What Investors Want from a Business Plan

by Tim Berry

As I write this post I’m putting on my angel investor persona, as 2010 investor chair of the Willamette Angel Conference (WAC), a group of local-to-me angel investors that makes one six-figure investment per year. I’m new to investing, I’m a small player, and I do it in a group. Furthermore, my opinions here are my own, not those of the group.

Here are some things that I want to see in a business plan submitted to our group for consideration for investment. And this is more-or-less in order of importance, but that order is not as rigorous as a numbered list might imply.

1. Experienced team

I want people who have done startups before. They tend to know what they’re doing and where they’re going much better once they’ve been through that process. I don’t mind that much if they weren’t the leader before, and not even that the previous startups failed. I’d like them to know the territory because it reduces risk.

I like a team more than the single entrepreneur. Building a business takes different skills, so ideally a team has people with diverse experience around different functions of the business: Sales, marketing, administration, and so forth.

2. Believable exits

There’s some irony here, because we built our business without caring a bit about exits, but when I think like an investor, I want to know that the money I invest is going to generate money coming out of the company, going back into my bank account, later.

So it’s not just a matter of having a good business. It’s a good business that will grow well and become a business that gets acquired by a larger business in 3-5 years. A lot of good businesses will never be interesting to an acquirer. Is it scalable? Is it defensible? These things make huge differences. It’s surprising to me how many people think they can get investors interested in a people-based service business, for which the assets walk out the door every night. Products are much better for exit than services.

3. Real growth prospects

The key to investment success is making the business worth a lot more later than what it’s worth today. That takes growth. And growth is a matter of scalability and defensibility, which I included above under exits, plus the size of market, the nature of the need, and so forth.

4. Real planning

Like many investors, I can rule out some companies just from reading a summary memo or watching a pitch presentation. But if I’m still interested after hearing the pitch and reading the summary, then I want to see a plan. Pitches without plans are obvious, because they don’t have the potential to drill down into the granularity when questions come up. And of course I like a plan that is easy to decipher and well written, but what I really look for is the pieces coming together. I want to see the conceptual links between product, marketing, sales, and financial plans. Are they aligned with each other? Do they indicate understanding the keys to success? Does this look like a plan that will be managed, that can be reviewed and revised, and will remain flexible? Or is this a plan that was done once and then forgotten. I want to see planning and management, not just a plan.

A final thought

None of this is completely predictable. Good investments will sometimes appear that don’t have all of the characteristics I’ve listed here. Still, all things being equal, this is a good filter to start with.

About the author:

Tim Berry is founder and president of Palo Alto Software and bplans.com*. He is the author of books and software on business planning including Business Plan Pro and The Plan As You Go Business Plan. He has a Stanford MBA degree. He blogs at timberry.bplans.com.

11 Things You Need to Know About Holiday Marketing This Year

A lot of hopes are pinned on the holiday season this year. Of course, the holidays are always a key time for retailers, but after two years of economic doldrums, this holiday season’s sales are even more crucial for small business owners than ever.

While official projections for holiday sales have ranged from flat to slight growth, the overall consensus is that sales will rise this year. The National Retail Federation—typically considered the most reliable monitor of retail sales--predicts that retail sales will increase by 2.3 percent. If you want to get your share of consumers’ holiday purchases, here are some things you need to know.

1. Consumers are cautious. They may be planning to spend a bit more, but consumers are still watching every penny. They want deals and value. That doesn’t necessarily mean the best price, but it does mean getting their money’s worth. Your marketing message must convince them that what they buy from you will be memorable, valuable and make their holidays better.

2. Consumers do their homework. More consumers than ever will be researching products online before they buy, looking for other shoppers’ opinions and the best prices. The *2010 Consumer Shopping Habits Survey by ChannelAdvisor reports that 58 percent of consumers are “very likely” to buy gifts online this year; in comparison, only 41 percent said they are very likely to buy at a physical store. What does that mean to you? Even if you have a physical store, you should also have an online presence—which means at least a basic website. Make sure it includes information like location, photos of your store, a map or directions, hours and ways to contact you (phone, chat and e-mail). Check to be sure your site comes up online when customers do an Internet search. But smart retailers should be operating an e-commerce site, in addition to their storefronts.

3. Consumers read reviews. With more and more people going online to read reviews and ratings of products before they buy, you need to know what customers are saying about your business online. Get your business listed on local search sites like Local.com and CitySearch (it’s free) and on shopping comparison sites. Every place you’re listed boosts your position in search results. Next, monitor the reviews of your products, services or business that appear online. Answer poor reviews before they have a chance to damage your reputation. Make it easier for customers to find the reviews by linking to them from your site; you can even post reviews on your site.

4. Consumers care about the experience. Today’s customers value the entire experience of buying a product or service—so make sure the experience of shopping with you, whether online or offline, is easy and enjoyable. Is your website clear and easy to navigate? Can customers check out with minimal clicks? How about your store—is it inviting, exciting, calm or luxurious? Whatever your “brand” is, make sure your store or site convey your image.

5. Consumers care about others. If your business is involved in socially responsible causes (and I hope you are), now is the time to let customers know about it. Tie in your marketing efforts and special offers with your business’s pet cause. For instance, you could have a percentage of every purchase of X product go toward your charity; you could hold a fund-raiser day where a percentage of all site or store sales go toward that organization; you and your staff could volunteer at the charity one day and invite customers to join you. Customers are in a giving spirit at the holidays, and they’ll give your company more business if they feel like they’re also giving back.

6. Consumers want extras. The holidays are the time when customers need a little extra something. Whether that’s a few cushy seats in your store for weary shoppers to rest their feet, free gift wrap or samples, or coupons offering a discount on the next purchase, try to throw in a little something extra each time they buy.

7. Consumers want to feel special. Membership has its privileges, and can motivate customers to buy more. Invite customers to join your VIP club and give them access to a members-only shopping night at your store; special services such as a personal shopper; or an e-newsletter with special offers just for them.

8. Consumers want to celebrate. Host a holiday party for your best customers. Depending on your budget, this could range from an elaborate dinner at a fancy restaurant to an afternoon open house at your office. You don’t have to spend a lot of money; what’s important is letting customers know how much they mean to you and that you value their business.

9. Customers use e-mail. While social media gets lots of buzz, good old e-mail is still a key way to get customers to spend. In fact, *Experian’s 2010 Holiday Marketer report projects e-mail marketing will increase by 15 to 20 percent this year compared to the 2009 holiday season. Customers look to e-mail for offers like rewards, discounts or free shipping. Get them to act by putting a time limit on your offer or using a countdown (“20 shopping days to Christmas”). The holidays are also a great time to reactivate customers on your e-mail list who have been dormant all year, so don’t ignore them. Finally, refer-a-friend e-mails get great results this time of year; include a link that makes it easy for users to pass the e-mail along.

10. Consumers shop early… and late. According to Experian, Thanksgiving Day will be the busiest day for online retailing again this year; the day after Christmas will be the second-busiest. But the day after Thanksgiving is still critical for brick-and-mortar retailers. All reports indicate that consumers have already started their holiday shopping this year—and that they’ll keep shopping in search of the perfect price. So you may want to consider extending special offers past those key shopping days.

11. Consumers are phoning it in. One area to take note of this year: mobile. Currently, the percentage of consumers who actually buy things with their mobile phones is very small (13 percent, reports ChannelAdvisor). However, this trend is poised to grow fast—especially among users aged 18 to 34. If you target younger consumers, you may want to explore location-based services like Gowalla or Foursquare; send targeted e-mails or texts to customers’ smartphones; or create special offers or limited-time deals for mobile users only.

Business Travel and Payroll: Accounting for Reimbursements

Arguably one of the most difficult areas to administer for payroll professionals is business travel.

Much documentation is required to substantiate expense reimbursements for employees taking business trips, and faulty procedures can result in the employer having to add such expenses to employee income and apply appropriate employment taxes to those amounts.

Internal Revenue Service Publication 463, Travel, Entertainment, Gift, and Car Expenses, defines qualified tax-free travel expenses as the ordinary and necessary expenses of traveling away from home for business, profession, or job. Although some organizations may categorize business travel as a benefit, or a perquisite, it is not.

For tax purposes, qualified amounts paid by employers are excepted from income under Section 62 of the Internal Revenue Code. Generally, if such expenses would otherwise be deductible for an individual on travel for business, then employers that pay or reimburse employees for amounts spent while on business travel do not need to add such amounts to employee income.

However, employers need to apply such a travel expense program using an accountable plan to maintain tax-free status of the amounts paid. Similarly, the travel time of employees on business needs to be accounted for to comply with potential state tax requirements on earnings, as well as federal regulations for wage and hour (for traveling workers who are not exempt from overtime pay).

Accountable plans: three requirements

To be considered an accountable plan under federal tax provisions, a reimbursement or other employee expense allowance arrangement must comply with these requirements:

• Business connection—The reimbursements, advances, or allowances provided to employees under the plan must be for work-related expenses that would be deductible by the employee if claimed as a deductible business expense on the worker's personal return. Any advance payments must be reasonably related to business expenses that a worker is expected to incur.

• Substantiation—Employees must substantiate, within a reasonable period of time, the amount, time, use, and business purpose of the allowance or expense payment. In lieu of substantiation of actual expenses, employers can use one of the IRS-approved ‘‘deemed’’ substantiation methods, such as per diems.

