condon o’meara mcginty & donnelly llp october 23,2015
TRANSCRIPT
Club Java
Condon O’Meara McGinty & Donnelly LLP
October 23,2015
On July 15, 2015, in Department of Labor (“DOL”) Administrator’s Interpretation No. 2015-1, the DOL advised that misclassification of employees as independent contractors is found in an increasing number of workplaces in the United States.
Please note this is a workplace specific concern – it is not a club specific concern.
Clubs are workplaces. jr1
DOL Administrator’s Interpretation No. 2015-1
Concern – if employers misclassify employees as independent contractors, employees may not receive important workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers’ compensation.
This is not a new development – proper classification has always been a DOL concern.
jr2
DOL No. 2015-1 – Why is the DOL Concerned?
Concern -- Misclassification results in lower tax revenues for government!
DOL No. 2015-1 – Why is the DOL Concerned?
The DOL advised – key consideration in classification (employee vs. independent contractor) decision is whether the worker is economically dependent on the business.
The DOL emphasized its view that most workers are employees under the FLSA. jr4
DOL’s View - Most Workers Are Employees
How far courts will go in accepting DOL July 15, 2015 advice?
Employers should be aware that the DOL will apply a very broad definition of “employee” when investigating a company’s practices.
jr5
DOL’s July 15 View – What Do Courts Think?
Supreme Court previously advised that determination of relationship (employee vs. independent contractor) cannot be based on isolated factors or a single characteristic –relationship depends upon all circumstances.
How does Supreme court’s prior advice comport with the DOL position previously mentioned – key consideration in classification (employee vs. independent contractor) decision is whether the worker is economically dependent on the business.
jr6
DOL’s July 15 View – What Do Courts Think - II?
A. Is the Work an Integral Part of the Employer’s Business? B. Does the Worker’s Managerial Skill Affect the Worker’s
Opportunity for Profit or Loss? C. How Does the Worker’s Relative Investment Compare to
the Employer’s Investment? D. Does the Work Performed Require Special Skill and
Initiative? E. Is the Relationship between the Worker and the Employer
Permanent or Indefinite? F. What is the Nature and Degree of the Employer’s
Control? jr7
Economic Realities Factors
A highly regarded law firm wrote that “[i]t is important to note that the factors described in the [July 15, 2015] guidance do not reflect a change in the law or in the DOL’s view of worker classification. Prior DOL guidance and court decisions have long applied these and similar factors.
In its guidance, the DOL goes out of its way to stress its view that most workers should be treated as employees and indicates that this will be an area of focus for the agency going forward.”
“[I]t remains to be seen how far courts will go in accepting the DOL’s interpretation – employers should be aware that the DOL will apply a very broad definition of “employee” when investigating a company’s practices.”
jr8
Major Law Firm Weighs In
“Therefore, clubs that require the use of caddies or that have golf and tennis professionals working as independent contractors may be forced into major changes to comply with the law.”
jr9
Another Prominent Voice Weighs In
Will All Caddies Have to Be Employees? Will Caddy Programs Disappear into the Dust Bin
of History if Clubs Can Not Afford the Cost of Adding More Employees?
MAJOR CHANGES – IS THE SKY FALLING?
A prominent labor lawyer told me…. COMD - the Labor Law is outside the scope of our
practice. We provide audit and tax services. Our advice is that a Club should collect all the pertinent facts regarding its caddy program and another non-employee worker relationships and consult with it legal counsel, preferably legal counsel with Labor Law experience. Legal advice has a cost, but the cost may not be as significant as if the Club inadvertently falls on the wrong side of a DOL investigation.
jr11
What a Prominent Labor Lawyer Told Me
Member Capital Contributions to Tax-Exempt Clubs are not subject to the federal income tax.
Are Member Capital Contributions to Taxable Clubs subject to the federal income tax?
jr12
Taxable Club vs. Tax-Exempt Club
Club Receives Insurance Proceeds:◦ Taxable Club – are proceeds taxable?◦ Tax-Exempt Club – are proceeds taxable?
jr13
Taxable Club vs. Tax-Exempt Club
Taxable Club charges its members capital assessments. The Club segregates the funds and uses funds only for capital projects, not to provide services. Subject to income tax?
