Outsourcing vs. Offshoring.
Lately there have been a lot of individuals denouncing outsourcing – stating that they want to keep jobs from going overseas. That is a good position to take in my opinion. However, it got me thinking about semantics and how people view the business of outsourcing.
To start, what people are talking about is Offshoring. Offshoring is the tactic of having services provided by someone in another location typically done for financial reasons. Why have a room full of tech-support people in America where you have to pay industry driven wages plus overtime plus benefits when you can get someone in India to provide the same (well, close to the same) service for less than half the price. This is good and bad – the good is that it helps companies create, sell, and support products at the low price that we consumers demand. The bad is that it moves jobs away from America – jobs that Americans need.
Outsourcing is the process of having another company or other people do part of your work for you. This is more common than people think and EVERYBODY does it. In the construction industry, you outsource jobs to sub-contractors because you don’t have the manpower, the time, or don’t have the expertise/certification in a particular field (for example, asbestos abatement). Other examples include having your CPA calculate your payroll taxes for you or taking your vehicle to an oil change service to have them change the oil (both are items that you can do, but typically outsource). The top reasons people outsource is because of cost, time, and compliance necessity. For example, a payroll service which handles hundreds of clients can typically process your payroll for less than you can do it yourself. This gives your payroll person more time to work on revenue producing/saving tasks such as sales revenue forecasting or P&L ledger work. Lastly, a payroll service will always be up-to-date with the most current tax tables and IRS rules.
Bottom line is that people outsource for good, sound business reasons. Think about how many different services that you could potentially do yourself, but allow another to do it – and why you went that route.
Monday, August 23, 2010
Friday, August 13, 2010
Texas unemployment 101 - how the system works
In case you’ve been on vacation in Tahiti for the last year, the employment situation in Texas (and the entire US) has been somewhat on the rocks. To understand a little bit about how this affects your payroll taxes and why you are affected by this increase – even if you have had a good unemployment history – let’s do a little bit of Unemployment 101.
In the state of Texas, unemployment insurance (UI) is paid for by a tax on payroll dollars. This tax is paid exclusively by the employer. It is a common misconception by employees that “I’ve paid into unemployment for X years…”. Wrong – it is entirely paid by the employer. The tax rate that the employer pays is based on your individual company’s unemployment history. New companies or those with no record at all pay 2.7% payroll for the 1st 6 quarters. After that, it can either go up or down depending on your UI losses. In 2009, the lowest tax rate available – assuming that you had a completely stellar previous 3 years regarding unemployment – was .26% of payroll. In 2010, the rate jumped to .72%. This is an increase of 176% (or .46% of payroll). The biggest concern to most businesses is the maximum tax. In 2009, the maximum was 6.26%. In 2010, the maximum is 8.6% of payroll. Although this is a smaller increase by percentage (37% increase) it represents a potential increase of 2.34% of payroll. According to Commissioner Tom Paukins Office, the average tax rate in 2009 was .99%. In 2010 it is 1.83% of payroll and is expected to climb for 2011. It is important to note that the tax is levied on the first $9,000 of annual payroll for each employee. That means that if you have a lot of turnover, hire frequently, or have a majority of lower wage employees, you will have a higher effective tax rate than average.
The reason for the across the board increase is because the unemployment fund is out of money. Employees who lose their jobs through no fault of their own are eligible for benefits. Further, the Texas Workforce Commission (TWC) – contrary to the sentiments of the unemployed – is decidedly pro-employee and not pro-employer. TWC claims are overseen by 3 commissioners with 1 representing employers and 2 representing employees. Benefits are paid directly out of the general fund. These benefits are calculated and “charged back” to the former employer(s) of the employee. There is no political will to reign in the abuses to the system. In fact, there has been continual pushes to increase the time that individuals can collect unemployment (equaling more $’s pulled out of the fund and an increase in UI taxes to your company). This fund was never intended to be a welfare fund, and with many UI claims now being paid out for over a year it is unclear as to how or when the fund will stabilize again.
As you can see, the deck is stacked against the employer when it comes to unemployment conditions and tax rates. And as a business owner or manager you are the one to feel the brunt of the increases. However there are simple ways to reduce your exposure and ultimate tax liability – all which affect your financial bottom line and profitability as a company. I’ll follow up in my next post or you can contact me directly at kevin.cobb@focus1hr.com (512-257-0999). All of this advice is offered freely and can be corroborated with a phone call to your business CPA or an internet search.