• Return of excess payments—The plan must require employees to return, within a reasonable period of time, any reimbursements or advances that exceed substantiated expenses, or, in the case of a per diem, payments for days not traveled. However, if an employee uses part of an advance payment that exceeds the amount that was incurred and substantiated to pay for other business expenses, the excess amount that was used need not be returned.

A reasonable period of time depends on the facts and circumstances, according to IRS Publication 535, Business Expenses.

Employers are provided with two safe-harbor procedures for determining what constitutes a ‘‘reasonable period of time’’ for employees to comply with the accountable plan requirements of substantiating expenses and refunding excess payments. While the IRS rules generally note that reasonable-time determinations will be made on a case-by-case basis, they also outline these methods for meeting the timeliness requirements:

• Under the fixed date method, IRS will treat as timely: advance payments made no more than 30 days before an employee incurs business expenses; expenses that are substantiated within 60 days after they are incurred or paid; and excess payments that are returned to the employer within 120 days after being incurred or paid.

• Using the periodic statement method, an employer can issue periodic statements to employees, at least quarterly, regarding unsubstantiated expenses or unreturned excess payments, and the timeliness requirements will be satisfied if employees substantiate the expenses and refund any excess within 120 days of the statement.

Federal substantiation requirements

To be excluded from taxable wages, several different types of reimbursed costs incurred during business travel need to be documented based on the nature of the expense. A variety of options exist for substantiating certain costs, such as lodging and meals, where exact amounts need not be reported to qualify as tax-free, while others require a more direct-cost approach, such as airfare or other transportation amounts.

It is important that records be kept of all the expenses and any advances that are covered by an employer. Employees can use a log, diary, notebook, or other written records to track expenses. Employers also need a system to implement an accountable plan that identifies costs and ensures appropriate substantiation exists on the amounts. If reimbursements for travel are made at the same time as regular wage payments, the reimbursement for expenses must be separately paid or separately identified, or the reimbursement will be considered taxable wages.

IRS has instructed its field examiners that travel-expense reimbursement plans that show a ‘‘pattern of abuse’’ should be declared nonaccountable and all reimbursements made under them considered taxable income to the employees.

Actual cost substantiation, reporting

Employee travel costs paid by employers can be tax free only if made under an accountable plan. Certain elements of these costs must be tracked and reported in exact amounts in order to keep the plan compliant. These costs include:

• amounts paid for air, train, or bus tickets, and other related expenses and surcharges (additional rules apply to travel by ship);

• amounts paid for taxis, airport limousines, or commuter busses;

• telephone charges while on business travel, including business communication by fax machine or other communications devices; and

• baggage and shipping of materials to the temporary work place.

Documentary evidence will be considered adequate to support an expenditure if it includes sufficient information to establish the amount, date, place, and the essential character of the expenditure. According to IRS Publication 535, Business Expenses, ‘‘evidence should include items such as receipts, along with either a statement of expenses, an account book, a day-planner, or similar record in which the employee entered each expense at or near the time the expense was incurred.’’

For example, a hotel receipt is sufficient to support expenditures for business travel if it contains the name, location, date, and separate amounts for charges of lodging, meals, and telephone. On the other hand, a canceled check made payable to a named payee would not by itself support a business expenditure without other evidence showing that the check was used for a certain business purpose, IRS said.

Note that, under IRS regulations modified in 2000, employees are not required to produce documentation for most travel-related expenses that are less than $75. Costs for lodging, however, are excluded from the rule and must be documented regardless of the amount. Some employers maintain a policy of requiring documentation for incurred costs that are less than $75, but IRS does not require such documentation.

Options in substantiation

Unlike airfare tickets and the items listed above, other costs incurred during business travel do not require substantiation using exact amounts expended, but instead can conform to rates established by the federal government to meet tax-free treatment criteria. Recording and reporting exact amounts for these other costs remains an option under an accountable plan, but for administrative convenience, federal law and regulations allow for these different methods to meet the substantiation requirement for these common business travel costs:

• lodging/hotel expenditures;

• meals and incidentals; and

• vehicle use while on business travel.

For lodging and hotel expenses and meals and incidentals, an employer can reimburse employees' business travel expenses by means of a per diem allowance. Per diem, Latin for ‘‘per day,’’ is a sum of money calculated on a daily basis and may be paid in advance or after an expense is incurred.

For the use of a vehicle while on travel, employers have the option of applying in an accountable plan the standard mileage rate and calculating the expense per mile, as opposed to requiring substantiation of actual costs.

Per diem rates

Using per diem rates, paid at the applicable federal rate, the amounts of lodging, meals, and incidental expenses are deemed substantiated for purposes of avoiding taxability of expense reimbursements. Per diem rates can also be paid based on another flat rate or stated schedule that is reasonably calculated not to exceed ordinary and necessary business expenses.

The amount of expenses deemed substantiated by employers that pay per diem allowances in lieu of reimbursing employees for actual expenses for lodging, meals, and incidental expenses incurred for business-related travel is the lesser of the per diem allowance, or the amount computed at the federal per diem rate for the ‘‘locality of travel’’ for the period the employee is away from home. ‘‘Locality of travel’’ is where the employee stops to sleep or rest.

When using per diem rates as a method of substantiation, employees need only account for time, place, and business purpose of travel. Receipts for lodging and meals are not required under a per diem allowance, and employees whose actual expenses are less than their per diem are not required to refund the excess. Excess amounts advanced for days not actually traveled must be returned, however.

The per diem allowance must cover lodging, meals, and incidental expenses for travel away from home. Incidental expenses include laundry and dry cleaning, fees, and tips for services.

Employers choosing to apply per diem rates for travel expenses must include as wages amounts in excess of the federal rates used. IRS allows employers the following options to choose between types of per diem arrangements for substantiating lodging, meals, and incidental expenses:

• Regular federal per diem rate/per diem substantiation method. The federal per diem rate is equal to the sum of the federal lodging expense rate and the federal meal and incidental expense of travel. The federal government publishes per diem rates for federal employees traveling on government business that may be used by other employers to establish allowances that will satisfy the substantiation requirements, IRS said. The per diem rates, which range from $116 in several areas of the country to $411 in Manhattan (for 2010, combined lodging and meals and incidentals) can be found at http://www.gsa.gov/perdiem, and the list is extensive, covering more than 700 continental U.S. areas. The rates show lodging only, meals and incidentals only, and a combined amount, and these are the maximums employers are allowed to use in covering business travel and not have to include as wages. These rates cover localities in the continental United States (CONUS), and separate rates are developed for U.S. localities outside of the continental United States (OCONUS), as well as for foreign localities.

• High-low substantiation method. Under this method, there are two levels of per diem rates that may be used in lieu of the extensive list of rates that apply to federal employees for travel within the continental United States. Dozens of high-cost localities are identified by IRS each year and the applicable per diem rate for travel to such as location is consistent for each (for 2010: $258 per day; $193 for lodging and $65 for meals and incidental expenses). The rate for all other locations (the low-cost localities) traveled to within CONUS also is consistent at $163 per day ($111 for lodging, $52 for meals and incidental expenses) for 2010. The high-low substantiation method may not be used for travel OCONUS or if the employer's per diem covers only for meals and incidental expenses.

If the employer uses the high-low method to set per diem rates for an employee, the employer generally may not switch to the per diem method for that same employee for travel within CONUS during the same calendar year.

Employers also can provide employees with a per diem allowance only for meals and incidentals. This can occur only if the employer pays the employee for actual expenses for lodging based on receipts submitted, the lodging is provided by the employer either directly or through the provider, there is no reasonable belief that any lodging expenses were incurred by the employee, or the allowance is computed on a basis similar to that used in computing the employee's wages, such as the number of hours worked or miles traveled.

The ‘‘standard meal allowance’’ method is an alternative to the actual cost method. It allows employers to set an amount for employee meals and incidental expenses, instead of keeping records of actual costs. The set amount varies depending on where and when employees travel. (Note that the standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States.)

Under these situations, the amount treated as an expense for food and beverages is the lesser of the per diem allowance; and the federal rate for meals and incidental expenses, or the ‘‘standard meal allowance.’’

Accounting for partial days

For meals taken on the partial days of travel to and from a destination, meal allowances need to be prorated (a reduced amount for each day) depending on the meals required while traveling. Employers can prorate by using one of two IRS-approved methods: three-quarters of the standard meal allowance can be claimed, or by using a method that can be consistently applied and that is in accordance with reasonable business practice.

Finally, IRS allows for an ‘‘incidental-expenses-only method,’’ where incidental expenses are limited generally to tips and other small expenses only if employees do not pay or incur any meal expenses. Employees cannot use this method on any day that the standard meal allowance is used. This method also is subject to the proration rules for partial days, according to IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses.

Adequate tracking required

In 2008, IRS said that if an employer fails to track payments made under a per diem plan, the employer must ensure that they do not exceed the ‘‘deemed substantiation’’ limit, or ‘‘all of the per diem payments made under the plan will be treated as taxable wages.’’ If an employer makes a good faith effort to comply and to track payments, however, ‘‘only the excess per diem payments will be considered taxable wages in [an] audit.’’

Vehicle expenses

Costs incurred when employees operate and maintain a car when traveling away from home on business can be tax-free. Employers have the option of substantiating costs using actual expenses with receipts, or combining the standard business mileage rate (with a record of miles traveled) with receipts for business related tolls and parking.

If employees rent a car while away on business, only the business-use portion of the expenses are tax free. If the rental car agreement includes the cost for gasoline, employees cannot also claim the standard mileage rate for business miles driven. Actual costs incurred, in addition to the cost of the rental, are necessary for full substantiation.

