Monthly Archives: August 2016

T & E Deductions

Business Travel, Meals, and Entertainment

A Deduction Checklist

Type of Expense Deductible Percentage

Travel                                                                                              100%    50%    0%

Local business travel…………………………………………………………….X
Out of town business travel and lodging…………….…….………..…………X
Travel as a form of education………………………………………………………..………….X
Investment seminar fees, travel, and meal expenses……….…..……..….…….………….X

Meals 

Business meals for yourself while away from home overnight on business……….X
Meal with employee, colleague, business contact, customer,
or client with business discussed before, during, or after……….……………………X
Meal with employee, colleague, business contact, customer,
or client with no business discussion……………………………..……….………..………….X
Lavish and extravagant portion of a business meal…………………….…………………….X
“Goodwill” or “quiet” business meal with no business discussion………….………………..X

Entertainment

Entertaining a client or customer, with significant business discussion …….……..X
Entertaining a client or customer, with no business discussion…………………………….X
Tickets to sporting or cultural event connected with significant
business discussion…………………………………………….…………………..…….X
Business gifts of no more than $25 per recipient……….…………………….X
Entertaining employees at a company picnic, Christmas party, etc…….….X
Samples and promotional items provided to general public for
business purposes………………………………………………..….…………..X

Reporting Business Travel and Entertainment

Generally, business travel remains fully deductible, but business meals and entertainment are only 50% deductible. Special rules allow workers under DOT hours of service regulations to deduct 80% for 2016.

It is the employer’s reimbursement policy that determines whether it’s the employee or the employer who must reduce meals and entertainment expenses before taking a deduction on the tax return.

If an employee is not reimbursed by his employer for business expenses, the employee must adjust his meal and entertainment expenses for the nondeductible portion. These expenses may be deducted on his tax return only if he itemizes and then only to the extent such expenses along with other miscellaneous itemized deductions exceed 2% of his  adjusted gross income. In this situation the employer gets no deduction.

If the employee is reimbursed by his employer under an “accountable plan,” the employee does not report the reimbursements as income nor does he report the expenses as deductions. The employer in this case deducts reimbursements paid to the employee
after making a reduction for 50% of meals and entertainment.

If the employee is reimbursed by his employer under a “non-accountable plan,” the reimbursements are includible in the employee’s gross income, are reported as wages on his Form W-2, and are subject to withholding and other payroll taxes. Employee business expenses paid under a non-accountable plan are deductible (by the employee) only as a miscellaneous itemized deduction subject to the 2% of adjusted gross income floor (and subject to the limitations on total itemized deductions for higher income tax-payers). Meal and entertainment expenses are subject to the 50% limitation.

A non-accountable plan is any plan that fails to meet the requirements of an accountable plan.

Deductible Travel Expenses

  • Travel by air, bus, taxi, train, or automobile
  • Lodging expenses
  • Baggage charges
  • Cleaning and laundry charges
  • Cost of temporary help during business travel (i.e. secretarial help or telephone answering service)
  • Reasonable tips
  • Expense of transporting sample cases or display materials
  • Telephone calls

Deductible Entertainment Expenses

  • Transportation to or from an entertainment event
  • Tickets for entertainment, such as a sporting event, theater, or concert
  • Nightclub cover charges
  • Catering charges and room rental for entertainment activity
  • Entertaining business clients at home

Deductible Meal Expenses

  • Food, beverages, taxes, and tips
  • Meals on business trips
  • Meals furnished to employees on the employer’s premises
  • Transportation to or from restaurant

Business Gifts

  • Limited to $25 per recipient

Substantiation Requirements

Business travel, meals, and entertainment expenses must be substantiated by adequate records. An account book, diary, log, expense record, or the like should be kept. The expense and the business purpose must be recorded at or near the time of the activity. Information that must be recorded varies with the kind of expenditure but generally includes the following:

  • Amount spent
  • Date, time, and place of expenditure
  • Business purpose of activity
  • Name and business association of individuals involved

In addition, a receipt or other substantiation is required for all lodging.

