July 2002 Trade Winds

Full Length Articles

Use the links below to read a specific article from the July 2002 Trade Winds.

Article Title
Overtime Liability Can it Blowup in Your Face?
Why Couldn’t You Sell Outside the USA?
U.S. Immigration Changes Not Friendly to our Northern Neighbors
What Was The Best Investment Of The Past Decade?

Overtime Liability Can it Blowup in Your Face?
By: Michael A. Holzschu Ó 2002

Unpaid overtime to workers who have been misclassified as exempt employees is a ticking financial bomb just waiting to explode. A worker earning $65,000 a year, who worked 50 hours a week for three years - just 10 hours of overtime a week - will be due $146,250 if the unpaid overtime is doubled as a penalty for "willful violation" of the law. (The two-year statute of limitations is also extended to three years for "willful violation.)

This explosion could cost a company "thousands or even millions of dollars" depending on the company size and number of violations. It only takes one disgruntled employee to file a complaint with the Wage and Hour Division of the US Department of Labor or the State Department of Labor to open an investigation into your classification system.

In the past five years, more than 450 class-action "wage-and-hour" lawsuits have been filed throughout the nation and companies continue to be "inundated" with them. Executives shouldn't expect a receptive ear in court, either, as overworked judges "bond" with overworked employees who are seeking payment for overtime.

The quality of life issue has created an environment where our society is angry about the amount of hours that are worked. The backlash, especially in times of reduced staffing, causes employees to respond in ways that are normally not seen such as contacting government agencies to "get even" for the perceived company indifference.

Companies hit by such lawsuits read like the Fortune 500. Settlements so far, include Starbucks paying its store managers $18 million, Pacific Bell paying engineers $35 million and $27 million to its sales managers, and Farmers Insurance paying $130 million to claims adjusters. Wal-Mart has 28 separate lawsuits pending against it. Although the list looks like all of the big companies, small and medium sized organizations need to be vigilant and proactive in their pay structures and overtime pay issues.

One would think that these companies would have a staff that should know what they are doing. If those kinds of companies can be hit with a class-action overtime suit, what's to say that your organization cannot also be hit with an overtime class-action suit? Or at minimum a visit from the Wage and Hour office?

Human resource professionals need to review the job responsibilities of everyone at the company and compare that information to the exemptions contained in the Fair Labor Standards Act (FLSA) to determine if the exempt workers are correctly classified.

Many CEO’s and HR professionals mistakenly believe that if an employee is salaried, then he or she is correctly classified as exempt, but much more information is needed to make a proper determination. An executive, for example, must have management as his or her primary duty, supervise two or more full-time-equivalent employees, exercise independent judgment and discretion, and earn at least $250 a week. These are the bare bones areas needed to qualify as exempt. The FLSA also has different requirements for various other job categories such as administrative, professional, inside or outside salespersons and computer professionals.

If a company believes it has misclassified workers who are due overtime pay, it should first survey its employees to ask them to list their overtime hours for the past two years (the federal statute of limitations) - and then pay them while having them sign a legal release. You have a legal obligation to pay them the money. There is no legal way around that.

Moreover, if your CEO or CFO do not appreciate your concern, a you should determine the extent of the company's liability as a way to get their attention. A worker earning $65,000 a year, who worked 50 hours a week for three years - just 10 hours of overtime a week - will be due $146,250 if the unpaid overtime is doubled as a penalty for "willful violation" of the law. (The two-year statute of limitations is extended to three years for "willful violation.)

With these types of dollar amounts you will have your executive's immediate attention. You are talking about serious potential liability.

The statistics for 2001 covering all areas of investigated complaints for Michigan are:

Fiscal Year 2001 Summary for the Wage and Hour Division of CIS in Michigan

Investigated 5826 Complaints

Collected just over 2.8 million dollars, up 37% from fiscal year 2000.

So the activity is not solely resting on large companies when it comes to filing complaints.

If the executive staff ignores the situation, somewhere along the line if the issues are investigated, there will be someone that will be the "scape goat" for the organization.

Take the time to analyze your situation. For help and or a Compliance Audit for your firm, contact the author at the information below.