This article was originally published in IOMA's monthly newsletter, 'Payroll Practitioner's Monthly', and is republished here with the express written permission of IOMA, Copyright(c) 2010.

When Is Rental Real Estate an Active Business?

IRS guidance lays out the rules regarding tax-free spin-offs and rented space.

With lease accounting due to go through major changes over the next year, it is a good time to review other real estate rental issues, particularly those having to do with tax-free divestitures. In a private-letter ruling issued by the Internal Revenue Service last year, the agency delineates between situations that meet the "active business" requirements and those that don't, for purposes of spin-offs.

Before looking into the private-letter ruling, let's examine a similar situation to give the guidance some context. Consider a case in which one company, Pro Corp. (ProCorp), which is engaged in the active conduct of a trade or business, owns all of the stock of Sigma Corp. In turn, Sigma owns an office building and uses an independent contractor to manage the property. The independent contractor provides the following services:

• supplies and supervises janitors and maintenance personnel;
• collects rents;
• pays bills;
• advertises for tenants;
• negotiates leases; and
• handles tenant complaints.

The president of ProCorp — who is also an officer of Sigma — devotes some time to the operation of the building. He visits the building periodically to ensure the maintenance is done properly; he attends to all matters concerning zoning, building permits, and other local laws affecting the building; and he approves the leases negotiated and the repair contracts.

For valid business reasons, ProCorp distributes to its shareholders all of its stock in Sigma. The distribution does not qualify as a tax-free spin-off because the active business requirement is not met: Sigma is not engaged in the active conduct of a trade or business (see Revenue Ruling 86-125).

The Internal Revenue Code — specifically Section 355(b) — requires that both the distributing corporation (ProCorp) and the controlled corporation (Sigma) be engaged in the active conduct of a trade or business immediately after the distribution. To meet Section 355(b) requirements, each corporation must be engaged in entrepreneurial endeavors of "such a nature," and to such an extent, as to qualitatively distinguish its operations from "mere investments." In addition, the business activity has to be activity of the corporation itself, and not of independent contractors.

In the ProCorp case, however, the operational and management activity of the rental business is largely performed by independent contractors. Although some of Sigma's activities could be considered managerial or operational, these activities are not different from those a prudent investor would be expected to undertake, and are not enough to qualitatively distinguish Sigma's operations from mere investments. Accordingly, Sigma is not engaged in the active conduct of a trade or business.

However, if the corporation itself (through its employees) directly performs active and substantial management and operational functions, the corporation will be considered engaged in the active conduct of a trade or business. As a result, the IRS issued guidance last year in a private-letter ruling, LTR 200943019, to explain the distinction.

The letter noted that Delta Corp., an "S" corporation, is engaged in the rental real estate business consisting of owning and managing Building No. 1 and Building No. 2. Delta's employees are engaged in the following activities:

• advertising for tenants;
• preparing leases for tenants;
• collecting rent;
• cleaning and maintaining common areas;
• paying bills;
• maintaining books and records;
• evicting tenants; and
• making repairs.

Delta's stock is owned by Mr. C and Mr. D. Serious disagreements have developed between the two owners concerning the operation of Delta. In response, Delta will form subsidiaries (Sub1 and Sub2) and transfer Building No. 1 to Sub1 and Building No. 2 to Sub2. Delta will also distribute the Sub1 stock to Mr. C in exchange for his stock in Delta, and distribute the Sub2 stock to Mr. D in exchange for, and in retirement of, his stock in Delta.

The IRS ruling notes that the separation is a "good" split-up, primarily because the active business requirement is met. Indeed, both Sub1 and Sub2 are engaged in the active conduct of a trade or business. Further, in each instance the corporation itself, through its employees, is performing active and substantial management and operational functions. Thus, in contrast to Revenue Ruling 86-125, the business activities in the Delta case were activities of the corporation itself and not the activities of persons outside of the corporation, such as independent contractors.1

Contributor Robert Willens, founder and principal of Robert Willens LLC, writes a weekly tax column for CFO.com.

Footnote
1 See also LTR 200946009. In the ruling, X Corp. (X) is an "S" corporation. X owns and manages real estate. X owns, operates, and manages a total of "e" commercial properties. X provides various services, including routine maintenance, negotiation of tenant leases, maintenance of common areas, resolution of tenant complaints, and management of all finances relating to its properties. X also maintains a staff of "f" employees. Section 1362(d)(3)(A)(i) provides that an "S" election shall be terminated whenever the corporation has (i) accumulated earnings and profits at the close of each of three consecutive taxable years and (ii) gross receipts for each of such taxable years more than 25% of which are "passive investment income." The term passive investment income includes gross receipts derived from rents. Rents, in turn, refer to amounts received for the use of property. However, rents do not include rents derived in the active trade or business of renting property: rents are so derived only if the corporation provides "significant services" or incurs "substantial costs" in the rental business. The ruling concludes that the rental income X receives is not passive investment income. Rather, X's activities, performed by its employees, place it squarely in the active trade or business of renting property.

1099s for Landlords Included in Small Business Jobs Act

President Obama recently announced a series of tax breaks designed to specifically help small businesses, it is known as the Small Business Jobs Act. Along with the recently advertised tax breaks for capital improvements another piece to the legislation has been tacked onto to the H.R. 5297 bill. This new law will require that all landlords will be required to track information about contractors that have been hired to perform services to rental property that exceeds $600 a year. President Obama signed the Small Business Jobs act on September 27th, 2010.

The 1099 Form

The IRS 1099 form is a special tax form that is issued to contractors that perform services for an amount that cumulatively exceeds $600 in the tax year. This form is provided by the person making the payment to the person doing the work. A copy of this tax form is required to be sent to the IRS at the end of the tax year by the payer and the payee to ensure that income and deductions are being adequately recorded by all parties for tax purposes. The completed form is then sent to the IRS at the end of the tax year. Congress also previously increased the requirements to issue 1099s as part of the health care reform package.

The Current Law

The 1099 form is already required by law for companies who specialized in the business of real estate. Those individuals who own one or two rental properties and receive income from these properties have not been required to track work done or payments made to contractors up to this point.

Those in the business of renting out property as a business will not be in for much of a change when it comes to the new regulation, however those mom and pop landlords across the country will be required to make some changes in how they track contractors, verify deductions and report taxes.

The New Legislation

The new legislation will require that anyone who holds the title of landlord to gather and report information to the IRS identifying those contracted employees who perform work on their property for any total monetary payment that exceeds $600 in the tax year. This new legislation will ensure that income by contractors gets reported accurately and deductions for work and improvements to the property can be verified by the 1099 form. A 1099 will not be required for contractors or laborers who are paid less than $600.

Beginning on January 1, 2011 landlords will be required to gather and report the required information about all contracted employees that perform services on any rental or real estate properties that exceeds the $600 amount. This includes mom and pop landlords of both residential and commercial properties. If the landlord fails to provide the 1099 form and the contact information of the contractor it is expected that they will not receive the deduction that they are requesting when the taxes are prepared and submitted to the IRS. The landlord will be required to provide a 1099 to all contractors that meet the new criteria of the legislation.

Contractors may include but are not limited to:

• Electricians

• Painters

• Snowplow operators

• Landscapers

• Plumbers

• Accountants

• Any other service provider who is issued a payment for service that exceeds $600 in the tax year.

The Goals of the New Legislation

• To ensure that vendors and contractors are accurately reporting all taxable income to the IRS by tracking this on a 1099.

• To hold landlords responsible for providing a 1099 form to contractors who perform services on their property.

• To ensure that contractors and vendors to accurately account for and report all taxable income as required by law.

• To reduce the number of landlords who false report deductions for services that were not performed for the purposes of increasing tax write offs.

• Verify the deductions that are claimed each year for rental property repairs and improvements.

This new law introduced as a part of the Small Business Jobs Act and is expected to increase federal tax revenue of over 2.5 billion dollars in the next 10 year time frame.

FLSA Compliance: Determining Hours Worked — Part II

To pay the employee the correct amount, the employer must be able to determine the number of hours worked. In most cases, it is fairly obvious. But...

Recently, the Labor Department's Wage and Hour Division (WHD) announced that the Wage and Hour Administrator will issue Administrator's Interpretations (AIs) whenever it is determined that further clarity is appropriate regarding proper interpretation of a statutory or regulatory issue.

The intent is to provide a general interpretation of the law and regulations that will have “across-the-board” applicability with regard to the issue in order to provide meaningful and comprehensive guidance and compliance assistance to the broadest number of employers and employees. This is in contrast to opinion letters that provide definitive responses to fact-specific requests submitted by individuals and organizations. Opinion letters have the limitation that a slight change in the assumed facts may lead to a different opinion from DOL.

The WHD announcement indicated that, while opinion letters will continue to be issued, they will take on a more general tone, citing authoritative sources relevant to the issue, but without analysis of the specific facts in the request. However, WHD will retain requests for opinions in order to identify issues that may need interpretive guidance.

Definition of ‘clothes'
Significantly, the subject of AI No. 2010-2, issued June 16, is Section 3(o) of the Fair Labor Standards Act (FLSA), 29 U.S.C. Section 203(o), and the definition of “clothes.” This indicates that difficulties remain in determining whether certain time periods must be included in “hours worked” in determining an employee's compensation.

Section 6 of FLSA provides that employees shall be paid a specified minimum wage. Section 7 of FLSA provides that employees may be employed no more than a specified number of hours without being paid at least one and one half times their regular rate of pay for the overtime hours.

