. No one option is best for every type of operation. The right choice depends on several factors including Whether you are setting up a new company or you have been in business for years, you need to evaluate which legal structure is best for your enterprise. No one option is best for every type of operation. The right choice depends on several factors, including the number of owners, taxes, and your business goals. These concerns lead many business owners to organize as S corps. The legal structure is similar to a C corporation, but S status provides an escape from double taxation. Since choosing a business structure may be a complicated process with long-range consequences, you should consult your Smith Schafer tax professional. Here are some of the pros and cons of S corps:
ADVANTAGES of S Corporation
Like any corporate organization, an S corp allows you and any co-owners to restrict personal liability. If, for example, your company is unable to pay its debts, the business assets would be open to creditors, but your personal belongings would be off-limits. However, you do not have total protection from liability; if your company is in the business of offering advice, for example, you won’t be protected if the advice you offer is wrong.
Avoid Double Taxation
An S corporation allows you to avoid two-tiered taxation — that is, paying corporate taxes and then paying personal taxes on the same income. An S corp pays no federal taxes. Earnings — and losses — are passed through to the owner. And because income is taAn S corporation allows you to avoid two-tiered taxation, paying corporate taxes and then paying personal taxes on the same income. An S corp pays no federal taxes. Earnings — and losses — are passed through to the owner. And because income is taxed to the owner, you can avoid problems arising from the corporate alternative minimum tax. An S corporation must, however, still file a tax return, and some states impose taxes.
Treatment of Losses
IfIf you think you might have operating losses in the first couple of years in business, an S corp may be a wise choice. Let us say you invest $100,000 in your venture and wind up with a loss of $25,000. The deficit is passed through to you and any other owners — on a pro-rata basis — so you can take the loss against other income on your personal tax returns. However, you cannot take current-year losses that exceed your adjusted basis in the company.
A coA corporation’s S status may be terminated either voluntarily or involuntarily. Voluntary termination requires a vote of shareholders owning more than 50 percent of the company’s total outstanding voting shares. Involuntary termination can result from not following the restrictions placed on S corps.
PPro-rata taxable income and dividend distributions are free of FICA taxes (Medicare and Social Security). Company contributions to a retirement plan on behalf of a shareholder-employee are also generally not subject to FICA taxes. In a family business, you may be able to get some tax advantages by shifting the owners’ income to other family members by making them employees or shareholders or both.
Warning: The prospect of major employment tax savings may tempt you to cut your compensation and take large dividend distributions instead of salary. But the IRS keeps a keen eye on “reasonable compensation.” If the tax agency finds that compensation is inadequate, it can recharacterize your dividend distributions as wages, which means you become liable for unpaid employment taxes, penalties and interest.
DISADVANTAGES of S Corporations
If your company owns any assets that have appreciated, they cannot be distributed to you and your co-owners without generating a tax bill.
Taking money or assets out of an S corporation may be an administrative headache. For example, the withdrawal must be characterized for tax purposes as compensation, a dividend, a loan, or other payment. Compensation means payroll taxes are due, and W-2 forms and payroll tax returns must be filed. A loan requires a loan document.
Single Stock Class
It can be difficult to raise cash through a stock offering because an S corporation can issue only one class of stock, which must have identical rights regarding dividends and the distribution of company assets if the business is liqIt can be difficult to raise cash through a stock offering because an S corporation can issue only one class of stock, which must have identical rights regarding dividends and the distribution of company assets if the business is liquidated.
OTHER S STATUS RESTRICTIONS
The corporation must be domestic.
There must be no more than 100 shareholders.
The shareholders must be U.S. citizens, resident aliens, estates, certain types of trusts or tax-exempt entities.
Ultimately, an S corp provides a good option for a small enterprise that would otherwise be significantly taxed under the trUltimately, an S corp provides a good option for a small enterprise that would otherwise be significantly taxed under the traditional corporate model. When selecting or considering a new legal structure, business owners should always review their options with your Smith Schafer professional. For additional details on legal entity analysis and selection or to learn more about how we can help, please contact a Smith Schafer professional. Click here to contact us. We look forward to speaking with you soon.
Internal controls are not typically a topic at management meetings until fraud occurs in the company or is in the news. The idea of fraud happening in business is generally considered preposterous; we all have trustworthy employees and appropriate controls. However, according to the 2020 Report to the Nations published by the Association of Certified Fraud Examiners, 26% of all frauds reported occur in companies that have less than 100 employees. Those frauds resulted in a median loss of approximately $150,000. Bottom line, fraud happens, and it is not a big company or industry-specific problem.
When COVID-19 caused workplaces to shut down and operate out of people’s homes, internal controls were not at the forefront. However, as we move into a more standardized work from home environment, it is essential to keep internal controls in mind and improve procedures that may have been seen initially as a short-term policy.
Here are five questions you should be asking related to your internal controls
1. IS UPPER MANAGEMENT OR OWNERSHIP PRIORITIZING INTERNAL CONTROLS?
Tone at the top is a classic buzz phrase for successful management. However, for internal controls, letting everyone know that upper management is actively involved reduces the risk of fraud occurring. Ask questions about an account, a journal entry, or a deposit to let people know you are engaged and involved. Something as simple as adding a calendar reminder stating that you will be reviewing the bank statement sets the tone that controls are important and worth the time. With the pandemic causing people to work in different locations, communicating and asking questions becomes an integral part of a control environment.