Michael A. Holzschu is the managing principal in the firm of Holzschu, Jordan Schiff & Associates specializing in Human Resource Systems, with a special focus on employee handbooks, job descriptions, performance appraisal formats, training, safety and quality issues. He can be contacted at (248) 476-6907 or by email at [email protected] or the company website at www.hjsa.com. The Company’s client base is primarily small to medium employers from all types of industries located throughout the United States.

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Why Couldn’t You Sell Outside the USA?
By Roger Keranen, © 2002

Ever thought about it? What kept you from setting it up? Strategic planning is the only way to be called "lucky" by envious competitors. Your planning for offshore sales takes careful thought and investigation into the possible pitfalls.

Let’s think like you are an international buyer in a European based global company for a minute. Under what circumstances would you buy from a new supplier?

First Guess:

Your current suppliers are ineffective or incapable of meeting your purchasing needs. Solution: find new sources.

Do you want to make your life easy and require all suppliers to meet the same set of standards? The obvious answer is "yes" because it makes sense to have one set of standards to work with.

With the focus on the requirements for the European Union standards, companies have no choice but to obtain a CE marking, which then allows them to move their products freely throughout the European Union. A CE marking is required on any products that fall within the scope of any of the European Union's 29 New Approach Directives.

"CE" is an abbreviation of the French phrase "Conformité Européenne." The CE marking on a product is the manufacturer's assertion that the product complies with the essential/safety requirements of relevant European regulations.

One of the many aspects of obtaining a CE is that the company has a quality system to handle problems that occur with ISO 9000 being mentioned in several of the component areas. Plus, in the USA, a company will have to work with a Registrar organization to obtain the CE marking.

Second Guess:

You need to have trust, from a your remote location, that they have the quality processes, resource capacity, and timely delivery strength to make you "look good" to your management.

Solution: Your supplier should be ISO-9001:2000 registered as it is the internationally recognized Quality Management Standard that assures that they have quality processes, commitment to effective resources, and can meet contracted deliveries because they have Customer Orientated Procedures and a Registrar tests for compliance every 6 months.

Additionally, ISO-9001:2000 has built in problem solving processes to prevent failure and, should a problem occur, processes to react well in the customer’s best interests. ISO registration better assures your buyer that you will be successful in protecting his image, initially, and over time.

One of the key essentials in your Strategic Planning process should be: "Would ISO 9001:2000 give me the edge to compete in today’s market place and even provide me with an edge over my competitors?"

Roger Keranen is the Principal Consultant in the firm of LeanISO specializing in ISO-9001:2000, ISO/TS 16949:2002, the Skills Management Process, and customized training. He can be contacted at 1-877-554-7831 or by email at [email protected]. The company’s client base has service and manufacturing organizations from 15 to 1500 employees.

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U.S. Immigration Changes Not Friendly to our Northern Neighbors
By: Scott F. Cooper & Michael M. Benchetrit

Canadian citizens and residents are having to bear what would seem an unfair burden as a result of U.S. immigration policy changes resulting from the September 11 terrorist attacks on the U.S. Border controls, visa requirements, and entry documentation requirements are being tightened with our neighbors to the North losing privileges and being subject to additional paperwork and delays in entering. Following are several of the changes and plans which affect our good friends from Canada.


Department of State Planning Change in Policy towards Permanent Residents of Canada

Permanent residents of Canada who have a "common nationality with nationals of Canada" are exempt from the requirement to obtain a visa to enter the U.S. For example, a citizen of Australia who is a permanent resident of Canada can take a worker petition approval notice directly to a U.S. port of entry without having to first apply for a visa at a U.S. consul. Such individuals are also passport exempt.