Exempt Wage Rates

Overtime Exempt & Non-Exempt Employees as of December 1, 2016

Time Sheet

What is New

 Increased Minimum Pay Requirements for Exempt Employees

The U.S. Department of Labor issued new regulations, effective December 1, 2016 that increases the minimum compensation of overtime exempt executive, administrative and professional (“EAP”) employees to $47,476 per year or $913 per week to qualify as a salaried employee exempt from overtime pay.

 

Highly Compensated Employees (‘HCE”) Base Increased

The Highly Compensated Employee compensation base increases to $134,004 annually beginning December 1, 2016. To be exempt as a HCE, the employee must receive standard salary amount of at least $913 per week in addition to other compensation and meet a minimal duties test.

 

 Compensation Amounts Indexed for Inflation

The new DOL regulations establish a mechanism for the automatic updating of the salary and compensation levels every three years to the required percentiles.

 

 Who is Exempt from OT

 Executives are Exempt if:

  1. They meet the minimum salary requirement of $47,746 per year, $913 per week AND;
  2. Their primary duty is managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise AND;
  3. They customarily and regularly direct the work of at least two or more other full-time employees or their equivalent AND;
  4. They have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

 Administrators are Exempt if:

  1.  The employee meets the minimum salary requirement of $47,746 per year, $913 per week AND;
  2. The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers AND;
  3. The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

 Professionals are Exempt if:

  1.  The employee meets the minimum salary requirement of $47,746 per year, $913 per week AND;
  2. The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment AND;
  3. The advanced knowledge must be in a field of science or learning AND;
  4. The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

 Computer Professionals are Exempt if:

  1.  The employee must be compensated either on a salary or fee basis (as defined in the regulations) at a rate not less than $913 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour AND;
  2. The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below AND;
  3. The employee’s primary duty must consist of:
    • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications OR;
    • The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications OR;
    • The design, documentation, testing, creation or modification of computer programs related to machine operating systems OR;
    • A combination of the aforementioned duties, the performance of which requires the same level of skills.

Outside Salespersons are Exempt if:

  1.  The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer AND;
  2. The employee must be customarily and regularly engaged away from the employer’s place or places of business.

 Highly Compensated Employees are Exempt if:

  1. They are performing office or non-manual work and paid total annual compensation of $134,004 or more (which must include at least $913 per week paid on a salary or fee basis) AND;
  2. They must customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.

 Blue Collar Workers ARE NEVER Exempt:

The exemptions do not apply to manual laborers or other “blue collar” workers who perform work involving repetitive operations with their hands, physical skill and energy. FLSA-covered, non-management employees in production, maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers and laborers are entitled to minimum wage and overtime premium pay under the FLSA, and are not exempt under the Part 541 regulations no matter how highly paid they might be.

Non-Exempt Employees Must Be Paid Based On Actual Hours Worked:

Tracking of hours worked and overtime pay at time and a half is required for all workers that do not meet the requirements of one of the exemptions covered here.

Time and a half applies to hours worked in excess of 40 hours per week. Be sure to also check your states Overtime requirements as well.

 

Questions & Answers

 Q.     We currently pay employees every 2 weeks. Will our pay periods need to switch to every week?

A.      No. Employers may still pay their employees on a biweekly basis. An employer’s overtime pay obligation is determined on a week-by-week basis, but they may pay their employees on a biweekly basis.

 

Q.     I have an employee that works 50 hours a week on exempt status. He will be moved back to hourly, and will get a pay reduction. This will help us to maintain his current weekly wage. Is this something that we can do and be in compliance with FLSA.

A.      Employers have a range of options for responding to the updated standard salary level. For each affected employee newly entitled to overtime pay, employers may:

  • increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status;
  • pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked;
  • reduce or eliminate overtime hours;
  • reduce the amount of pay allocated to base salary

 

Have More Questions

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