Question: A company provides company cars to certain employees who in turn report business use of the vehicles under an accountable expense reporting plan. Each month, personal use is calculated and included in employee wages. An employee was transferred to a new work location, moved to a new residence, and used the company vehicle to transport some items to the new residence. Should this use be treated as business or personal use of the vehicle?
Answer: If the transported items are personal, the trip constitutes personal use unless it otherwise qualifies as business travel or transportation. Under the Tax Cuts and Jobs Act of 2017, moving expense reimbursement and employer-paid moving expenses for the employee’s household goods or family are not allowable exclusions from employee income regardless of any accountable plan provisions.
Any reimbursement or payment of moving expenses by the employer is taxable income to employees, as are facilities such as the company car provided by the employer for use in the move. Moving expenses are also not deductible expenses for the employee under the TCJA.
In general, the fair-market value of personal use of employer-provided facilities, such as a car, must be included in employee wages unless the employee pays the employer for the personal use.
If the employee pays the employer for the personal use of the vehicle and the employer then reimburses that payment or part of it as a moving expense reimbursement, the reimbursement is included in wages.
Some states may allow a deduction for work-related moving expenses. Any limitations on the expenses that may be deducted are handled on the employee’s state income tax return.
However, for both state and federal tax purposes, any reimbursement or use of employer facilities is included in wages, regardless of any employer policy as to the nature or extent of the expenses reimbursed.
For example, employer policy may determine the amount to reimburse using a cents-per-mile rate, fuel receipts, or an amount the employee would have to pay a third party, but the employer would still include the reimbursement in wages.
Question: An employer has employees who qualify under the current FLSA white-collar exemption tests. The employees work part time and average about 20 hours per week. The employer is concerned the Labor Department will increase the minimum salary amount and some of these employees may no longer meet the salary level test. Can the required minimum weekly salary be prorated for part-time workers?
Answer: The Labor Department has indicated that the current salary levels under the Fair Labor Standards Act executive, administrative, and professional overtime exemptions are under review. The current salary threshold for most employees to qualify for exemption is $684 per week, but some states require a greater minimum salary amount than the FLSA.
To qualify for exemption from the FLSA minimum wage and overtime requirements, an employee must meet the job duties, salary basis, and salary amount tests. To meet the salary basis and salary amount tests, an employee must regularly receive a predetermined amount of compensation each pay period that is equal to or greater than the applicable salary threshold. This salary amount cannot be reduced because of variations in the quality or quantity of the employee’s work.
Generally, an exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked, but some exceptions exist. The employer may not make deductions from the salary for reasons other than those specifically allowed. There is no provision for a reduction in the minimum salary required for the exemption due to a part-time schedule.
However, an employer is not required to classify an employee as exempt just because the employee’s job duties and salary meet the requirements.
One option for part-time employees is to classify them as salaried nonexempt. This works well if they have fixed schedules which might be 20 hours per week in this case. The employer could continue the current salary since it covers the current minimum wage and it is unlikely the employees would work any overtime.
If employee hours fluctuate from week to week, the employer may want to consider using the fluctuating workweek method, where the salary is intended to cover the straight-time compensation for all hours worked during a workweek. Under that method, employees receive their regular salary as well as additional compensation for any overtime hours worked.
Providing a set salary for all hours worked under a fluctuating workweek is similar to classifying the employee as exempt, but there are some differences. The primary difference is that the exceptions that allow pay reductions for exempt employees are not applicable when using the fluctuating workweek method. For example, a reduction in pay for a full day of personal leave is not allowed under the fluctuating work week method.
The employee’s hours must fluctuate from workweek to workweek in order to use this method. However, the hours do not have fluctuate both above and below 40 hours. There must also be a clear and mutual understanding between the employer and employee that the employee is being paid on a fluctuating workweek basis.
This column does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., or its owners.
Patrick Haggerty is the owner of a tax practice in Chapel Hill, N.C., and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at firstname.lastname@example.org.
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