Those deemed to have a "common nationality with nationals of Canada" are citizens of Antigua and Barbuda, Australia, Bahamas, The Bangladesh, Barbados, Belize, Botswana, Brunei, Cameroon, Canada, Cyprus, Dominica, Fiji, Gambia, The Ghana, Grenada, Guyana, India, Ireland, Jamaica, Kenya, Kiribati, Lesotho, Malawi, Malaysia, Maldives, Malta, Mauritius, Namibia, Nauru, New Zealand, Nigeria, Pakistan, Papua New Guinea, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Seychelles, Sierra Leone, Singapore, Solomon Islands, South Africa, Sri Lanka, Swaziland, Tanzania, Tonga, Trinidad and Tobago, Tuvalu, Uganda, United Kingdom (including colonies, territories, and dependencies), Vanuatu, Western Samoa, Zambia, and Zimbabwe.

According to Antoinette Marwitz, the new U.S. Consul General in Toronto, the State Department is planning to change this policy to require Canadian permanent residents, regardless of nationality, to obtain nonimmigrant visas to enter the United States. It is expected that the passport exemption also would be eliminated, as would the exemption for such nationals resident in Bermuda.

This action is only in the planning stage at this point in time so the exemptions currently remain in place.

Limits Placed on Part-Time Commuter Students

Pursuant to a recent memorandum issued by the Immigration and Naturalization Service (INS), part-time students commuting from Canada (or Mexico) are prohibited from doing so after July 1. This change was not expected by either school officials in the United States or by commuter students.

According to INS, the action is being taken to comply with existing statutory and regulatory requirements. Under federal law, a foreign national coming to the United States to study may not be classified as a visitor (B-1 or B-2 classification). A foreign national may only be classified as a student (F-1 classification) if he/she intends to pursue a full-time course of study at an approved school. However, for a number of years district offices at border points in the United States have made exceptions to this rule, mainly for Canadian students.

An exception is being made for those part-time commuter students in ongoing programs that began prior to May 22, 2020. These students are being allowed to enter to complete their current session of school. Each student is required to provide proof of enrollment and request "parole" status each time they apply for admission at the U.S. port of entry.

Rep. Jim Kolbe (R-AZ) has submitted HR 4967 which will allow Canadian and Mexican citizens to commute to the U.S. for part-time study under a new F-3 visa category. Regretfully, permanent residents of Canada and Mexico would not benefit. Senator Hutchison has submitted a companion bill in the Senate. A number of representatives from New York and Texas are co-sponsoring these bills but none from Michigan as yet.

Whether these will be modified to accommodate permanent residents of both countries or pass in time for fall enrollments is yet to be seen.

It should be noted that the term "course of study" implies a focused program of classes leading to a degree or that teaches a potential vocation. INS recognizes that casual, short-term classes, such as a single English language or crafts class would not be part of a "course of study" and would not be affected by the change in policy.

New Entry Exit System

It may be that Canadians may have to obtain documentation for any entry to the U.S. in the future. In 1996, Congress passed the Illegal Immigration Reform and Immigrant Responsibility Act (IIRAIRA); Section 110 of IIRAIRA mandated, for the first time, that INS implement an automated "Entry-Exit Control System." The provision required that INS collect departure and arrival records to enable the Service to identify those who had overstayed their visas, and called for the Entry-Exit Control System to be in place within two years of passage. However, INS never implemented such a system, and in 2000 Congress revised the Section 110 mandate, reaching a compromise that called for INS to create a centralized database to organize and coordinate entry and exit data already collected at ports of entry. The compromise legislation, The Immigration and Naturalization Services Data Management Improvement Act of 2000 (P.L. 106-215), was enacted to allay concerns that an Entry-Exit System would cost billions to implement, and would potentially slow and/or disrupt cross-border commerce and tourism.

The compromise directed that INS generally limit the information collected by agents at the ports of entry to that which is typically collected, such as name, country of origin, and date of birth. P.L 106-215 required air and seaports of entry to enter the information into the database by December 31, 2003. The fifty busiest land border crossings were required to have the system installed by the end of 2004 and the rest of the crossings by the end of 2005.

After September 11, 2020, Congress returned to the 1996 requirement for an Entry-Exit system, and in the USA PATRIOT Act mandated that INS establish an integrated entry and exit data system to be fully implemented at all ports of entry "with all deliberate speed and as expeditiously as practicable." Congress called for the development of the system to focus on the use of biometric technology and tamper resistant documents, and for the system to interface with law enforcement databases.