In the state of Texas, unemployment insurance (UI) is paid for by a tax on payroll dollars. This tax is paid exclusively by the employer. It is a common misconception by employees that “I’ve paid into unemployment for X years…”. Wrong – it is entirely paid by the employer. The tax rate that the employer pays is based on your individual company’s unemployment history. New companies or those with no record at all pay 2.7% payroll for the 1st 6 quarters. After that, it can either go up or down depending on your UI losses. In 2009, the lowest tax rate available – assuming that you had a completely stellar previous 3 years regarding unemployment – was .26% of payroll. In 2010, the rate jumped to .72%. This is an increase of 176% (or .46% of payroll). The biggest concern to most businesses is the maximum tax. In 2009, the maximum was 6.26%. In 2010, the maximum is 8.6% of payroll. Although this is a smaller increase by percentage (37% increase) it represents a potential increase of 2.34% of payroll. According to Commissioner Tom Paukins Office, the average tax rate in 2009 was .99%. In 2010 it is 1.83% of payroll and is expected to climb for 2011. It is important to note that the tax is levied on the first $9,000 of annual payroll for each employee. That means that if you have a lot of turnover, hire frequently, or have a majority of lower wage employees, you will have a higher effective tax rate than average.
The reason for the across the board increase is because the unemployment fund is out of money. Employees who lose their jobs through no fault of their own are eligible for benefits. Further, the Texas Workforce Commission (TWC) – contrary to the sentiments of the unemployed – is decidedly pro-employee and not pro-employer. TWC claims are overseen by 3 commissioners with 1 representing employers and 2 representing employees. Benefits are paid directly out of the general fund. These benefits are calculated and “charged back” to the former employer(s) of the employee. There is no political will to reign in the abuses to the system. In fact, there has been continual pushes to increase the time that individuals can collect unemployment (equaling more $’s pulled out of the fund and an increase in UI taxes to your company). This fund was never intended to be a welfare fund, and with many UI claims now being paid out for over a year it is unclear as to how or when the fund will stabilize again.
As you can see, the deck is stacked against the employer when it comes to unemployment conditions and tax rates. And as a business owner or manager you are the one to feel the brunt of the increases. However there are simple ways to reduce your exposure and ultimate tax liability – all which affect your financial bottom line and profitability as a company. I’ll follow up in my next post or you can contact me directly at kevin.cobb@focus1hr.com (512-257-0999). All of this advice is offered freely and can be corroborated with a phone call to your business CPA or an internet search.
Thursday, August 12, 2010
Want a get-out-of-jail-free card?
Remember playing Monopoly when you were young (or maybe you still play)? One of the best cards you could get off of the board was the get out of jail free card. Save it until you get sent to jail and viola – all you got was a free ride across the board with no penalties.
Now apply that concept to your business. Subscriber Workers’ Compensation Insurance gives you something that is as close to get-out-of-jail-free as you can get – the protection of Exclusive Remedy.
Texas is a unique state in more ways than one. Texas is the only state where you have the ability to “opt out” of the Subscriber Workers’ Compensation system. Pretty cool when you think about the business options this gives you. However, when you opt out, you give up the protection of Exclusive Remedy. Exclusive Remedy means that the WC subscriber system is the exclusive system that the employee has in order to be taken care of in the event of a workplace accident. Medical care for their injury and recovery of lost or future wages is what is covered. That means they cannot sue you for the injury (well, not exactly true – there are very limited circumstances that are still open for litigation, but that is for another discussion).
On the flip-side, an Occupational Accident policy may be more cost effective up front. However, this type of policy doesn’t provide the rights of exclusive remedy. Meaning that an injured employee can sue you for their injury and you give up your right to common defense. Plus, most OccAcc policies have limits that can be quickly reached and surpassed in the event of a catastrophic injury or multiple injuries over the course of the policy, meaning that you will have to personally foot the bill for the rest. If the employer doesn’t pay those expenses OR doesn’t do it in a way that the employee feels is in their best interest, the employee may sue for the difference plus attorney fees.
