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HR and Tax Newsletter - September 2005

Unknown Disqualifying Factor Sufficient to Defeat Sex Discrimination Claim

The Eleventh Circuit has concluded that an Alabama woman who was turned down for a county truck driver position could not proceed with her federal sex discrimination claims because her speeding citations revealed that she was unqualified for the position, even though the county was unaware of the citations when it considered her application.

The woman applied for a county truck driver position several times. Her applications did not disclose that she had been cited for driving 15 or more miles over the speed limit on two occasions. Her name never was submitted for consideration, and she never received an interview. The county hired two males for the open positions.

In reaching its decision the court merely considered whether the woman was qualified to be a truck driver at the time she expressed interest in the position. The court concluded that the speeding tickets disqualified her and that the employer would have discovered the speeding tickets if the woman had gone through the full hiring process. Underwood v. Perry County Commission.

Network Engineer Not Eligible for Overtime

A Florida federal court has concluded that a network engineer is exempt from payment of overtime under both the administrative and professional exemptions to the Fair Labor Standards Act. In reaching its decision the court concluded that the engineer's job required the independent judgment and discretion that are the hallmarks of an exempt job under FLSA. The engineer has a wide variety of duties related to establishing the network infrastructure. Among other things he was responsible for assuring proper installation of all cabling, maintaining network availability and security, interacting with clients and vendors, recommending purchases of equipment, and evaluating emerging technologies. Bagwell v. Florida Broadband

ESOP Pointer

What are the advantages to an S Corporation that establishes an ESOP (employee stock ownership plan) ?

ESOP's create significant tax planning opportunities for closely held S corporations. The ESOP unrelated business income tax exemption exempts the ESOP from taxation of the items of income, gain and loss that flow through to the shareholders. This means the ESOP's portion of the S-corporation's net income would escape federal income taxation. Participants, however, are taxed on their ESOP distributions under Code 402.

These rules can provide an ESOP-owned S-corporation with a competitive advantage over a C-corporation because the S-corporation will not have any federal income tax liabilities. If the ESOP owns all or substantially all of the company's common stock, the S-corporation will not be under as much pressure to distribute a portion of its earnings to non-ESOP shareholders to assist them in paying those federal income taxes attributable to the S-corporation's net earnings that flow through to the shareholders. These tax savings can provide ESOP-owned S-corporations with a source of funding for future growth that would not be available to other corporations.