This may require all entrants, including Canadian citizens, to obtain either an Arrival-Departure Form I-94 or to participate in the Border Crossing Card program (for frequent entrants). The logistics could be nightmarish and daily cross-border commercial activity significantly affected. Businesses in Windsor, Canada noted a considerable drop in tourist activities as a result of the tightening of border security and inspections at the Detroit ports of entry after 9/11. The long delays which resulted initially discouraged many from cross either way over the border and the volume of casual activities – crossing for retail purchases and entertainment – is perceived to have never regained pre-9/11 levels. The delays which could result from having to document every Canadian visitor could have even greater affect.

Scott F. Cooper, Managing Director of the Troy, Michigan office, has been a Partner with the Chicago office since 1990 serving clients in Chicago, Detroit and other areas in the Midwest. In practice since 1979, he has served as Chair of the Immigration and Nationality Law Committee of the Chicago Bar Association and an officer with the American Immigration Lawyers Association.

Michael M. Benchetrit is an Associate Attorney with the Troy, Michigan office. He received his Juris Doctorate degree from the Thomas M. Cooley Law School, Masters degree in Public Policy and Administration from the University of Guelph and a Bachelors degree in Political Science Specialized Honors program from York University in Toronto.

They can be contacted at 248.649.5404


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What Was The Best Investment Of The Past Decade?
Submitted by: Kenneth W. Peterson Ó 2002

If you were an investor in the 1990s would you have done better with stock or real estate?

No doubt a lot of money has been made with stocks. At the same time, the last few years have been a blow-out on Wall Street. Between dot-coms, cable firms and Enron, predictions that the Dow Jones Industrial Average would one day hit 36,000 now seem far removed. Indeed, the Dow has fallen nearly 15 percent in the past two years, from 11497.12 at the end of 1999 to 10021.50 at the end of 2001.

But what about real estate? Has it done any better?

Speaking before the National Press Club, Fannie Mae Chairman and CEO Franklin D. Raines offered this analysis:

It's January 1990. Three individuals have just received a $10,000 year-end bonus. And they're trying to decide what to do with the windfall.

John decides to invest his $10,000 in the stock market, and being conservative with his finances, he puts the money in an index fund of S&P 500 stocks.

Bill is excited by the possibilities of the Internet and all the new technology companies, so he puts his $10,000 in a Nasdaq index fund.

Mary has never invested in the stock market. But she's tired of paying rent every month with nothing to show for it. So she put her $10,000 down on a bungalow listing for about $80,000.

It's about 12 years later. Assuming they all had to pay for shelter every month, how would you say John, Bill, and Mary did on their $10,000 investment? Who came out better?

Since 1990, the value of the S&P 500 more than tripled. So from his initial investment of $10,000, John made about $22,000, pre-tax.

During the same period, the value of the Nasdaq quadrupled. So Bill's gain was roughly $30,000, pre-tax.

What about Mary? During the same period, home values increased roughly 4 percent per year nationally. At that rate, the house that Mary bought for $80,000 is now worth about $126,000. And if she sold it, she would have a profit of about $46,000. And that gain would be free of capital gains taxes.

"It is extraordinary," said Raines, "that after the longest, strongest bull market in history, the average American built more wealth owning a home than she did in the stock market."

"Most Americans invest and earn more in their homes than they invest and earn from their savings accounts, IRAs, stocks, bonds or other investments," he said.

"During the past ten years, the average stockholder earned $23,000 in the stock market, while the average homeowner earned $44,000 in home equity. Home equity remains the cornerstone of most family wealth."

But even if the returns from stock market investments and homeownership were the same, real estate would still yield a better net result. Why? While profits from the sale of stock are generally taxable, profits of up to $500,000 for a married couple (and as much as $250,000 for single owners) are typically shielded from taxes when a prime residence is sold.

Kenneth W. Peterson ABR is the Broker/Owner of K.W. Peterson & Associates a Professional Real Estate Brokerage and Consulting Organization. K.W. Peterson & Associates can handle all of your residential real estate needs, including relocation. You can reach him at 248.681.9700, or www.kwpeterson.com

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