Does your company have a policy handbook outlining the expectations of the company and employee conduct? Whether your company is large or small, policy handbooks are a necessary instrument to your business. Policy handbooks save management time in resolving day-to-day disputes and they can also be especially helpful when more severe disputes arise. Your policy handbook can have a profound effect on your tax and potential legal issues. It is imperative for companies having even a few employees to have a policy handbook before any disputes arise.
Fringe Benefits and Tax Consequences
Fringe benefits are benefits paid for by the employer, for the benefit of the employee. Usually included among fringe benefits are retirement programs, health insurance, life insurance and vacation benefits. Generally, expenses paid by the company on behalf of the employee for fringe benefits are deductible by the company. A clear indication of the benefits, including what amounts or time periods involved, should be clearly spelled out in your manual.
Keep in mind that if you own two or more companies, you must keep fringe benefits consistent across your organizations to fulfill legal and tax requirements for deductibility and administration.
Your policy handbook can have consequences influencing your tax position. There are many tax provisions that are affected by employee use of company property. For instance, deductibility of company vehicles requires a written policy prohibiting employees from using the company vehicles for personal use. If there is not a written policy against using the vehicles for personal use, your company may lose the deduction. Loss of deductions can result in a much higher tax liability than expected, had a written policy been in place.
Policy handbooks can also have an impact on the finances of your company. Limiting or prohibiting phone calls during work time may prevent an otherwise industrious employee from being an interstate socialite while on company time. The result would be greater productivity from the employee and a lower company phone bill.
It is also important to define vacation time and what happens to unused time. However, make sure the definition or proclamation does not create a balance sheet liability.
The ultimate importance of a policy handbook is the effect it may have in court. Committing to your position in writing prior to a dispute or court case can have a profound effect on the outcome of the circumstances. Every attorney would agree that they would rather have a policy handbook with a sexual harassment procedure as opposed to not having a policy. Stating you will not tolerate sexual harassment after it has been committed may not save you from liability.
Do you work in a hazardous environment? A policy handbook containing safety procedures and OSHA regulations can be a very important device. Not only is it important to keep your employees safe, it is important to define safe procedures to avoid winding up in court.
Defining job descriptions is also important to help you in a legal situation. The Fair Employment Act describes exempt and nonexempt employees for purposes of paying a salary or wage. Just stating that an employee is exempt it does not establish the fact. Care must be taken to design jobs to conform to legal standards.
It’s very important to define each one of your company policies. Failing to do so allows other people, employees, courts or even unions to define your policies. The consequences of not having a policy handbook can also lead to problems concerning matters you may not have previously considered. It is important to spell these things out in order to prevent someone from doing it for you to your disadvantage.
The Center specializes in preparing policy handbooks and assisting companies with the tax and legal aspects of their handbooks. Contact the specialists at The Center for a review of your current handbook, for an update or to write a specific policy handbook for your company.
By: Dr. Bart Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors