Contractors Center Point

IRS Issues Standard Mileage Rates For 2012

The Internal Revenue Service (IRS) Dec. 9 announced the 2012 optional standard mileage rate to use for computing the deductible costs of operating an automobile for business will be 55.5 cents per mile. 

The new rate will go into effect beginning Jan. 1, 2012, and will apply to the use of cars, vans, pickup trucks or panel trucks. 

The standard mileage rates for business purposes are based on an annual study of the fixed and variable costs of operating an automobile.  A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle.  The business standard mileage rate cannot be used for more than four vehicles used simultaneously.   

For more information on the standard mileage rates, visit the IRS website.

President Signs 3 Percent Withholding Tax Repeal Into Law

Repeal of the three percent withholding tax repeal contained in section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was signed into law by President Barack Obama on Nov. 21.

The bill, H.R. 674, was passed in a 422-0 vote by the U.S. House of Representatives on Nov. 16 and was approved a week earlier by a unanimous vote in the Senate. The bill amends the Internal Revenue Code to repeal the 3 percent withholding tax for government contractors.

The withholding mandate, hidden in the fine print of TIPRA, would have required 3 percent to be withheld on all payments for goods and services made by federal, state and local governments with total expenditures of $100 million or more beginning Jan. 1, 2013.  Implementation of the provision had been subject to annual delays by Congress and regulators, respectively, until bipartisan support for repeal coalesced during the recent focus on jobs legislation. 

To learn more about legislative happenings within the construction industry, please contact Associated Builders and Contractors at www.abc.org or the construction professionals of McKonly and Asbury, LLP.

Liquidated Damages: A Contractor’s Boogeyman

Contractors often live and perform their contractual obligations under the specter of liquidated damages. The threat of liquidated damages causes sleepless nights; the assertion of liquidated damages devours profits. Liquidated damages provisions are common in construction contracts; particularly on public projects and large privately funded projects.  Subcontractors should take note that even if your contract does not contain a liquidated damages provision, you may be subject to liquidated damages by virtue of a flow down provision incorporating obligations and contract terms between your contracting partner and the owner of the project. 

            Just what are liquidated damages, and why are they so frightening?  “Liquidated damages” is a term of art used in construction industry parlance to describe a specific sum a party to a contract agrees to pay if it fails to timely perform its obligations under the contract.  Typically, liquidated damages are expressed by a set dollar amount per day for each day that the contractor fails to complete its work on a project.  This dollar amount is to be arrived at in good faith as an estimate made in advance of the actual damages that the project owner will likely incur as a result of the contractor’s breach.  Contractors that sign contracts containing liquidated damages provisions perform under justifiable trepidation until their work is completed inasmuch as the courts of Pennsylvania have consistently upheld such provisions.  Liquidated damages provisions are routinely enforced by the courts so long as the “liquidated” sum agreed to is a reasonable approximation of the expected loss, and not imposed as a penalty. 

            If a court case arises and it includes a dispute over liquidated damages, the party asserting the liquidated damages has the burden of showing that the other party failed to timely substantially complete its contract obligations, and that the period for which liquidated damages has been assessed is proper.  Once the party claiming liquidated damages has met its initial burden, the burden will then shift to the contractor who must then show that any delays in the substantial completion of its work were excusable and that it should be relieved of the assessment of liquidated damages.  If the contractor facing liquidated damages can show that the other party was actually the cause for the delays or that there were delays that were out of the control of the contractor, for example, extraordinary bad weather, or unforeseen conditions, the contractor may have the liquidated damages reduced or removed altogether. 

            Contractors should be vigilant in their documentation of delays and all conditions that impede their ability to complete their work.  Contractors should provide timely written notices of these conditions as this documentation will assist the contractor in refuting any future claims or backcharges from project owners for liquidated damages. 

For more information on liquidated damages, please contact Tom Williams of Reager and Adler, PC at twilliams@reageradlerpc.com or contact the construction professionals of McKonly and Asbury, LLP.

Understanding Fiduciary Responsibility in an Employee Benefit Plan

Having an employee benefit plan (EBP) can be a crucial aspect of attracting top talent as part of an organization’s benefit package.  Participants in plans such as 401(k)’s can reap the benefits of potential employer matching contributions as they try to pad their savings for retirement.  However, it is not to be overlooked that EBP’s also require a great deal of diligence on the part of the plan sponsor in maintaining fiduciary responsibility.  There are strict regulations stemming directly from the IRS and Department of Labor (DOL), and noncompliance can lead to serious consequences.

A fiduciary is essentially any party who can exhibit control and make decisions in some manner relating to the plan.  This can include many different parties, which will vary based on the organization and the plan, but the plan administrator, custodian, and trustee are generally the most prominent.  Fiduciary responsibility begins with an understanding of the roles and responsibilities of the plan sponsor.  The plan sponsor needs to adhere to their ownership of the plan, and the responsibility to ensure proper administration and regulatory compliance that comes with the ownership.  This aspect can tend to be violated when a plan sponsor tries to push responsibilities to a custodian or trustee or fails to keep up with changing regulations.