Taxable Club argues that it properly excludes capital assessments received from its members from taxable income because such funds were (1) earmarked and reserved by the corporation's board of directors for capital improvements, (2) segregated from funds used for ordinary operating expenses, and (3) in fact used for capital improvements. Is the Taxable Club correct?
jr14
Capital Contributions - Taxable Clubs
Do the members have entitlements that are characteristic of capital contributions in order to establish that the payments were not made exclusively, or primarily, for the privileges and services received by the members?
The courts and IRS have a view….
jr15
Capital Contributions - Taxable Clubs - II
Club suffers damage from a hurricane. The club’s board had the foresight to have insurance. The club receives insurance proceeds from an insurance company, a non-member. Are the insurance proceeds taxable and, if so, are there tax provisions that provide relief from taxation.
Taxable Club? Tax-exempt Club?
jr16
Insurance Proceeds
Cash◦ Controls over bank accounts with bank custodian
Hacking Fraudulent checks
Internal controls over check signing/transfers (segregation of duties)
Key Internal Control & Accounting Areas
Petty Cash◦ Keep to a minimum◦ Proper supporting documentation
Accounts receivable◦ Follow up on member payments◦ Reviewing allowance for doubtful accounts
Key Internal Control & Accounting Areas (continued)
Property and equipment◦ Recording damage due to storm
Capital vs. Operating◦ Recording of greens damages
Payroll◦ A little more than 50% of a club’s cost◦ High Risk area
Controls, including computer controls◦ Payroll payoff – What’s that?
Key Internal Control & Accounting Areas (continued)
Credit cards◦ Proper documentation◦ Proper review and authorization◦ Business expense only (no personal expenses!)
Retirement plans◦ Multi-employer plans
Funding status (red, yellow, green)◦ Deferred compensation plan
Assets/liabilities of Club
Key Internal Control & Accounting Areas (continued)
What’s Old◦ Going Concern
Effective date – 12/31/16◦ Lease Accounting
Effective date - ???
Latest Developments / GAAP
What’s New◦ Financial Accounting Standards Board (FASB) Proposed
Accounting Standards Update for Nonprofit Entities (Topic 958)◦ History and background◦ Exposure draft – April 2015◦ Public comments through August 2015◦ Not-for-Profit financial reporting
Net asset classification Combine three net asset classes (unrestricted, temporarily restricted
and Permanently restricted into two net asset classes Assets without donor restrictions Assets with donor restrictions
Latest Developments / GAAP (continued)
Statement of activities◦ Investment fees
Presently – option: gross or net Proposed – net
◦ Presentation of transfers Reflected after change from operations
Latest Developments / GAAP (continued)
Expense reporting◦ Presently - no specific requirement
Hybrid – Functional/nature
◦ Proposed - Reporting by functional basis – separate statement or note to financial statements
Latest Developments / GAAP (continued)
Statement of cash flows◦ Indirect vs. Direct Method
Presently either method is acceptable Proposed – Direct method
Note disclosures◦ Description of board-designated funds◦ Liquidity
Latest Developments / GAAP (continued)
Private Club Environment Challenges for Private
Clubs well documented prior to Great Recession.
Forces at Work Include:◦ Aging of Baby Boomers◦ Changing Lifestyles ◦ Declining Corporate Support ◦ Increased Competition◦ Increased Operating Costs◦ Shrinking Initiation Fee and
Other Revenue◦ Increased Debt
Our Industry Has Been Shrinking(Country Clubs)
0
1000
2000
3000
4000
5000
6000
1990 2000 2010 Est 2020?
199020002010Est 2020?
Down 6%Down 10%
Down ??%
0 - 3 Miles44%
8 - 15 Miles19%
Over 15 Miles7%
4 - 7 Miles30%
Distance From Home to Club
Dues have outpaced inflation for most of the past decade:◦ Country Club dues up 47% since 2004◦ Members down approximately 1% since 2007
Regular members down 6% Other membership categories up 5%
Source of dues and initiation payment is more likely to come from the member than a company.