To pay the employee the correct amount, the employer must be able to determine the number of hours “worked.” In most cases, it is fairly obvious. But, in some cases, it may be difficult to determine that particular activities constitute working time.

In the Code of Federal Regulations, specifically 29 CFR 785, the Labor Department (DOL) presents its position as to what constitutes working time. The regulation acknowledges that the ultimate interpretation of FLSA must come from the courts.

Rather than being a complete set of rules, the regulation quotes the U.S. Supreme Court in stating that the department's interpretations are intended to be a “practical guide for employers and employees as to how the office representing the public interest in its enforcement will seek to apply it.” (Skidmore v. Swift, 323 U.S. 134, 138 (1944).)

Employment defined
FLSA's definition of employment is “to suffer or permit to work.”

The U. S. Supreme Court has weighed in with its own definitions. It initially stated that employees subject to the act must be paid for all time “spent in physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer of his business” (Tennessee Coal, Iron & Railroad Co. v. Muscoda Local No. 123, 321 U. S. 590 (1944)).

Later, however, the court ruled that no exertion was necessary and that if the employee is required to give hours to the employer, those hours are hours worked: “… an employer, if he chooses, may hire a man to do nothing, or to do nothing but wait for something to happen. Refraining from other activity often is a factor of instant readiness to serve, and idleness plays a part in all employments in a standby capacity. Readiness to serve may be hired, quite as much as service itself, and time spent lying in wait for threats to the safety of the employer's property may be treated by the parties as a benefit to the employer” (Armour & Co. v. Wantock, 323 U.S. 126 (1944); Skidmore v. Swift, 323 U.S. 134 (1944)).

In another ruling, the court added that the workweek includes “all the time during which an employee is necessarily required to be on the employer's premises, on duty or at a prescribed work place” (Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946)).

Preliminary and postliminary activities
The law does exempt certain activities from inclusion in working time. For example:

• FLSA exempts certain clothes changing time and washing time at the beginning and ending of the workday to parties subject to a collective bargaining agreement.

• The Portal-to-Portal Act exempts certain travel or walking time and similar preliminary and postliminary activities performed before or after the workday when such activities are not made compensable by contract, custom, or practice.

Preliminary and postliminary activities cannot include principal activities. The workday starts when the employee begins the principal activities and ends when the employee ceases those activities for the day. The Portal-to-Portal Act does not affect the computation of hours within the workday. So, activities, such as travel, performed within the workday are included in time worked.

If normally exempt preliminary and postliminary activities are included as time worked under contract, custom, or practice, the time also must be included for FLSA purposes.

Where this applies, the activity must be performed at the time of day when it is compensable and only the time allotted or agreed upon must be included. For example, if the employee is allowed (by custom) 15 minutes to change clothes and that activity takes 25 minutes, only 15 minutes must be included as time worked.

In general, the workday begins when the employee begins principal activities and ends when the employee ceases these activities for the day.

Some activities, which may be performed on the employer's premises before or after principal activities (i.e. outside the workday) may be excluded from hours worked. For example, certain clothes changing and washing up time, travel or walking time, and similar preliminary and postliminary activities. However, preliminary and postliminary activities cannot include principal activities. The term “principal activities” includes all activities that are an integral part of a principal activity. Two examples are provided in 29 CFR 785.24:

• Before starting the operation of a machine at the beginning of the workday, the employee oils, greases, or cleans the machine, or installs a new cutting tool.

• A garment worker in a textile mill reports 30 minutes before the other employees report to begin the work day to distribute clothing or parts of clothing to the other employee's workbenches or prepares the machinery for operation by the other employees at the start of the workday.

Certain other activities, which are closely related to the principal activity and are indispensable to the performance of the principal activity, may not be excluded from time worked.

For example, for safety reasons, the employees of a chemical plant are not allowed to perform the principal activities without wearing certain clothes. Changing clothes on the employer's premises at the start and end of the workday is an integral part of the principal activity and must be counted as time worked.

In contrast, if changing clothes is simply a convenience to the employee and not directly related to the principal activities, it is considered a preliminary or postliminary activity and may be excluded from work time. Similarly, time spent clocking in or out, or waiting in line to do so generally is not regarded as an integral part of the principal activity.

The U. S. Supreme Court weighed in with decisions providing additional guidance as to the types of activities considered an integral part of the employee's job. In Steiner v. Mitchell [350 U.S. 247 (1956)], the employees changed clothes and took showers in a battery plant where the manufacturing process involved extensive use of caustic and toxic materials. In Mitchell v. King Manufacturing Co. [350 U.S. 260 (956)], knife-men in a meatpacking plant sharpened their knives before and after their scheduled workday. In both cases, the court determined that the activities were an integral and indispensable part of the employees' principal activities.

Under FLSA, clothes changing and washing up time may be excluded from hours worked under the express terms of a bona fide collective bargaining agreement (or by custom or practice under that agreement) applicable to the particular employee for the week(s) specified in the agreement. For weeks not so excluded, the clothes changing and washing up time must be counted as hours worked if it is integral and indispensable to the principal activity, or required by law or the employer's rules.

Administrator's Interpretation (AI) No. 2010-2 reaffirmed or clarified some of the rules related to clothes changing time. The letter first discussed the meaning of clothes changing under 29 U.S.C. Section 203(o), which reads as follows:
“203(o) Hours Worked.—In determining for the purposes of sections 206 and 207 of this title the hours for which an employee is employed, there shall be excluded any time spent in changing clothes or washing at the beginning or end of each workday which was excluded from measured working time during the week involved by the express terms of or by custom or practice under a bona fide collective-bargaining agreement applicable to the particular employee.”

AI 2010-2 reaffirmed that the term “clothing” as used in Section 203(o) refers to apparel and not to safety and protective equipment, and the exemption does not extend to protective equipment worn by employees that is required by law, by the employer, or due to the nature of the job. AI 2010-2 also points out that documentation of legislative intent indicates that the term “washing” referred to the employee “cleaning his person at the beginning or end of each workday”( 95 Cong. Rec. 8, 14929 (Oct. 17, 1949)).

AI 2010-2 also quoted comments by Rep. Christian A. Herter indicating his reason for introducing the amendment that added Section 203(o) by which he intended to resolve conflict in collective bargaining agreements (CBAs) within the baking industry as to what constituted a work day.

“Let me be specific. In the baking industry, for instance…there are [CBAs]…. In some of those [CBAs], the time taken to change clothes and to take off clothes at the end of the day is considered part of the work day. In other [CBAs] it is not so considered. But, in either case the matter has been carefully threshed out between the employer and the employee and apparently both are completely satisfied with respect to their bargaining agreements” (95 Cong. Rec. H11210 (Aug. 10, 1949) (statement of Rep. Herter)).

AI 2010-2 also considered whether clothes changing can be a principal activity. In IBP v. Alverez, 546 U.S. 21, 30 (2005) (at 37), the U.S. Supreme Court explicitly held that activities that are integral and indispensable are principal activities, and activities occurring after the first principal activity and before the last principal activity are compensable.

The conclusion in Alvarez was that the time spent walking between the locker rooms where meat processing employees performed the principal activities of donning and doffing protective equipment was compensable because it occurred after the first principal activity and before the last principal activity.

At issue is whether the exclusion from hours worked of clothes changing time under Section 203(o), where the clothes changing time would otherwise be considered a principal activity, changes the clothes changing time from a principal activity into a preliminary or postliminary activity. According to AI 2010-2, the majority of court decisions support the notion that exclusion under Section 203(o) would not make the activity any less integral and indispensible to the employee's duties. That is, the character of the activity is not dependent upon whether the activity is excluded under a collective bargaining agreement.

In Figas v. Horsehead Corp., 2008 WL 4170043 (W.D. Pa.), the U.S. District Court for the Western District of Pennsylvania noted that Section 203(o) excludes “any time spent in clothes changing or washing at the beginning or the end of each workday” and concluded that under this statutory language, the excluded time is considered to be part of the workday.

The AI comes to an interpretation consistent with the weight of the judicial authority—that clothes changing time may be a principal activity that starts or ends the work day, even though it is excluded from compensable time under Section 203(o), pursuant to a collective bargaining agreement. Consequently, where the clothes changing time is a principal activity that starts or ends the workday, even though not included in the measured hours of the workday, any intervening activities, including walking and waiting, become part of the measured workday and are compensable.

AI 2010-2 was issued to assist employees and employers in better understanding the scope of the Section 203(o) exemption. It presented a more detailed discussion of prior WHD opinion letters, Congressional background, and judicial decisions and comments than this article could address.

In keeping with the stated purpose of providing “across-the-board” guidance, the AI discussed the underlying authority and gave a general interpretation that there is a distinction between clothes changing that is a preliminary or postliminary activity and clothes changing that is a principal activity. But it did not give more than a general idea as to where that distinction lies.

The AI also determined where clothes changing is a principal activity, it may still delimit the workday, despite exclusion from the measured workday under Section 203(o). This can result in the inclusion of activities, such as walking and waiting, in the measured workday that might otherwise be considered preliminary or postliminary under the Portal-to-Portal Act.

This article was originally published in IOMA's monthly newsletter, 'Payroll Practitioner's Monthly', and is republished here with the express written permission of IOMA, Copyright(c) 2010.

FLSA Compliance: Determining Hours Worked — Part I

Federal and state labor laws address whether particular times when an employee is not actively engaged in a principal activity of the job must be paid.