Now here comes the tricky part – which type of insurance do you have? Many insurance agents sell an OccAcc policy that they refer to as “Workers’ Comp” or they imply that they have a cheaper insurance that does the same as WC. However, they often don’t tell you the differences and benefits of WC over an OccAcc policy. I am a firm believer of not purely taking anyone at their word – including me. Check with your attorney or do a simple internet search regarding the differences in Texas between subscriber and non-subscriber workers’ compensation insurance. I know you will find some information that would affect your decision making process regarding work injury insurance.
The final option is one that NO ONE recommends – going bare. If you decide to operate with NO workers’ comp coverage at all (your General Liability insurance will not cover employees injuries), then you risk everything. An injured employee can take your business, your home, and your children’s college fund to cover the cost of injury and lost wages. Plus, most people who go bare don’t realize that there is a requirement from the Texas Department of Insurance to report to them – annually – of your decision to opt-out of the system. Additionally you are required to report to the TDI, any work related injuries.
Now apply that concept to your business. Subscriber Workers’ Compensation Insurance gives you something that is as close to get-out-of-jail-free as you can get – the protection of Exclusive Remedy.
Texas is a unique state in more ways than one. Texas is the only state where you have the ability to “opt out” of the Subscriber Workers’ Compensation system. Pretty cool when you think about the business options this gives you. However, when you opt out, you give up the protection of Exclusive Remedy. Exclusive Remedy means that the WC subscriber system is the exclusive system that the employee has in order to be taken care of in the event of a workplace accident. Medical care for their injury and recovery of lost or future wages is what is covered. That means they cannot sue you for the injury (well, not exactly true – there are very limited circumstances that are still open for litigation, but that is for another discussion).
On the flip-side, an Occupational Accident policy may be more cost effective up front. However, this type of policy doesn’t provide the rights of exclusive remedy. Meaning that an injured employee can sue you for their injury and you give up your right to common defense. Plus, most OccAcc policies have limits that can be quickly reached and surpassed in the event of a catastrophic injury or multiple injuries over the course of the policy, meaning that you will have to personally foot the bill for the rest. If the employer doesn’t pay those expenses OR doesn’t do it in a way that the employee feels is in their best interest, the employee may sue for the difference plus attorney fees.
Now here comes the tricky part – which type of insurance do you have? Many insurance agents sell an OccAcc policy that they refer to as “Workers’ Comp” or they imply that they have a cheaper insurance that does the same as WC. However, they often don’t tell you the differences and benefits of WC over an OccAcc policy. I am a firm believer of not purely taking anyone at their word – including me. Check with your attorney or do a simple internet search regarding the differences in Texas between subscriber and non-subscriber workers’ compensation insurance. I know you will find some information that would affect your decision making process regarding work injury insurance.
The final option is one that NO ONE recommends – going bare. If you decide to operate with NO workers’ comp coverage at all (your General Liability insurance will not cover employees injuries), then you risk everything. An injured employee can take your business, your home, and your children’s college fund to cover the cost of injury and lost wages. Plus, most people who go bare don’t realize that there is a requirement from the Texas Department of Insurance to report to them – annually – of your decision to opt-out of the system. Additionally you are required to report to the TDI, any work related injuries.
Wednesday, August 11, 2010
Do you have the right type of business insurance?
Most businesses are savvy enough to know they need to carry insurance, but what kind? Unfortunately, it is far too common for business owners to think they are covered against most common types of loss only to find out – too late – that they are not properly protected. If you live along the Texas coast, you understand that you can't just buy homeowners insurance. You have to either buy separate wind and flood policies to augment your homeowners insurance OR buy a comprehensive policy to assure that your assets are covered. Just like hurricane protection for your home, you may need to have several different types of insurance to protect your assets – and often this protection is available for a lot less than you think.
Here is a snapshot of the most common types of business insurance –
• General Liability (GL): Typically provides protection against claims of bodily injury or property damage for which your business may be liable. Note that there are some common exclusions that may need to be covered under other types of policies. GL will NOT cover injuries to your employees. All businesses should carry GL coverage, and in many cases it is required by your landlord, vendors, and clients.
• Professional Liability/Errors & Omissions: Professional Liability or Errors & Omissions (also called E&O) is necessary if you perform a professional service, like a nurse or a CPA. Your GL policy typically will NOT cover you against loss in the event that you or one of your employees makes a mistake that causes someone physical or financial damage – for example, a nurse administering the wrong medicine or a CPA making a costly mistake on a company’s financial statement.
