NW Tax Wire Is Your Unpaid Intern an Employee? Maybe . . . to - PDF document

miller nash llp | Summer 2010 brought to you by the tax law practice team NW Tax Wire ™ Is Your Unpaid Intern an Employee? Maybe . . . to training that would be given in an in which the intern performs “produc- educational environment; tive work,” is less likely to meet DOL’s criteria. • The internship experience is for by Wayne D. Landsverk the benefi t of the intern; A fi nding that an unpaid intern is wayne.landsverk@millernash.com an “employee” under the FLSA could • The intern does not displace have far-reaching consequences beyond regular employees, but works under wage-and-hour claims. For example, close supervision of existing staff; the employer may also be in violation • The employer that provides the of workers’ compensation, unemploy- by Merril A. Keane training derives no immediate ment compensation, withholding, and merril.keane@millernash.com advantage from the activities of the other federal and state tax laws. It may intern, and on occasion its opera- School is out, and summer intern- turn out that the intern is even eligible tions may actually be impeded; ships are beginning across the North- to participate in the employer’s benefi t • The intern is not necessarily west. Employers might not be thinking plans as an employee. about whether their unpaid summer entitled to a job at the conclusion of If a company chooses to bring on interns qualify as employees under the the internship; and unpaid interns this summer, it should Fair Labor Standards Act (the “FLSA”). • The employer and the intern take all steps necessary to satisfy all the After all, the intern and the employer understand that the intern is not DOL criteria and document such steps are on the same page: The intern gets entitled to wages for the time spent in the intern’s fi le. For example, detailed valuable experience, so there is no obli- in the internship. records of time spent by employees gation to pay. Right . . . ? training interns should be kept. Care If any of the factors are not met, the This spring, the U.S. Department taken on the front end of the relation- position will be considered “employ- of Labor (“DOL”) announced strict ship can help to avoid later claims for ment” under the FLSA, and the intern criteria for unpaid internship positions. back pay and other benefi ts. will be entitled to be paid at least mini- Scrutiny of unpaid internships is on the mum wage, plus overtime at the rate of rise in Oregon, as recently reported by time and a half for all hours worked in inside this issue the New York Times . 1 According to DOL excess of 40 in a workweek. An intern guidance, a position will not qualify as a 2 WA State Legislative Update program that is geared toward training “training program” that is exempt from the intern with general skills that could 3 Senate Bill 498 wage-and-hour rules under the FLSA be applied in a variety of employment 4 Business Energy Tax Credit unless the following six factors are met: environments—similar to an academic • The internship, even though it experience—is more likely to meet includes actual operation of the DOL’s criteria. A program that focuses facilities of the employer, is similar on the employer’s individual operations, 1 Steven Greenhouse, The Unpaid Intern, Legal or Not , NY Times, Apr. 2, 2010, available at www.nytimes.com/2010/04/03/business/03intern.html?hp. www.millernash.com

Washington State Legislative Update part designated as payment for services ted sales taxes. All other responsible as a director would be subject to B&O individuals continue to be liable for col- tax). lected and unremitted sales taxes only if they willfully failed to remit the taxes by Monica Langfeldt Nonresident directors may be to the Department of Revenue (“DOR”). monica.langfeldt@millernash.com subject to B&O tax even if they are not physically present in Washington, Tax-Avoidance Transactions. During the last legislative session, depending on the interpretation of the the Washington legislature made some The legislation requires the DOR new nexus rules. signifi cant changes to Washington’s to disregard three expressly identifi ed All amounts received by the di- tax system. This review highlights tax-avoidance transactions or arrange- rectors are subject to B&O tax. This and briefl y discusses some of the most ments: includes cash compensation, noncash signifi cant updates. 1. one that is, in form, a joint compensation including stock and venture or similar arrange- Corporate Directors Subject to Tax on stock options, and amounts paid as ment between a construction Compensation (effective July 1, 2010). reimbursements for the directors’ contractor and the owner or expenses. The new legislation extends busi- developer that, in substance, ness and occupation (“B&O”) tax to The Offi ce of Financial Manage- provides substantially guaran- amounts received by an individual for ment assumes that the tax will be ap- teed payments for the purchase “serving as a director” of a corpora- plied to corporate directors’ fees paid by of construction services; tion. Directors will be taxed under corporations based or headquartered in 2. one through which a taxpayer the “service and other” classifi cation Washington. avoids B&O tax by disguising (1.8 percent under the new legislation). How the tax will be administered is income from third parties that Directors will also qualify for the small- still to be determined. would be taxable in Wash- business credit that will eliminate ington if the taxpayer had not the B&O tax on total service income Temporary B&O Tax Increase (effective moved that income to another (including directors’ fees) of less than May 1, 2010, through June 30, 2013). entity that was not taxable in $46,667 per year and reduces the tax Taxpayers in the “service and other” Washington; or on service income if less than $93,333. category, real estate brokers, and those 3. those that avoid sales or use tax Employee directors will likely in the “gambling contest of chance” on property located in Wash- continue to be exempt from B&O tax as B&O tax classifi cations will incur a ington that was transferred to long as their pay is in the form of com- temporary B&O tax rate increase from or acquired by another entity, pensation received as an employee and 1.5 to 1.8 percent. but that the transferor effec- not as an independent contractor (i.e., tively retains control over. Corporate Offi cers Strictly Liable for if the payments are separated out, the Unpaid Sales Tax. Electronic Newsletter New Treatment of Options to Purchase Currently, responsible individuals Looking to Go Green in 2010? Just Entities. may be personally liable for sales tax trying to cut out the clutter? Parties are no longer able to avoid collected but unpaid upon the termi- paying Real Estate Excise Tax (“REET”) Lighten the load in your mailbox nation, dissolution, or abandonment on a sale or acquisition of a controlling and help us reduce our impact of an LLC or corporation. The new interest (50 percent or more) in an en- on the environment by choosing legislation expands the defi nition of tity that owns Washington real property to receive NW Tax Wire via e- “responsible individual” to include an by using options. It is no longer the mail. Please send us an e-mail at offi cer, manager, partner, or trustee of date on which an option is exercised clientservices@millernash.com an LLC regardless of the individual’s that determines whether or not a con- or call us at 503.205.2608 to sign tax responsibility or duty. In addition, trolling interest has been transferred up for the electronic version of the legislation makes CEOs and CFOs or acquired within a 12-month rolling this newsletter. strictly liable for collected and unremit- (continued on page 5) 2 | miller nash llp | NW Tax Wire