Our new foreman was Jim McCann.
By gosh, he was a blame mean man.
Last week a premature blast went off.
A mile in the sky went big Jim Goff.
The next time payday came around,
A dollar short Jim Goff was found.
When he asked what for came this reply,
“You're docked for the time you was up in the sky.”
Drill Ye Terriers © Public Domain
Words & Music: Thomas F. Casey (1888)

While the verses from “Drill Ye Terriers” may be a bit exaggerated, employers have been known to dock employees for times during which they were not actively adding value to the employer's business. Both federal and state labor laws address whether particular times when an employee is not actively engaged in a principal activity of the job must be included in hours worked.

Rules for breaks
The rules for breaks during the workday can be confusing, in part because there may be differences between federal and state laws, as well as among the states. In addition, legislation or court cases can change the existing rules or the interpretation of the rules.

For example, in July, the Department of Labor's Wage and Hour Division (WHD) released Fact Sheet #73, Break Time for Nursing Mothers under the FLSA. This fact sheet provides general information on the provision of break time for nursing mothers under the provisions of the recently enacted health care reform law, the Patient Protection and Affordable Care Act (PPACA). This provision, which amends Section 7 of the Fair Labor Standards Act (FLSA), took effect on March 23, 2010, when PPACA was signed into law.

This article will discuss the FLSA rules related to breaks and other idle time during the work day, including the information from Fact Sheet #73.

Background information
FLSA Section 6 provides that employees shall be paid a specified minimum wage. Section 7 of FLSA provides that employees may be employed no more than a specified number of hours without being paid at least one and one half times their regular rate of pay for the overtime hours.

To pay the employee the correct amount, the employer must be able to determine the number of hours the employee “worked.” In most cases, it is fairly obvious which hours constitute “working time.” Under certain circumstances, however, it may be difficult to determine that particular activities constitute working time.

In the Code of Federal Regulations, specifically 29 CFR 785, the Labor Department (DOL) presents its position as to what constitutes working time. The regulation acknowledges that the ultimate interpretation of FLSA must come from the courts.

Rather than being a complete set of rules, the regulation quotes the U.S. Supreme Court in stating that the department's interpretations are intended to be a “practical guide for employers and employees as to how the office representing the public interest in its enforcement will seek to apply it.” (Skidmore v. Swift, 323 U.S. 134, 138 (1944).)

Employment defined
FLSA's definition of employment is “to suffer or permit to work.”

The U. S. Supreme Court has weighed in with its own definitions. It initially stated that employees subject to the act must be paid for all time “spent in physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer or his business” (Tennessee Coal, Iron & Railroad Co. v. Muscoda Local No. 123, 321 U. S. 590 (1944)).

Later, however, the court ruled that no exertion was necessary and that if the employee is required to give hours to the employer, those hours are hours worked: “… an employer, if he chooses, may hire a man to do nothing, or to do nothing but wait for something to happen. Refraining from other activity often is a factor of instant readiness to serve, and idleness plays a part in all employments in a standby capacity. Readiness to serve may be hired, quite as much as service itself, and time spent lying in wait for threats to the safety of the employer's property may be treated by the parties as a benefit to the employer” (Armour & Co. v. Wantock, 323 U.S. 126 (1944); Skidmore v. Swift, 323 U.S. 134 (1944)).

In another ruling, the court added that the workweek includes “all the time during which an employee is necessarily required to be on the employer's premises, on duty or at a prescribed work place” (Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946)).

The regulations exempt certain activities from inclusion in working time and define the circumstances under which similar times must be included in hours worked.

Waiting time
Waiting time may or may not be compensable, depending upon the circumstances.

The general rule reasons that employees are not able to use short, unpredictable periods of waiting time effectively for their own purposes. On that basis, such waiting time within the workday belongs to, and is controlled by, the employer.

Examples include a messenger waiting for assignments, firefighters waiting for alarms, workers waiting for machine repairs, an appliance repair person waiting for the customer to prepare the premises, and truck drivers waiting for trucks to be unloaded. In these cases, the waiting time is an integral part of the job. The employees are “engaged to wait” and the time is considered time worked. This is true even if employees engage in nonwork activities, such as doing crossword puzzles or reading, during the waiting time.

In contrast, periods of time during which the employees are completely relieved from duty and which are long enough for them to use the time effectively for their own purposes are not hours worked. During such periods, the employees are waiting to be engaged.

Employees must be told in advance that they may leave the job site and be given a specified time to report back. Otherwise, they are not considered completely relieved of duty and able to effectively use the time for personal purposes. Whether the amount of time an employee is relieved of duty is sufficient for employees to use for their own purposes is a different question and subject to the facts and circumstances surrounding each situation.

DOL regulations at 29 CFR 785.16(b) give the following example for truck drivers:

“(b) Truck drivers; specific examples. A truck driver who has to wait at or near the job site for goods to be loaded is working during the loading period. If the driver reaches his destination and while awaiting the return trip is required to take care of his employer's property, he is also working while waiting. In both cases the employee is engaged to wait. Waiting is an integral part of the job. On the other hand, for example, if the truck driver is sent from Washington, D.C. to New York City, leaving at 6 a.m. and arriving at 12 noon, and is completely and specifically relieved from all duty until 6 p.m. when he again goes on duty for the return trip the idle time is not working time. He is waiting to be engaged. (Skidmore v. Swift, 323 U.S. 134 (1944); Walling v. Dunbar Transfer & Storage, 3 W.H. Cases 284; 7 Labor Cases para. 61,565 (W.D. Tenn. 1943); Gifford v. Chapman, 6 W.H. Cases 806; 12 Labor Cases para. 63,661 (W.D. Okla., 1947); Thompson v. Daugherty, 40 Supp. 279 (D. Md. 1941)).”

On-call time
Time spent “on call” is considered time worked if the employee is required to remain on or so close to the employer's premises that the time cannot be effectively used for the employee's own purposes. Time spent “on call” is not considered time worked if an employee is merely required to carry a pager or cell phone or leave contact instructions at home or at work.

In the 1991 case of Bright v. Houston Northwest Medical Center Survivor, Inc., 934 F.2d 671 (5th Cir. 1991), the U.S. Court of Appeals for the Fifth Circuit adopted a fairly strict standard for determining whether on-call time is payable.

In this case, a biomedical (life-support) equipment repair technician was so indispensable to the employer's operation that he was on call 24 hours a day, 365 days a year. He was required at all times to wear a beeper, restrict his alcohol consumption, and be able to come to his workplace within 20 to 30 minutes of being “beeped.” After more than 11 months of such duty, the employee separated from employment with the medical center and claimed the employer owed him overtime pay for all the time he spent on call.

Noting that Bright admitted he was called in only four or five times each week, was paid for all time spent in responding to the calls, and was able at all non-duty times to conduct his personal affairs, including sleeping or resting at home, going shopping, watching television or movies, and going to restaurants, the Fifth Circuit declined to consider the on-call, off-duty time “hours worked” for overtime pay purposes.

The court ruled that the critical question is “whether the employee can use the on-call time effectively for his or her own purposes.”

In a similar case, Martin v. Ohio Turnpike Commission, 968 F.2d 606, 609 (6th Cir. 1992), the U.S. Court of Appeals for the Sixth Circuit said: “The fact that some of the plaintiffs' activities have been affected by the policy is not sufficient to make the on-call time compensable. The plaintiffs must show that the policy is so onerous as to prevent them from effectively using their free time for personal pursuits. That some of the plaintiffs' personal activities may be affected is not enough.”

Rest periods
Rest periods of short duration (5-20 minutes) customarily are paid as work time, because they are considered beneficial to productivity. In addition, the general concept, discussed earlier under waiting time, maintains that short periods of time do not permit employees to use the time effectively for their own pursuits.

Such rest-period time must be included as time worked for FLSA purposes and cannot be offset against other working time, such as compensable waiting time or on-call time.

While FLSA does not mandate rest periods, some state laws do require them. For example, California Industrial Welfare Wage Commission Orders generally require employers to authorize and permit nonexempt employees to take a rest period that generally must be taken in the middle of each four-hour work period. The rest period is based on the total hours worked daily and must be at least a net 10 consecutive minutes for each four-hour work period.

The California break period rules are complex and include a number of exceptions or flexibilities, depending on the industry and other circumstances. The employer must pay the employee an additional hour of pay if the employee does not get a required break during a workday.

It is important for an employer to know the specific rules for each state in which it has employees and make sure that it is in compliance. This is not a one-size-fits-all matter.

Break time for nursing mothers
As mentioned earlier, FLSA was amended by the recently passed health care law. Employers are now required to provide “reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child's birth each time such employee has need to express the milk.”

While the FLSA requirement only applies to nonexempt employees, exempt employees may be covered under similar state rules. The requirement is to provide a reasonable amount of break time to express milk as frequently as needed by the nursing mother. The frequency of breaks needed to express milk as well as the duration of each break will likely vary.

The employer is not required under FLSA to compensate nursing mothers for these breaks. However, where the employer already provides compensated breaks, an employee who uses that break time to express milk must be compensated in the same way that other employees are compensated for break time.

In addition, FLSA's general requirement that the employee must be completely relieved from duty applies to such break periods. If the employee is not completely relieved of duty, the break time must be compensated.

Employers also are required to provide “a place, other than a bathroom, that is shielded from view and free from intrusion from co-workers and the public, which may be used by an employee to express breast milk.” A bathroom, even if private, is not a permissible location under FLSA.