• Commercial property insurance: Your GL policy may not cover all damages to your property (both the building and the contents) in the event of some events – such as a tornado, fire or vandalism.
• Workers’ Compensation (WC): If your employees are injured in the line of work, your GL will not cover the expenses for care or loss of wages. This can either be a true “subscribers policy” or a simple Occupational Accident policy – both of which have benefits and drawbacks, so choose this one wisely and not only on the basis of initial cost.
• Umbrella: Most policies have certain “reasonable” limits or caps to how much they will pay out. An umbrella policy is one that only activates in the event of a catastrophic nature and damages exceed the amount of your policy.
• Commercial auto insurance: Many companies require their employees to utilize their own vehicles for work, yet often don’t check to see if they have the correct automobile insurance coverage. Commercial auto may be required, whether paid for by the company or by the employee.
All of these types of insurance should be discussed with a trusted insurance advisor to determine the level of coverage that you need. Don’t just accept whatever coverage is handed to you, ask questions such as:
• If my employees are injured on the job, how is their medical care paid for? Is there a limit on coverage and if so, what if the care exceeds that cost? What about lost wages – who is responsible?
• If one of my employees makes a mistake and a customer is physically or financially harmed, am I covered?
• If confidential information is stolen or lost from my company, what protections do I have?
• If one of my employees is using their personal vehicle for business use, will I/they be covered in the event of an accident? If so, to what extent (Repair their vehicle? Repair a 3rd party vehicle? Medical coverage? Replace damaged business related equipment or merchandise?)
Your business is often your largest investment in both time and money. Make sure you protect it and yourself with a level of insurance that is both of the proper type and at a coverage level that is appropriate for your industry and size.
Kevin Cobb
Sr. VP – Risk Management
Here is a snapshot of the most common types of business insurance –
• General Liability (GL): Typically provides protection against claims of bodily injury or property damage for which your business may be liable. Note that there are some common exclusions that may need to be covered under other types of policies. GL will NOT cover injuries to your employees. All businesses should carry GL coverage, and in many cases it is required by your landlord, vendors, and clients.
• Professional Liability/Errors & Omissions: Professional Liability or Errors & Omissions (also called E&O) is necessary if you perform a professional service, like a nurse or a CPA. Your GL policy typically will NOT cover you against loss in the event that you or one of your employees makes a mistake that causes someone physical or financial damage – for example, a nurse administering the wrong medicine or a CPA making a costly mistake on a company’s financial statement.
• Commercial property insurance: Your GL policy may not cover all damages to your property (both the building and the contents) in the event of some events – such as a tornado, fire or vandalism.
• Workers’ Compensation (WC): If your employees are injured in the line of work, your GL will not cover the expenses for care or loss of wages. This can either be a true “subscribers policy” or a simple Occupational Accident policy – both of which have benefits and drawbacks, so choose this one wisely and not only on the basis of initial cost.
• Umbrella: Most policies have certain “reasonable” limits or caps to how much they will pay out. An umbrella policy is one that only activates in the event of a catastrophic nature and damages exceed the amount of your policy.
• Commercial auto insurance: Many companies require their employees to utilize their own vehicles for work, yet often don’t check to see if they have the correct automobile insurance coverage. Commercial auto may be required, whether paid for by the company or by the employee.
All of these types of insurance should be discussed with a trusted insurance advisor to determine the level of coverage that you need. Don’t just accept whatever coverage is handed to you, ask questions such as:
• If my employees are injured on the job, how is their medical care paid for? Is there a limit on coverage and if so, what if the care exceeds that cost? What about lost wages – who is responsible?
• If one of my employees makes a mistake and a customer is physically or financially harmed, am I covered?
• If confidential information is stolen or lost from my company, what protections do I have?
• If one of my employees is using their personal vehicle for business use, will I/they be covered in the event of an accident? If so, to what extent (Repair their vehicle? Repair a 3rd party vehicle? Medical coverage? Replace damaged business related equipment or merchandise?)
Your business is often your largest investment in both time and money. Make sure you protect it and yourself with a level of insurance that is both of the proper type and at a coverage level that is appropriate for your industry and size.
Kevin Cobb
Sr. VP – Risk Management
Tuesday, August 10, 2010
Why I'm here
A long time ago, a wise person stated that if you stop learning, you might as well be dead. If you are an employer and stop learning (about employee related issues) your company might end up dead.