Similar to other areas of a company’s business, internal controls are also an integral part of an EBP.  It is the plan sponsor’s responsibility to design and maintain effective internal control practices to help identify errors and minimize the possibility of fraud from occurring.  An effective internal control system will ultimately minimize the risk associated with the plan and help ensure that participant’s funds are being handled properly.  Adherence with these aspects of fiduciary responsibility will ultimately point a plan in the right direction towards compliance with IRS and DOL regulations.

Pennsylvania's New Fair Share Act

On June 28, 2011, Pennsylvania joined approximately 40 other states in adopting what has become known as the "Fair Share Act." The Fair Share Act limits a defendant's liability (where there are multiple defendants at fault) in negligence actions to the percentage of the individual defendant's fault. Most business groups support the new law and have tried for several years to get the bill passed. At least one prior version was declared unconstitutional (for unrelated procedural reasons), and Governor Rendell vetoed a prior bill which passed the General Assembly.

To give you an understanding of the new law, it is helpful to review the "old" law. Under the "old" law (Le., prior to June 28), if multiple defendants were found liable, each defendant was liable to the plaintiff for the full amount of the judgment, regardless of the defendant's level of fault. By way of example, suppose a plaintiff sues three different contractors for an injury he sustained while walking on a construction site. The jury finds that Contractor A was 75% at fault, Contractor B was 24% at fault, and Contractor C was I % at fault, and awards the plaintiff $100 in damages. Even though the extent of each contractor's responsibility was different, each contractor is liable to the plaintiff for the full amount if the other defendants cannot pay.

If Contractor A and Contractor B are bankrupt, Contractor C must pay the full $100, even though the jury determined that he was only 1% at fault. This is known as "joint and several" liability. Contractor C can try to recover the $99 from Contractor A and B (this is known as contribution), but we all know if they are out of business he will probably pay the full amount. Under the old law, the defendants shared the risk that each defendant could pay his share of the judgment. On the other hand, as long as one defendant had enough to cover the judgment, the plaintiff was protected.

Save Money By Investing In Energy Projects

Whether you or your company is seeking to be more eco-friendly, reduce operating costs, or just searching out new methods of saving money, tax saving credits can be a remedy for each of these personal or business concerns.

In 2008 a $700 billion Emergency Economic Stabilization Act (See this link for the energy tax incentives) was passed by Congress and included $150 billion of added tax incentives. The law includes an AMT relief act, a disaster relief act, an alternative energy bill and the extender bill. In addition to the 2008 Emergency Economic Stabilization Act, The American Recovery and Reinvestment Act of 2009 (Recovery Act) amended or added numerous energy tax incentives available to businesses, utilities, and government.

The Recovery Act provides additional tax incentives for consumers in addition to businesses. The Recovery Act amends several provisions of the U.S. Tax Code, expanding or providing new renewable energy incentives for businesses, utilities, and governments who produce or utilize renewable energy.  These incentives generally take the form of tax credits for the production of electricity and facilities that utilize wind, refined coal, geothermal, biomass, solar, and combined heat and power systems.

As with most tax credits, money has to be spent in order to reap the reward of receiving a tax credit from Uncle Sam. Energy savings for businesses are found by making your building more energy efficient. The incentive is a deduction of the cost for creating a more energy efficient property. The deduction can only be taken by the party expensing the costs of the project. Tax deductions range from $0.30 - $1.80 per sq. ft. of affected area. These deductions are for both new construction projects as well as renovation projects. Included below is a chart identifying some of the requirements which must be fulfilled before you are qualified to take these benefits. Take a look and see what you qualify for.

  
  

Keep in mind that energy efficient tax credits have different end dates and some have been extended (See www.energystar.gov).

There are many other credits available, not all pertaining to construction, which are relevant to everyone on a consumer level such as the plug-in electric drive vehicle credit, Solar, Turbine or Wind credits, or Bicycle commuter fringe benefits.

For more information on energy tax credits available, please contact the construction professionals of McKonly and Asbury, LLP.

A Resource For A Growing Danger

Scenario 1: You're on a business trip in Madrid when, distracted by a cell phone call, you step off the curb into a busy street with a bus headed straight for you. Someone shouts something in Spanish but you have no idea what he's saying.

Scenario 2: You're a Spanish-speaking construction worker carrying bricks on the 35th floor of a rising new office building. You don't notice a gap in the scaffolding, but an English-speaking co-worker does and starts yelling something. You don't understand, shrug your shoulders and keep walking.

As these two examples demonstrate, not knowing a language can be hazardous. And it's an increasing concern in the construction industry, where a growing percentage of the workforce is Hispanic. Overall, the Occupational Safety and Health Administration (OSHA) reports that workplace fatalities have dropped 20 percent in the last decade, but fatalities among Hispanic workers, especially those working in the construction industry, have risen almost 35 percent during the same time period.