The location provided must be functional as a space for expressing breast milk. If the space is not dedicated to the nursing mother's use, it must be available when needed in order to meet the statutory requirement. A space temporarily created or converted into a space for expressing milk, or made available when needed by the nursing mother, is sufficient, provided that the space is shielded from view and free from any intrusion from co-workers and the public.

Undue hardship exemption
Employers with fewer than 50 employees are not subject to FLSA's break-time requirement if compliance with the provision would impose an undue hardship.

Whether compliance would be an undue hardship is determined by looking at the difficulty or expense of compliance for a specific employer in comparison to the size, financial resources, nature, and structure of the employer's business. All employees who work for the covered employer, regardless of worksite, are counted when determining whether this exemption may apply.

FLSA's requirement of break time for nursing mothers to express breast milk does not preempt state laws that provide greater protections to employees (for example, providing compensated break time, providing break time for exempt employees, or providing break time beyond one year after the child's birth). For example, Oregon employers must allow a nursing mother breaks until her child is 18 months old and, if the breaks are not compensated, she must be allowed the opportunity to make up the work time missed by arriving early or staying later at work.

Meal periods
As with break periods, FLSA does not require employers to give meal breaks. However, where the employer does provide meal breaks, there are rules governing whether the break time is considered time worked.

In general, meal periods during which an employee is completely relieved of duty for the purpose of eating a regular meal may be excluded from time worked. To be excluded, a meal period must be at least 30 minutes in duration, although shorter periods may be permissible under some circumstances. Snack and coffee breaks are considered rest periods, not meal periods.

Employees are not completely relieved of duty if they are required to perform any duties, whether active or inactive, during the meal period. For example, employees required to stay at their desks or machines during the meal time are not completely relieved of duty, and the meal period must be counted as time worked. Employees do not have to be allowed to leave the employer's premises if they are otherwise completely relieved of duties.

Some states mandate meal breaks, and the rules vary considerably. For example, Maine requires a one-half hour meal break after six consecutive hours worked, except in cases of emergency and except where the nature of work allows employees frequent breaks during the workday. In Nebraska, the general rule is one-half hour, off premises, between 12 noon and 1 p.m. or at another suitable lunch time.

Time sleeping
Employees required to be on duty for less than 24 hours are considered to be working, even though they are permitted to sleep or engage in other personal activities when not busy. If they are required to be on duty, the time counts as time worked. When an employee is required to be on duty for 24 hours or more, the employer and employee may agree to exclude bona fide meal periods and a regularly scheduled sleeping period of up to eight hours from hours worked.

The agreed upon sleeping time may be more than eight hours, but only eight hours may be credited as time not worked. In addition, the employer must provide adequate sleeping facilities and the employee usually must be able to enjoy an uninterrupted night's sleep.

If the sleeping period is interrupted by a call to duty, the interruption must be counted as hours worked. If the interruption is such that the employee cannot get a reasonable night's sleep, then the entire period counts as time worked. DOL has adopted a rule that if the employee cannot get at least five hours sleep during the scheduled time, the entire time must be considered working time.

Employee working at residence
When an employee resides at the employer's residence or works out of his/her own home, it may be difficult to determine just what constitutes hours worked. In general, DOL will accept any reasonable agreement between the parties based on the facts and circumstances as to what constitutes time worked and personal time. In-home direct care workers who work over 20 hours per week would receive minimum wage and overtime coverage under pending federal legislation (S. 3696, H.R. 5902).

Adjusting grievances
Time spent adjusting grievances between the employer and the employee during the time the employee is required to be on the employer's premises is working time. Where a bona fide union is involved, DOL will leave the counting of such time to the collective bargaining process.

Medical attention
Time the employee spends waiting for, or receiving, medical attention on the employer's premises or at the employer's direction during normal working hours on days the employee is working counts as time worked.

Civic and charitable work
Time spent in civic or charitable work at the employer's request, under the employer's direction and control, or while the employee is required to be on the employer's premises is working time. Time the employee voluntarily spends outside the employee's normal working hours is not considered working time.

Suggestion systems
Time the employee spends developing suggestions outside of normal working hours under a general suggestion system does not constitute hours worked. If employees are permitted to work on suggestions during regular working hours, or are assigned to work on the development of a suggestion, the time counts as hours worked.

Agreements for nonproductive time
While it is not permissible for an employer and employee to enter into an agreement to provide for payment only for time spent in productive work, it is permissible, under provisions of 29 C.F.R. 778.318, to have a wage agreement for employees to be paid at a lower rate (at least minimum wage) for compensable on-call time and other types of nonproductive work time.

The agreement should be clearly stated in writing and signed by the employee. Time distinguished as “nonproductive” must be carefully and exactly recorded. If such work results in overtime, that pay must be calculated using the weighted average method of computing overtime pay.

The employer and employee also are permitted to enter into an agreement where the nonproductive hours are counted as work time, but are not assigned a rate because the rate for the productive hours is considered to include the nonproductive time. An example of this is where workers are paid on a piece-work basis and the piece rate is understood to cover both the productive and nonproductive time.

Under such an agreement, the regular rate of pay would be the total piece-work earnings, divided by the total hours the employee worked (both productive and nonproductive) during the week. And, as usual, the regular rate of pay must be at least the current minimum wage.

Afterword
In 1888, big Jim Goff may well have been docked for the time he was “a mile in the sky.” Today, however, whether it was considered a rest period or waiting time, his break would be counted as hours worked. It was a short, unpredictable period attributable to the nature of the work (premature blast) and was unsuitable for use for his own purposes despite the fact that he may have been completely relieved of duty until he hit the ground. His time in the company infirmary getting patched up also would count as time worked.

This article was originally published in IOMA's monthly newsletter, 'Payroll Practitioner's Monthly', and is republished here with the express written permission of IOMA, Copyright(c) 2010.

2010 Schedule M-3 Changes and New Revised Line Instructions

The 2010 1120, 1120-L, 1120-PC, and 1120-S Schedule M-3 each have two new lines in Part III, one for R&D costs and one for Section 118 exclusions. The 2010 1065 Schedule M-3 has one new line in Part III for R&D costs. In addition, the instructions for all Schedule M-3 forms are clarified as to the attachment required for the "other with difference" lines (one in Part II and one in Part III) and as to the "separately stated and adequately disclosed" requirement for those lines.

2010 Schedule M-3 New or Revised Line Instructions links to a 3-page PDF extract from the draft 1120-L instructions for the two new Schedule M-3 lines (R&D: Section 118) and the revisions to the instructions for the Part III "other with difference" line. The changes to the instructions for the Part II "other with difference" line are similar to the changes for the Part III line and are not separately posted. The additions and revisions shown for the draft 2010 1120-L Schedule M-3 instructions apply across all Schedule M-3 forms except that the Section 118 line does not apply to the 1065.

IRS Releases Draft W-2 Form for 2011; Announces Relief for Employers

The IRS today issued a draft Form W-2 for 2011, which employers use to report wages and employee tax withholding. The IRS also announced that it will defer the new requirement for employers to report the cost of coverage under an employer-sponsored group health plan, making that reporting by employers optional in 2011.

The draft Form W-2 includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan. The Treasury Department and the IRS have determined that this relief is necessary to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with the new reporting requirement. The IRS will be publishing guidance on the new requirement later this year.

Although reporting the cost of coverage will be optional with respect to 2011, the IRS continues to stress that the amounts reportable are not taxable. Included in the Affordable Care Act passed by Congress in March, the new reporting requirement is intended to be informational only, and to provide employees with greater transparency into overall health care costs.

IRS Issues Final Regulations on New Basis Reporting Requirement; For Investors, Reporting Gains and Losses Gets Easier Starting in 2011

The Internal Revenue Service today issued final regulations under a law change that will require reporting of basis and other information by stock brokers and mutual fund companies for most stock purchased in 2011 and all stock purchased in 2012 and later years. The reporting will be to investors and the IRS. This additional reporting will be optional for stock purchased prior to these dates.

“This important reporting change means investors will now receive the information they need to more easily and accurately report their gains and losses,” said IRS Commissioner Doug Shulman. “We will continue to work closely with stakeholder groups to ensure a smooth implementation of the new requirement, which reduces the recordkeeping and paperwork burden for millions of taxpayers.”

These regulations, posted today in the Federal Register, implement a provision in the Energy Improvement and Extension Act of 2008. Among other things, the regulations describe who is subject to this reporting requirement, which transactions are reportable and what information needs to be reported. Besides providing numerous examples, they also adopt a number of comments and suggestions received since the proposed regulations were issued last December.

Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, long used to report sales prices, will be expanded in 2011 to include the cost or other basis of stock and mutual fund shares sold or exchanged during the year. Stock brokers and mutual fund companies will use this form to make these expanded year-end reports. The expanded form will also be used to report whether gain or loss realized on these transactions is long-term (held more than one year) or short-term (held one year or less), a key factor affecting the tax treatment of gain or loss. The expanded form, to be first used for calendar-year 2011 sales, must be filed with the IRS and furnished to investors in early 2012.

The IRS today also announced penalty relief for brokers and custodians for reporting certain transfers of stock in 2011.

The relief is described in Notice 2010-67, which was posted today on IRS.gov.

Michigan Governor Approves Tax Amnesty Bill

On October 5, 2010, Michigan Governor Granholm approved a bill that authorizes a tax amnesty to be held starting May 15, 2011 and ending June 30, 2011. The amnesty applies to all taxes administered by the Department of Treasury that are due before January 1, 2010. A taxpayer requesting amnesty would have to make full payment of the tax and interest due for any prior period by the last day of the amnesty period. (L. 2010, S884 (P.A. 198), effective 10/05/2010, operative as shown.)