2. WHERE ARE THE DOCUMENTS?
The accounts payable clerk may have been working from home for the past year. Make sure to know the location of the following: check stubs, check stock, and supporting invoices. Having these items on the server or in someone’s inbox is not a filing system. Prior to working from home, would it have been acceptable for 10 months of invoices to be unfiled? Perhaps the pandemic pushed the company into a paperless environment and process, but access to the documents is still an important control to maintain.
Another consideration is physical controls that were in place. Documents that were protected by the fire door on the file room in the office in 2019 are now in someone’s home. Again, this is no longer a short-term issue, and standardization should be part of any filing system. Companies should consider moving physical files back into the office or defining an electronic filing system.
3. WHO HAS ACCESS?
With the quick switch to a virtual environment and perhaps a change in the general IT management, a company should consider if the proper access to files has been maintained. Not everyone needs access to every type of file. This issue also occurs in companies that see rapid growth. The policies in place for a 10-person office are no longer applicable for the 30 or 50 person office. Companies may want to consider a more restrictive environment with the increase in access points to their servers.
4. DO YOU HAVE A BACKUP PLAN?
This question has a fundamental IT and internal control aspect. Are files saved locally, and as a result, are backups to a central server no longer occurring? Or if computers are receiving crucial security upgrades if they are no longer regularly attached to the server? These are important questions to ask and verify that best practices are being followed.
From a financial internal control standpoint, a classic question is, can an employee take time off and have someone else fill their role? Perhaps you had a backup plan when everyone was in the office, but with the accounting department working from home, you have lost this crucial control. Unfortunately, this goes beyond an internal control function in the current environment. You should be prepared to have someone fill in key roles in case someone is away from work for an extended period with COVID-19 or for any other reason. Additionally, requiring employees to fill in for other employees (whether due to vacations, extended leaves of absence or other) provides the added internal control benefit of an outside look into critical activities performed by employees with financial responsibilities.
5. HAVE YOU DOCUMENTED AND APPROVED THE CURRENT SYSTEM?
Internal controls cannot stay static in a normal situation. Accordingly, as things continue to change because of COVID-19, a company should conduct a walkthrough of their controls. Verify what is happening has been approved and is at least to the same level of controls as was occurring in 2019. This ties back to the tone at the top and ensures employees know the importance of keeping a sound control environment, even during a pandemic.
Internal controls are critical for companies to keep front of mind. We recommend that management complete a self-assessment of the changes in controls over the past year and make improvements as needed. Integrating internal controls into a company’s processes does not need to mean severely increasing the overhead charges. Small tasks requiring minimal time can be introduced to limit risk. Smith Schafer is here to help in assessing and improving your control environment. We will help identify the risks you face and evaluate the controls you have in place. You will receive a findings report highlighting recommendations and best practices. Click here to schedule a free 30-minute consultation with one of our professionals.
The professional services industry is feeling the impact of the COVID-19 crisis in a variety of ways. Firms are adjusting to remote working and new client engagement models, all while navigating demands in the face of growing uncertainty.
To assist in navigating these unprecedented times, our industry experts have created and compiled several resources to help you tackle these challenges. Here are the top five most frequently asked questions from our professional service industry clients and our answers to them.
1. WHAT ARE THE TOP THREE CONCERNS WE HEAR FROM OUR PROFESSIONAL SERVICE CLIENTS?
Acquiring new clients and billable hours
Hiring and training
Waiting for client payments and cashflow
2. WHAT HAVE WE ADVISED OUR PROFESSIONAL SERVICES CLIENTS TO DO TO LESSEN THE IMPACT ON THEIR FIRM?
We have advised our clients to think long-term. We can still weather the storm with proper planning and thoughtful decision making. We recommend the following:
Cashflow will be vital over the next 6-10 months. Liquidity is an important area to review and improve. By putting your firm in a strong liquidity position, you strengthen your capabilities to manage internal costs such as staffing and IT infrastructure, as well as the ability to jump at new opportunities.
Cashflow analysis and projections are crucial for both current and future operations. We recommend creating a 14-week cash flow forecast to assist with your firm’s projections.
Be aware of alternate funding sources, such as SBA loans or other federal or state programs.
State and local funding allocated to industry services are expected to be impacted over the coming years. We recommend planning for additional shortages and reforecast financial plans.
Review and improve the firms billing of work in progress structure.
Review strategies for accounts receivable collection and cash conversion cycles.
4. IS THERE AN IMPACT ON PROFESSIONAL SERVICE FIRM RETIREMENT PLANS?
Several provisions in the CARES Act directly affect retirement plans for the benefit of plan participants. For example, the Act increases the maximum loan amount that can be taken from a participant’s retirement plan account. However, the adverse effect of COVID-19 on the overall economy will likely also negatively affect the plan sponsor. This could lead to a reduction in or elimination of employer matching contributions. A firm that has been forced to lay off a portion of its workforce could be subject to partial plan termination. Click to learn 5 Retirement Plan Changes from 2020.
5. WHAT OPTIONS ARE AVAILABLE TO PROFESSIONAL SERVICE FIRMS WHO MAY NOT SURVIVE AN ECONOMIC DOWNTOWN?
COVID-19 has been a trying time for businesses and maybe the right time to take advantage of business transition opportunities. Smith Schafer can assist with an evaluation by performing a business valuation. There are three options for business valuations:
All three of these options are different in content and investment, and each will provide a value or range of values. A professional services firm can use this information to focus on key drivers to improve financial results and restore value that may have been affected by the pandemic.
Contact us today to work with a qualified advisor to help you leverage opportunities and make the best decisions for your professional service firm. Our team is committed to serving over 350 Minnesota professional service firms. Smith Schafer has the experience and understanding of the industry to make a lasting positive difference in your future success.