Of course, you can hand out safety instructions to your Spanish-speaking employees, but your responsibility is bigger than that. At the very least, supervisors need to know Spanish phrases like "Watch out!" (Reloj hacia fuera). In short, you must be able to communicate with your non-English speaking employees to the degree that you are responsible for their health and safety.

DOL Agendas Include Independent Contractors And Affirmative Action

The Department of Labor Wage and Hour Division (WHD), Office of Labor-Management Standards (OLMS) and Office of Federal Contract Compliance Programs (OFCCP) in December released regulatory agendas that include items addressing independent contractors and affirmative action in construction, among other topics.  

The WHD Agenda stated that it intends to issue a proposed rule in April that will update recordkeeping requirements under the Fair Labor Standards Act (FLSA).  The proposed rule would require the company to notify a worker of his status, for example employee or independent contractor, and whether that worker is entitled to protections under the FLSA.  The proposed rule could also require employers to provide a wage statement to their employees.  

The OLMS Agenda included a proposed rule expected to be issued by June that would narrow the exemption for when an employer is required to report hiring a consultant to persuade employees concerning their rights to collective bargaining.  Currently, if the consultant is only hired to give advice, the employer does not have to report it. In addition, OLMS plans to change the Form LM-21 for reporting receipts and disbursement to include more detailed and intrusive reporting requirements.  

In conjunction with plans by the Employment Training Administration to release a proposed rule revising the equal opportunity regulatory framework for the National Apprenticeship Act, OFCCP Plans to issue a proposed rule addressing affirmative action in construction. The proposed rule, expected in July, would strengthen the regulations that set forth the actions construction contractors are required to take to implement affirmative action programs in areas of recruitment, training and apprenticeship.  

 

For more information regarding the 2011 DOL agenda, please contact the construction professionals at McKonly and Asbury, LLP.

Changes to OSHA Administrative Penalties

Effective October 1, OSHA implemented several changes to its administrative penalty calculation system. These changes are a response to the fact that many of the agency’s current penalty adjustment factors have been in place since the early 1970’s, resulting in penalties which are often too low to have an adequate deterrent effect. These dministrative penalty adjustments will be made to several factors that impact the final penalty amount. Here is a brief description of those changes:

 

History Reduction: The time frame for considering an employer’s history of violations has expanded from three to five years. An employer who has been inspected by OSHA within the previous five years and has not been issued any serious, willful, repeat, or failure-to-abate citations will receive a 10% reduction for history.

History Increase: An employer that has been cited by OSHA for any high gravity serious, willful, repeat, or failure-to-abate violation within the previous five years will receive a 10% increase in their penalty, up to the statutory maximum. Employers who have not been inspected and those who have received citations for serious violations that were not high gravity will receive neither a reduction nor an increase for history.

Repeat Violations: The time period for considering the classification of repeated violations has been increased from three to five years.

Severe Violator Enforcement Program (SVEP): High gravity serious violations related to standards and hazards identified in the SVEP will not normally be grouped or combined, and may be cited as separate violations, with individual proposed penalties.

 

Governor Rendell Signs Construction Workplace Misclassification Act

On October 13, 2010, Governor Ed Rendell signed into law House Bill 400, establishing the Construction Workplace Misclassification Act (CWMA).  This new law goes into effect February 10, 2011, and will have a dramatic impact on all construction companies utilizing independent contractors.  

Requirements Under CWMA

 

Under the CWMA, an individual who performs construction work may be considered and paid as an independent contractor only if: 

(1) the individual has a written contract;

(2) the individual is free from control or direction over performance of such services, both under the contract and in fact; and

(3) the individual is customarily engaged in an independently established trade, occupation, profession or business.      

 

With respect to the third criteria above, the CWMA states that an individual is customarily engaged in an independently established trade, occupation, profession, or business only if:

 

(1) the individual possesses his/her own tools;

(2) the individual's arrangement is such that he/she can realize a profit or suffer a loss as a result of performing services;

(3) the individual performs services through a business in which the individual has a proprietary interest;

(4) the individual maintains a separate business location; and

(5) the individual previously worked as a bona fide independent contractor (as defined by the CWMA) or holds him/herself out to the public as a bona fide independent contractor.

 

It is also noted that under the CWMA, the failure to withhold federal or state income taxes or pay unemployment compensation contributions or workers compensation premiums will not be considered in determining whether an individual is an independent contractor.  

 

Penalties

 

Administrative penalties may be up to $1,000 for the first violation, and up to $2,500 for each subsequent violation.  Each instance of misclassified workers is considered a separate offense.  In addition, violations of the CWMA can lead to a "stop work" order requiring the cessation of work by misclassified individuals within 24 hours, individual liability, and criminal sanctions.

 

To learn more about this Legislation, contact your local trades association such as Associated Builders and Contractors (ABC) and American Subcontractors Association (ASA) or contact the construction professionals at McKonly and Asbury, LLP.