Amnesty period. The amnesty period will start on May 15, 2011 and end June 30, 2011. The amnesty does not apply to taxes due after December 31, 2009.

Waiver of penalties. Under the amnesty, the State Treasurer would waive all criminal and civil penalties provided by law for failing or refusing to file a return, for failing to pay a tax, or for making an excessive claim for a refund for a tax administered by the Department. Taxes covered by the amnesty include the Michigan Business tax, the Single Business Tax, the state personal income tax, and the sales and use tax.

Amnesty request. To take advantage of the tax amnesty, a taxpayer must make a written request for a waiver on a form prescribed by the Department, submit any unfiled returns or amended returns, and make full payment of the tax and interest due for any prior period not later than the last day of the amnesty period.

District of Columbia Taxes

Business Tax Rates—Premium tax rates; prepaid wireless E911 charge.

L. 2010, Act 18-462 (Law 18-223), effective 09/24/2010, enacts the “Fiscal Year 2011 Budget Support Act of 2010,” which increases the premium tax on insurance companies and associations to 2% from 1.7% under D.C. Code Ann. §31-205(b) and D.C. Code Ann. §47-2608(a)(1); the provisions increasing these rates expire on September 30, 2015. The Act also imposes a prepaid wireless charge of 2.0% of the sales price per retail transaction occurring in the District; the amount of the charge must be separately stated on an invoice, receipt, or similar document.

Sales Tax Rates—Medical marijuana and soft drinks.

L. 2010, Act 18-462 (Law 18-223), effective 09/24/2010, enacts the “Fiscal Year 2011 Budget Support Act of 2010,” which imposes a 6% sales tax on gross receipts from the sale of or charges for medical marijuana, as defined in the Legalization of Marijuana for Medical Treatment Initiative of 1999 (D.C. Act 13-138). Effective October 1, 2010, 6% sales tax is imposed on soft drinks, defined as any nonalcoholic beverage with natural or artificial sweeteners, which: (1) does not contain milk or milk products, soy, rice or similar milk substitutes, fruit or vegetable juice (unless the beverage is carbonated), or coffee, coffee substitutes, cocoa, or tea; and (2) that is not prepared for immediate consumption.

Property Tax Rates—Rates for tax year 2011.

L. 2010, Act 18-462 (Law 18-223), effective 09/24/2010, enacts the “Fiscal Year 2011 Budget Support Act of 2010,” which establishes four classes of property for tax year 2011 and thereafter and, for tax year 2011 and thereafter, and sets the tax rate for Class 3 Property at $5 for each $100 of assessed value and for Class 4 Property at $10 for each $100 of assessed value.

CORPORATE INCOME TAX—Withholding.

L. 2010, Act 18-462 (Law 18-223), effective 09/24/2010, enacts the “Fiscal Year 2011 Budget Support Act of 2010,” which provides that an employee receiving wages will on any day be entitled to the withholding exemptions allowed by law, unless the Mayor determines that an alternative withholding method is warranted. An alternative method would require withholding exemptions to be set at zero if the Mayor notifies the taxpayer that the employee has an unpaid tax liability, the employee failed to file a required District of Columbia income tax return, or the employee is subject to a tax refund interception request. Once these conditions no longer apply, the employee can request an increase in withholding exemptions. The legislation also provides that an exemption certificate is invalid if it does not contain the information required, or if it contains false or fraudulent information. An exemption certificate is valid if it states a number of exemptions that is less than the number of exemptions to which the individual is entitled, or a number of additional exemptions less than or equal to the fraction rounded down to the nearest whole number the numerator of which equals the excess of the total of estimated itemized deductions, alimony payments, allowable child care expenses, qualified retirement contributions, business losses, and employer business expenses over the standard deduction allowance, and the denominator of which equals the amount allowed for each exemption for the applicable tax year. The legislation also amends provisions related to withholding personal income tax on lottery winnings to provide definitions and clarify that withholding is required whether winnings are actually or constructively received.

PERSONAL INCOME TAX—Withholding.

L. 2010, Act 18-462 (Law 18-223), effective 09/24/2010, enacts the “Fiscal Year 2011 Budget Support Act of 2010,” which provides that an employee receiving wages will on any day be entitled to the withholding exemptions allowed by law, unless the Mayor determines that an alternative withholding method is warranted. An alternative method would require withholding exemptions to be set at zero if the Mayor notifies the taxpayer that the employee has an unpaid tax liability, the employee failed to file a required District of Columbia income tax return, or the employee is subject to a tax refund interception request. Once these conditions no longer apply, the employee can request an increase in withholding exemptions. The legislation also provides that an exemption certificate is invalid if it does not contain the information required, or if it contains false or fraudulent information. An exemption certificate is valid if it states a number of exemptions that is less than the number of exemptions to which the individual is entitled, or a number of additional exemptions less than or equal to the fraction rounded down to the nearest whole number the numerator of which equals the excess of the total of estimated itemized deductions, alimony payments, allowable child care expenses, qualified retirement contributions, business losses, and employer business expenses over the standard deduction allowance, and the denominator of which equals the amount allowed for each exemption for the applicable tax year. The legislation also amends provisions related to withholding personal income tax on lottery winnings to provide definitions and clarify that withholding is required whether winnings are actually or constructively received.

LIMITED LIABILITY COMPANIES—LLC fees.

L. 2010, Act 18-462 (Law 18-223), effective 09/24/2010, enacts the “Fiscal Year 2011 Budget Support Act of 2010,” which authorizes the Mayor to set and revise limited liability corporation (LLC) fees for filing, furnishing, or issuing any document or certificate, license fees, and miscellaneous fees and charges, rather than having them prescribed by statute. Such fees and charges have to be established by rules, and any proposed rules have to be submitted to the Council for a 90-day period of review. The legislation enacts rules incorporating a new fee schedule for LLCs.

LIMITED LIABILITY COMPANIES—LLC fees.

L. 2010, Act 18-543, effective 10/05/2010 (expires 01/03/2010), repeals the “Fiscal Year 2010 Balanced Budget Support Temporary Act of 2010 (Act 18-461 (Law 18-222), effective 09/24/2010). Act 18-461 authorized the Mayor to set and revise limited liability corporation (LLC) fees for filing, furnishing, or issuing any document or certificate, license fees, and miscellaneous fees and charges, rather than having them prescribed by statute. Such fees and charges had to be established by rules, and any proposed rules had to be submitted to the Council for a 90-day period of review. The legislation enacted rules incorporating a new fee schedule for LLCs.

LIMITED LIABILITY PARTNERSHIPS—LLP fees.

L. 2010, Act 18-462 (Law 18-223), effective 09/24/2010, enacts the “Fiscal Year 2011 Budget Support Act of 2010,” which authorizes the Mayor to set and revise limited liability partnership (LLP) fees and charges for filing of documents and issuance of certificates and other documents, for providing certified copies of statements, for recording statements, and for taking other actions. Such fees and charges have to be established by rules, and any proposed rules have to be submitted to the Council for a 90-day period of review rather than a 45-day review period. The legislation enacts rules incorporating a new fee schedule for LLPs.

LIMITED LIABILITY PARTNERSHIPS—LLP fees.

L. 2010, Act 18-543, effective 10/05/2010 (expires 01/03/2010), repeals the “Fiscal Year 2010 Balanced Budget Support Temporary Act of 2010 (Act 18-461 (Law 18-222), effective 09/24/2010). Act 18-461 authorized the Mayor to set and revise limited liability partnership (LLP) fees and charges for filing of documents and issuance of certificates and other documents, for providing certified copies of statements, for recording statements, and for taking other actions. Such fees and charges had to be established by rules, and any proposed rules had to be submitted to the Council for a 90-day period of review rather than a 45-day review period. The legislation enacted rules incorporating a new fee schedule for LLPs.

SALES AND USE TAX—Taxation of medical marijuana and soft drinks.

L. 2010, Act 18-462 (Law 18-223), effective 09/24/2010, enacts the “Fiscal Year 2011 Budget Support Act of 2010,” which imposes a 6% sales tax on gross receipts from the sale of or charges for medical marijuana, as defined in the Legalization of Marijuana for Medical Treatment Initiative of 1999 (D.C. Act 13-138). Effective October 1, 2010, 6% sales tax is imposed on soft drinks, defined as any nonalcoholic beverage with natural or artificial sweeteners, which: (1) does not contain milk or milk products, soy, rice or similar milk substitutes, fruit or vegetable juice (unless the beverage is carbonated), or coffee, coffee substitutes, cocoa, or tea; and (2) that is not prepared for immediate consumption. Also, bonds for tax increment financing can be issued before January 1, 2014 (previously, January 1, 2010).

SALES AND USE TAX—Pending legislation—restaurant and store exemption.

The District has sent to Congress for review the “Supermarket Tax Exemption Clarification Temporary Amendment Act of 2010,” to correct the list of entities that are eligible for tax exemptions beginning October 1, 2010. Beginning on or after October 1, 2010, a qualified restaurant or retail store (previously, a qualified supermarket, qualified restaurant, or retail store) will not be eligible for an exemption under D.C. Code Ann. §47-3802(a) until the fiscal effect of the new exemption is included in an approved budget and financial plan. (L. 2010, Act 18-545, effective after a 30-day period of Congressional review.)

PROPERTY—Abatements; property classes; rates.

