The New Overtime Ruling & Why You Need to Care

On May 18, the U.S. Department of Labor (DOL) released its final rule updating overtime regulations. Before you even ask, YES, this is incredibly important.

The overtime regulations govern which executive, administrative and professional employees (sometimes referred to as “white-collar workers”) are allowed minimum wage and overtime pay protections under the Fair Labor Standards Act.

The current state of things …

The current rules have been around a long time. These rules state that employees subject to overtime regulations must be paid at least one and a half times their regular wage rate for any hours above 40 in a workweek.

Yes, there are exceptions (per usual). Any employee is exempt from the overtime regulations if they meet all of the following criteria:

  1. The employee is salaried. Read, they have a fixed income amount that can’t be reduced regardless of variations in quality or quantity of work performed.
  2. The employee is paid at least $455 per week, which amounts to $23,660 a year. This is known as the salary threshold.
  3. The employee primarily performs executive, administrative or professional duties.

So what’s changing?

The newly proposed regulation directly affects the salary threshold. Effective December 1, 2016, the new salary threshold will be $913 per week, which amounts to $47,476 annually. Yes, that’s almost double the previous threshold.

The salary threshold will then be updated automatically every three years. The first update will take place on January 1, 2020, when the salary threshold will change to approximately $51,000 annually.

Why should I care?

If you’re currently utilizing salaried employees to maintain customer deadlines, maintain service or for any other reason during certain times of the year, you may be in for a world of hurt. This ruling and the change of the salary threshold amount is expected to make 4.2 million additional workers eligible for overtime pay at 1.5 times an employee’s normal salary, per hour.

Another study, by the Economic Policy Institute, estimates that the raised threshold will give 12.5 million employees (a.k.a. 23 percent of salaried workers) a right to overtime pay.

“Although businesses have had a lot of practice over the years adjusting minimum wage increases … this rule change will be a significant shift for many small businesses and entrepreneurs” (source).

So how do I fix it?

Well the good news is that you don’t have to comply tomorrow. With an effective date of December 1, you have time to take some steps, like …

    1. Looking at your current pay rates for employees, as well as overtime worked to determine the potential financial impact.
    2. Review employee duties to see where workloads may be shifted to help minimize the amount of overtime your employees need to work.
  • Don’t forget about your people. Make sure you’re chatting with HR personnel (or consultants) since this ruling can have some big impacts on how you track hours, the base pay of affected employees and the amount of hours they’ll be able to work.


Anything else?

The change allows employers to include nondiscretionary bonuses and incentive payments (including commission) to satisfy up to 10 percent of the new salary threshold. You do, however, have to pay these amounts on a quarterly or more frequent basis though.

 A version of this blog first appeared on

Why HR Matters for Startups

One of the most important pieces of a startup or early stage company is human capital. After all, these are the individuals helping you achieve your dreams and goals. And they make a big impact if they choose to leave. So what resources are you devoting to them?

Often, startups don’t focus on HR practices or resources early on. While the reasons can be many (cost, no one sees the importance, etc.) the impact can be devastating to a company and its employees.

This boils down to a fundamental disagreement about what HR actually is, and what it’s not. Human Resources isn’t just responsible for onboarding and ensuring every form is signed on the dotted line by the individual’s start date. They’re also not babysitters hired specifically to watch your every move.

Human Resources allows employees to feel comfortable at their job, to help set expectations and to ensure a safe workplace for everyone.

Don’t believe us? Here are a few examples:

  • What happens if your employees are unhappy at their jobs? Or if they are having problems with someone else on staff? What outlet do they have to communicate their frustration? “As water cooler gossip migrates online … disputes can spread with alarming speed, distracting the rest of the team when they should be focused on delivery of a product” (source).
  • Who do you hire? Startups often employ friends to help expedite growth. When this happens, personal and professional issues get thrown together. “Leadership teams will tap their networks for the first 50 or even 70 employees. So you’ve got duality of professionalism and also friendships that run deep. It can be really funky” (source).
  • Are you developing an inclusive work environment? A recent study found that women are more often “the most vulnerable employees due to startups’ lack of HR and general anti-harassment procedures” (source).