This has increased demand for year-round value. 80 million people coming into the prime joining age in next
20 years
Perceived Value
Membership Trends
2007 2008 2009 2010 2011 2012 2013 2014 20150
100
200
300
400
500
600 550515 505
481 481 480 479
538 542
250 224 227 211 212 219 218259 262
300290 278 270 268 262 261 279 280 Regular Members
Other CategoriesTotal members
Debt Survey Country Clubs-2014
Total debt carried by Clubs $117,725,505Average debt carried by Clubs with debt $3,363,586Average of all Clubs $3,181,770
RECAP # of Clubs PercentageNo debt 2 5.4%Under $1,000,000 8 21.6%$1,000,000 to $3,000,000 9 24.3%$3,000,000 to $5,000,000 11 29.7%$5,000,000 to $7,000,000 4 10.9%$7,000,000 to $10,000,000 3 8.1%
Total 37 100.0%
Debt Survey Country Clubs-2004
Average debt carried by Clubs with debt $1,834,000
RECAP# of
Clubs PercentageNo debt 12 32.4%Under $1,000,000 9 24.3%$1,000,000 to $3,000,000 8 21.6%$3,000,000 to $5,000,000 3 8.1%$5,000,000 to $7,000,000 3 8.1%$7,000,000 to $10,000,000 2 5.4%
Total 37 100.0%
City Clubs◦ Average debt = $3.7 million – 2014◦ Average debt = $ 3 million – 2007
Up 23% Tennis, Beach and Yacht Clubs
◦ Average debt = $ 900 k – 2014◦ Average debt = $ 605 k – 2007
Up 50%
Debt Survey
Amounts- due to resigned members on the increase
Member Debt-Bonds
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$467k
$547k$596k $604k $597k $581k $566k $546k
$496k $501k
Avg Initiation fee 2004 = $32,000Avg Initiation fee 2014 = $32,000Avg 10 Year = $550,000Down 17% from 2007
Initiation Fees –Country Clubs-10 Years
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$864,235
$1,230,495
$988,947
$1,140,867
$1,177,112
$1,272,858
$1,011,152 $769,084
$815,364
$1,114,170
Chart Title
Capital Expenditures –Country Clubs– 10 years
$384 Million 10 Year Avg = $1,039,000
What clubs are spending capital on?
Golf◦ Practice, fitness & training
Indoor practice facilities Outdoor casual dining
◦ Pub feel◦ Fire pits
Pool facilities◦ Resort style
Tennis◦ Still growing at 40%
Tween/Teen rooms
Initiation Fees –City Clubs-10 Years
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
$333 $333$362
$396
$337 $350k $381k $397k $407k
$473k
Initiation Fees
Capital Expenditures –City Clubs– 10 years
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$618,000
$520,000 $487,000
$444,000
$721,000 $639,000
$495,000 $429,000
$631,000
$983,000
Chart TitleCapital Expenditures
Initiation Fees –TBY Clubs-10 Years
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$194
$228 $223$233
$243 $237k $228k $240k $232k $241
Initiation Fees
Capital Expenditures –TBY Clubs– 10 years
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$618,000
$520,000
$487,000
$444,000
$721,000
$639,000
$495,000 $429,000
$631,000
$983,000
Chart TitleCapital Expenditures
Dues54%
Food19%
Beverage8%
Sports12%
Other7%
The Country Club Income Dol-lar….
Club Operating and Management Data
Payroll & Related54%
Operating Supplies & Expenses
26%
Costs of Food &
beverage10%
Real Estate Taxes &
Insurance7%
Balance available for Debt Service Etc3%
Club Operating and Management Data
……And Where It Went
2014 ◦ Food and Beverage Revenue $1,800,000
Average net loss % 0.50% 2004
◦ Food and Beverage Revenue $1,350,000 Average net loss % 3.3%
Focus on members is casual dining Less formal More chef interaction with members
Food and Beverage TrendsCountry Clubs
2014 ◦ Gross cost per hole $78,000◦ Net cost per hole $70,000
2004◦ Gross cost per hole $55,000◦ Net cost per hole $38,000
Percentage increase – Gross 42%Net 85%
Water Consumption
Golf Course Cost Per Hole
Condon O’Meara McGinty & Donnelly LLPJames J Reilly, CPA, JD
PartnerDirect: 646 438 6203
Email: [email protected]
Kevin P. Foley, CPAPartner
Direct: 646 438 6210Email: [email protected]
James J Hankowski, CPAPartner
Direct : 646 438 6206Email: [email protected]
Contact Information