L. 2010, Act 18-462 (Law 18-223), effective 09/24/2010, enacts the “Fiscal Year 2011 Budget Support Act of 2010,” which repeals D.C. Code Ann. §47-1082(c) and D.C. Code Ann. §47-1082(d) that provide for forgiveness of property taxes assessed or paid by Studio Theatre, Inc. from January 1, 2005 forward; and repeals §3 of the Heights on Georgia Avenue Tax Exemption Act of 2009, §3 of the Studio Theatre Housing Property Tax Exemption Equitable Relief Act of 2009, §3 of the Jubilee Housing Residential Rental Project Real Property Tax Exemption Act of 2010, §3 of the Campbell Heights Residents Real Property Tax Exemption Act of 2010, §3 of the Park Place at Petworth, Highland Park, and Highland Park Phase II Economic Development Act of 2010, and §3 of the IHOP Restaurant #3221 Tax Exemption Clarification Temporary Act of 2010 which make abatements/exemptions under those Acts conditional on the inclusion of their fiscal effect in an approved budget and financial plan. Property tax abatements are added for the First Congregational United Church of Christ and modified for the Kelsey Gardens Redevelopment Project. The Mayor is authorized to grant property tax exemptions to nonprofits locating in emerging commercial neighborhoods. Also, a 30-year limited abatement of property tax is provided for real property owned by The Pew Charitable Trusts, and a payment in lieu of tax is provided for Union Station Redevelopment Corporation. Bonds for tax increment financing can be issued before January 1, 2014 (previously, January 1, 2010). Finally, the legislation establishes four classes of property for tax year 2011 and thereafter and, for tax year 2011 and thereafter, and sets the tax rate for Class 3 Property at $5 for each $100 of assessed value and for Class 4 Property at $10 for each $100 of assessed value.

PROPERTY—Pending legislation—restaurant and store exemption.

The District has sent to Congress for review the “Supermarket Tax Exemption Clarification Temporary Amendment Act of 2010,” to correct the list of entities that are eligible for tax exemptions beginning October 1, 2010. Beginning on or after October 1, 2010, a qualified restaurant or retail store (previously, a qualified supermarket, qualified restaurant, or retail store) will not be eligible for an exemption under D.C. Code Ann. §47-3802(a) until the fiscal effect of the new exemption is included in an approved budget and financial plan. (L. 2010, Act 18-545, effective after a 30-day period of Congressional review.)

PROPERTY—Pending legislation—mixed use development project.

The District has sent to Congress for review the “14W and Anthony Bowen YMCA Project Tax Abatement Implementation Clarification Temporary Act of 2010,” to clarify the real property tax abatement provided to the 14W and Anthony Bowen YMCA project. The 14W and the Anthony Bowen Property will be exempt from real property taxation for 20 consecutive years, 10 years capped at $68,400 (previously, the Fiscal Year 2008 rate), with a 10% increase per annum in years 11 through 20, until the annual real property taxation equals 100%. In addition, the Act amends the definition of the “14W and the YMCA Anthony Bowen Property” to mean the real property and improvement described as Lot 64 (formerly Lots 18, 19, 20, 120, 121, 160, 161, 828, and 835), Square 234, owned by Perseus Realty, LLC (or as the land for such lots may be subdivided into a record lot or lots or assessment and taxation lots, condominium lots, air rights lots, or any combination in the future). (L. 2010, Act 18-546, effective after a 30-day period of Congressional review.)

PROPERTY—Pending legislation—redevelopment project abatement.

The District has sent to Congress for review the “Kelsey Gardens Redevelopment Project Real Property Limited Tax Abatement Assistance Clarification Temporary Act of 2010,” to clarify that the real property tax abatement previously provided for the Kelsey Gardens redevelopment project is predicated on obtaining a mortgage from either the U.S. Department of Housing and Urban Development or any other commercial mortgage entity (not just the U.S. Department of Housing and Urban Development). The real property tax abatement will expire on the stated maturity date of a mortgage from either the U.S. Department of Housing and Urban Development or other commercial mortgage entity. (L. 2010, Act 18-547, effective after a 30-day period of Congressional review.)

CIGARETTE, ALCOHOL & MISCELLANEOUS TAXES—Hospital assessment.

L. 2010, Act 18-543, effective 10/05/2010 (expires 01/03/2010), repeals the “Fiscal Year 2010 Balanced Budget Support Temporary Act of 2010 (Act 18-461 (Law 18-222), effective 09/24/2010). Act 18-461 required each hospital in the District to pay an annual assessment as follows: (1) for fiscal year 2010, $500 per licensed bed, payable by September 1, 2010, and (2) for fiscal years 2011 through 2014, $1,500 per licensed bed. Assessments not paid on time were subject to 1.5% interest per month or fraction plus an administrative penalty of 10% of the assessment. St. Elizabeth's Hospital and any hospital operated by the federal government were excluded from the assessment.

ESTATE & GIFT, INHERITANCE, AND TRANSFER—Estate and generation skipping tax.

L. 2010, Act 18-462 (Law 18-223), effective 09/24/2010, enacts the “Fiscal Year 2011 Budget Support Act of 2010,” provides that effective January 1, 2011, certain formula clauses are to be construed to refer to federal estate and generation-skipping transfer tax rules applicable to estates of decedents dying on December 31, 2009. The Act provides that a will or trust of a decedent who dies after December 31, 2009 and before January 1, 2011, that contains a formula referring to the “unified credit,” “estate tax exemption,” “applicable exemption amount,” “applicable credit amount,” “applicable exclusion amount,” “generation-skipping transfer tax exemption,” “GST exemption,” “marital deduction,” “maximum marital deduction,” or “unlimited marital deduction,” or that measures a share of an estate or trust based on the amount that can pass free of federal estate taxes or the amount that can pass free of federal generation-skipping transfer taxes, or that is otherwise based on a similar provision of federal estate tax or generation-skipping transfer tax law, will be deemed to refer to the federal estate and generation-skipping transfer tax laws as they applied with respect to estates of decedents dying on December 31, 2009. However, this provision will not apply with respect to a will or trust that is executed or amended after December 31, 2009, or that manifests an intent that a contrary rule will apply if the decedent dies on a date on which there is no then-applicable federal estate or generation-skipping transfer tax.

PUBLIC UTILITIES—Prepaid wireless E911 charge.

L. 2010, Act 18-462 (Law 18-223), effective 09/24/2010, enacts the “Fiscal Year 2011 Budget Support Act of 2010,” which imposes a prepaid wireless chare of 2.0% of the sales price per retail transaction occurring in the District. The charge must be collected by the seller from the consumer, and remitted to the District. The amount of the charge must be separately stated on an invoice, receipt, or similar document.

INSURANCE—Premium assessment equalization.

L. 2010, Act 18-462 (Law 18-223), effective 09/24/2010, enacts the “Fiscal Year 2011 Budget Support Act of 2010,” which increases the premium tax on insurance companies and associations to 2% from 1.7% under D.C. Code Ann. §31-205(b) and D.C. Code Ann. §47-2608(a)(1). The provisions increasing these rates expire on September 30, 2015. The Health Maintenance Organization Act of 1996 is amended to require publicly funded health maintenance organizations and prepaid health plans to pay the same premium assessment that is levied on commercial health maintenance organizations. Thus fees, receipts, or consideration received pursuant to the District Medicaid program, the Healthy DC Program, and the DC HealthCare Alliance are no longer excluded from taxable amounts received by such organizations or plans as policy and membership fees, and net premium receipts or consideration. Also, the term “health maintenance organization” now includes prepaid health plans. Policy or membership fees, net premium receipts, or consideration received from or paid by the D.C. Department of Health Care Finance is excluded from “direct gross receipts” for purposes of the assessment that is levied on the direct gross receipts of insurers and health maintenance organizations under the Insurance Regulatory Trust Fund Act of 1993.

INITIAL TAXES OR QUALIFICATION—Corporate fees.

L. 2010, Act 18-462 (Law 18-223), effective 09/24/2010, enacts the “Fiscal Year 2011 Budget Support Act of 2010,” which authorizes the Mayor to set and revise corporate fees for filing, furnishing, or issuing any document or certificate, license fees, and miscellaneous fees and charges, rather than having them prescribed by statute. Such fees and charges have to be established by rules, and any proposed rules have to be submitted to the Council for a 90-day period of review. The legislation enacts rules incorporating a new fee schedule, which includes an additional fee to cover the costs of enhanced technological capabilities of the Corporations Division. This fee is imposed beginning June 1, 2010 and expiring October 1, 2013, in an amount equal to 10% of the total cost of any filing or document that is submitted to or requested from the Corporations Division.

INITIAL TAXES OR QUALIFICATION—Corporate fees.

L. 2010, Act 18-543, effective 10/05/2010 (expires 01/03/2010), repeals the “Fiscal Year 2010 Balanced Budget Support Temporary Act of 2010 (Act 18-461 (Law 18-222), effective 09/24/2010). Act 18-461 authorized the Mayor to set and revise corporate fees for filing, furnishing, or issuing any document or certificate, license fees, and miscellaneous fees and charges, rather than having them prescribed by statute. Such fees and charges had to be established by rules, and any proposed rules had to be submitted to the Council for a 90-day period of review. The legislation enacted rules incorporating a new fee schedule, which included an additional fee to cover the costs of enhanced technological capabilities of the Corporations Division. This fee is imposed beginning June 1, 2010 and expiring October 1, 2013, in an amount equal to 10% of the total cost of any filing or document that is submitted to or requested from the Corporations Division.