So how do you fix it? Well, it starts with a tone at the top. Communicate the way your business will function and the types of behavior that will be tolerated, and what won’t be. Have a process in place for how you, as a founder, will handle complaints that come to you.

Then, back it with HR strategies, tactics and resources so your company isn’t blindsided. Decide what’s best for your organization, what your needs are and what gaps you need to fill in. There are several technology solutions out there that can help you streamline the standard practices and procedures and while ensuring you’re in compliance.

But make sure to look beyond just the technology solutions. Never underestimate the power of an actual person.

“An automated platform cannot replace the human experience of talking with someone, especially dealing with sensitive issues … when dealing with cultural difference and employee needs, the best solutions are likely not software or dashboard based” (source).




Sales Tax 101: Nexus


What is it and why should you care?

Well, are you doing business in multiple states? If you are, understanding nexus is a must for your business or it could cost you big time.

The concept of nexus is relatively simple however determining nexus has become fairly complex. Nexus (a.k.a sufficient physical presence) creates the responsibility to collect and pay tax on sales in the state you are doing business. Just as the term implies, it is the sufficient physical presence that creates nexus. Sufficient physical presence used to be fairly straightforward, however, with the rise of online retailing, the meaning of physical presence is evolving.

Sidebar: Activities that create nexus for sales tax purposes do not determine nexus for income tax. Some of the considerations are similar in nature but the extent of the activities generally vary. How about that for confusing?

So what types of activities could create nexus? Nexus is determined on a state by state basis (what creates nexus differs by state). Here are a few questions to get you started thinking about activities that could create nexus:

  •  Where are your employees or contractors (ex. salespersons, independent sales reps, subcontractors, etc.) located?
  • In what states do you attend trade shows?
  • In what states do you advertise locally?
  • What states do you have licensed franchises?
  • Do you have related entities? What states are they located?
  • What states do you have licenses on your intellectual property?
  • In what states do you have ownership of (or lease) real or personal property?
  • In what states are you maintaining inventory?
  • What states are your employees traveling for business purposes (sales, training, deliveries, installs/repairs, etc.)?

Bottom line, there are many considerations to determining nexus. If it seems too much, there are experts in the field of sales tax.


The Importance of an Entrepreneurial Ecosystem

We’re just going to come right out and say it. We love entrepreneurs. Why, you may ask, is an almost 100 year old company so infatuated with the next new thing? Well, despite all the mushiness about how you’re inspiring and creative and innovative (which is all true by the way), we also feel there’s a great importance in entrepreneurship and what it does for our communities.

That’s where the importance of a local entrepreneurial ecosystem comes in. The entrepreneurial ecosystem “refers to the elements – individuals, organizations or institutions – outside the individual entrepreneur that are conducive to, or inhibitive of, the choice of a person to become an entrepreneur, or the probabilities of his or her success” (yes, we got this from Wikipedia, but you have to admit, it’s pretty good).

Now for some words (our marketing peeps will be so impressed) …

The elements – individuals, organizations or institutions

“Entrepreneurs operate largely at a local level, and regions are strengthened when entrepreneurs connect with one another.” – Kauffman Foundation

An entrepreneurial ecosystem must create an atmosphere of growth and collaboration, as well as connection on a local level. This connection cannot just come from entrepreneurs connecting to other entrepreneurs. Yes, this is vital, especially as you share experiences and insight into your sleepless nights, your caffeine induced great ideas and your struggles to make your dream a reality.

But, this definition doesn’t just stop at fellow entrepreneurs. It specifically calls out others, such organizations and institutions. Established organizations are vital to the success of an entrepreneurial ecosystem and helping local entrepreneurs succeed. We believe that when we all work together to create an ecosystem where any company can thrive, regardless of size, we all win.

Conducive to … the choice to become an entrepreneur

Early stage businesses need help on a number of fronts. Yes, sometimes it is financial assistance. But it can also be advice, guidance and mentorship. Just as you aren’t skilled at everything, neither are they. So find ways to foster collaboration early on and help these businesses get off the ground the right way, with a strong foundation. Network with them and hear their pain points and struggles and celebrate with them in their triumphs.