I used to know a lot. In fact, I used to know pretty much everything that needed to be known about what I was working on or with. I was an employer and knew the rules and regulations pertaining to employment. As part of my job, I was in charge of safety and knew everything I needed to keep my plant safe and avoid OSHA involvement (after all, we had virtually no injuries and none that could be contributed directly to the working environment).
Then I joined with a group of individuals who truly were experts in their fields and started Focus1. At that point I realized that I actually knew…. Nothing. Worse than nothing, I knew enough to steer the companies that I worked for in a direction that could have had disastrous consequences. I call this knowledge “Monopoly knowledge” after the board game. If you played Monopoly as a kid, you knew that the rules stated that when you land on Free Parking, you get the money in the middle of the board. Why did you know this? Because it was how you were taught and how all of your friends played it (well, at least that is what we did in Texas). Then you run across that one kid who actually reads the rules. Guess what? The rules actually state that you don’t get the money. In fact, Free Parking is just that – the single spot on the board where there are no consequences. And the guy who actually read the instructions grows up to be the IRS agent. Or the OSHA inspector, or the Workers’ Comp insurance investigator, or the EEO compliance officer looking over your hiring practices, or….. You get the picture.
So, why am I producing this blog? Several reasons:
1) I am a firm supporter of the entrepreneurial spirit. If I can impart information that will help you protect your company or make a better informed decision about an employee related issue, then I have helped a small business grow. And according to the Small Business Administration, over 50% of all non-government jobs in America are provided by small businesses.
2) I believe in sharing knowledge. Especially knowledge that can help save a life (workplace safety), save a job, or save a small company. Giving away free advice sounds counter-productive; however the information that I have the time and the effort to produce in this blog is only the tip of the iceberg in regards to employment matters.
3) This is my business and I want people to know that there are companies like mine that can help them. Companies are already aware that there are CPA’s that can structure a program to help reduce financial losses and keep them legally compliant, but few know that there are companies that service smaller businesses do the same with Payroll, HR, Workers’ Comp, Safety, and Benefits Administration.
So, keep in touch and I’ll do my best to keep this interesting and worth your time.
Sincerely,
Kevin
I used to know a lot. In fact, I used to know pretty much everything that needed to be known about what I was working on or with. I was an employer and knew the rules and regulations pertaining to employment. As part of my job, I was in charge of safety and knew everything I needed to keep my plant safe and avoid OSHA involvement (after all, we had virtually no injuries and none that could be contributed directly to the working environment).
Then I joined with a group of individuals who truly were experts in their fields and started Focus1. At that point I realized that I actually knew…. Nothing. Worse than nothing, I knew enough to steer the companies that I worked for in a direction that could have had disastrous consequences. I call this knowledge “Monopoly knowledge” after the board game. If you played Monopoly as a kid, you knew that the rules stated that when you land on Free Parking, you get the money in the middle of the board. Why did you know this? Because it was how you were taught and how all of your friends played it (well, at least that is what we did in Texas). Then you run across that one kid who actually reads the rules. Guess what? The rules actually state that you don’t get the money. In fact, Free Parking is just that – the single spot on the board where there are no consequences. And the guy who actually read the instructions grows up to be the IRS agent. Or the OSHA inspector, or the Workers’ Comp insurance investigator, or the EEO compliance officer looking over your hiring practices, or….. You get the picture.
So, why am I producing this blog? Several reasons:
1) I am a firm supporter of the entrepreneurial spirit. If I can impart information that will help you protect your company or make a better informed decision about an employee related issue, then I have helped a small business grow. And according to the Small Business Administration, over 50% of all non-government jobs in America are provided by small businesses.
2) I believe in sharing knowledge. Especially knowledge that can help save a life (workplace safety), save a job, or save a small company. Giving away free advice sounds counter-productive; however the information that I have the time and the effort to produce in this blog is only the tip of the iceberg in regards to employment matters.
3) This is my business and I want people to know that there are companies like mine that can help them. Companies are already aware that there are CPA’s that can structure a program to help reduce financial losses and keep them legally compliant, but few know that there are companies that service smaller businesses do the same with Payroll, HR, Workers’ Comp, Safety, and Benefits Administration.
So, keep in touch and I’ll do my best to keep this interesting and worth your time.
Sincerely,
Kevin
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