You also might learn a thing or two. Here are just a few things our local Fargo entrepreneurs have taught us:

  • Think outside the box. Entrepreneurs know how to challenge the status quo and think differently about how things have always been done. This has enabled us to look at our business model and how we’ve always done things … and how we can change.
  • Collaboration and connection. We didn’t get to be almost 100 years old on our own. Collaboration is key and the local entrepreneurial ecosystem has allowed us to collaborate on projects and community issues, as well as network with new startups.
  • Be open and transparent. During one of our first meetings with a new entrepreneurial client, we got some pretty strong advice about some of our presentation materials. Instead of ignoring this comment, we asked how we could do it differently. Since then, we’ve fostered an open dialogue with several entrepreneurial and small business entities which allows us to provide honest and collaborative communication about issues (not just ours). We truly think we’re better when we all work together.

The probabilities of his or her success

Let’s face it, entrepreneurs and small businesses are vital to not only our local communities, but also to our economy.

Let’s illustrate this point with some numbers (we’re accountants after all):

  • There are 28 million small businesses in America. These account for 54% of all U.S. sales. (source)
  • Small businesses have generated 66% of net new jobs since the 1970s. (source)
  • Over 50% of the working populations works in a small business. (source)

Now you may be thinking, what do we consider “small”? Well, the SBA defines small business as a firm with fewer than 500 employees. Also, take into account that of those 28 million small businesses, over three-quarters are self-employed with no additional payroll or employees (these are commonly referred to as non-employers). Small businesses have a tremendous impact on our economy.

Every business had to start somewhere. By helping foster an entrepreneurial ecosystem that enables entrepreneurship to not only happen, but also thrive, we can not only grow our local economies, but also make valuable connections … and learn a thing or two along the way.


Business Equipment: Lease v. Buy

One of the things you may not have considered as a business owner are your equipment needs. Will you buy it outright? Or lease it? It’s a question you’ll face and an answer that’s not easy (did you expect anything less?).

Here’s the short answer: It depends on your situation.

Here’s the slightly longer one: Each business is unique and the decision to buy or lease business equipment must be made on a case-by-case basis. There are pros and cons to each one. Read on for more details.

To lease or not to lease?
Leasing can be a good option for business owners who have limited capital or need equipment that must be updated every few years. Leasing preserves capital and provides flexibility. However, it may cost you more in the long run.


  • Less initial expense. This is the primary advantage as it allows you to acquire assets with minimal initial expense.
  • Down payment is either very low or non-existent.
  • Payments may be a deducted as a business expense. Just make sure you check with your tax accountant on the appropriate lease to obtain.
  • Flexible terms as leases are usually easier to obtain and have more flexible terms than loans. This can be significant if you have bad credit or need to negotiate a longer payment plan to lower your costs.
  • Easier to upgrade equipment as leases allow you to address the problem of equipment no longer being used or useful. You are free to lease new, high-end equipment after your lease expires.


  • Higher overall cost. Leasing an item is almost more expensive than purchasing it. For example, a three-year lease on a computer worth $4,000 will cost you a total of $5,760 vs. buying out right at $4,247 (taking into consideration the time value of money), a savings of $1,513 by purchasing vs. leasing.
  • You don’t own it, so you don’t build any equity. Lack of ownership can be a significant disadvantage.
  • Obligation to pay for the entire lease term even if you stop using the equipment. Some leases give you the option to cancel the lease if your business changes direction and the equipment you leased is no longer necessary. However, you could incur an early termination fee.

To buy or not to buy?
Purchasing equipment can be a better option for established businesses or for equipment that has a long usable life. Ownership and tax breaks make buying business equipment appealing. However, the initial costs mean this option isn’t for everyone.


  • Ownership is the biggest advantage of buying equipment. This is especially true when the property has a long and useful life and is not likely to become technologically outdated in the near future, such as office furniture or farm machinery.
  • Tax Incentives. Check with you tax accountant to get the latest tax incentives that the IRS will allow.


  • Higher initial expense. If you pay cash, it takes away working capital. If you take out a loan, most banks will require a minimum down payment of 20% and lenders may place restrictions on your future financial operations to ensure that you are able to repay your loan.
  • Getting stuck with old equipment. If you buy equipment that is high-tech you run the risk the equipment may become technologically obsolete and will have very little resale value.

So you still haven’t answered the question.
It’s your call to make, not ours. When deciding whether to buy or lease business equipment, figure out the approximate net cost of the asset. Figure in tax breaks and the resale value when making this calculation.

After determining which option is more cost-effective, consider other intangibles such as the possibility the product will become obsolete or that your need for the product will expire before the lease does. Each decision regarding buying or leasing needs to be made carefully to best fit your company’s situation and needs.

To Thine Ownself Be True

On this blog we offer a lot of advice and tips for small business and entrepreneurial startups. We give you a lot of options of things to do and consider.

At the end of most of these, we say something that we believe is so critical we’ve decided to write an entire blog about it.


There are a lot of choices to make as a business owner. And a lot of these choices don’t have a right or wrong answer … unless your question is should I file taxes, to which the answer is yes. Always yes. Your business advisor can give you guidance and perspective, but at the end of the day, the decision is yours.

So how do you decide? Know yourself and your business. You know why you got into business in the first place. You know what your hopes and your dreams were when you started your entrepreneurial journey.

SCORE talks about two things that are vital to startups, but often misunderstood and confused: vision and values.

  • Values are “part of your business DNA” (meaning they don’t change). Ask yourself why your business exists at all and what it stands for.
  • Vision is “future-focused” as you look at where you want to grow to and what you want to accomplish over the next 10, 15 or 20 years. This is why we harp on you to do a business plan (forgot about this one? Here’s your refresh). While your vision can change and shift, it’s important to have a solid understanding of at least what direction you’d like to head.

We believe that vision and values are both part of knowing yourself and your organization. These things are uniquely yours and will help define your entrepreneurial and business journey. By holding tightly to your values and casting forth your vision, you will be better equipped to answer the questions that come your way and embrace feedback, all while maintaining the integrity of your organization.

“Take more advice. Mix people’s views into a cup. Stir them around. Think about the motives or experiences of those offering advice. Think about whom you trust based on past advice. Think about your own situation and overlay it against the frameworks that others offer … But in the end follow your own gut. That’s why you’re a founder.” (source)

What You Want to Know: Cash & Pass Through Income

What do you mean I owe tax? I didn’t get any cash!

Welcome to the world of cash distributions versus pass-through income of an entity. Confused yet? Stick with us on this. It’s important.

This is a common question for owners of pass-through entities. A pass-through entity is a fancy tax term which boils down to that a business doesn’t pay income tax. Rather, the profits “pass through” the company to the owners. We’re talking here about organizations structured as S-corporations, partnerships or LLCs.

It’s a pretty common misconception that income tax is paid on cash distributions from the business. And yes, this is partly true. There are certain instances where cash distributions from partnerships or S-corporations are taxable. But the majority of the time, this is simply not the case.

As an owner of an S-corporation or partnership, you are taxed on the activity of the business, which is reflected as income or losses on the Schedule K-1 issued with the business tax return. It is possible for a business to generate taxable income and have no cash distributions to owners. So you would still have to pay income tax, regardless of if you received cash distributions or not.

Common reasons for this include:

  • Cash is used to pay down debt
  • There is income attributable to uncollected accounts receivable
  • Business expansion

And to complicate things even further, it’s also possible for a business to have losses, yet still issue owner distributions. This is most commonly due to depreciation and other non-cash expenses. Another reason is collection of accounts receivable included as income in prior years.

The moral of the story is that taxes are rarely straightforward. So even if you didn’t receive a cash distribution, there’s still the potential tax is owed. The best way to know for sure is to consult with your tax professional. They’ll help you see what’s coming round the bend and then, even if you owe, you hopefully won’t be surprised by it.