If you’re like most millennials, estate planning is not high on your list of priorities. Paying off student loans, buying a first home and starting a family are more common concerns of those in their 20s and 30s. However, it is during this time in our lives that we begin to establish financial stability, acquire legitimate assets of our own and become responsible for people other than ourselves. Although no one likes to think about things like death and disability, planning for these events ahead of time will protect the people you love and reduce the burden on them during a difficult time.

Generally speaking, estate planning is the process of organizing your affairs so that in the event you are unable to care for yourself, or you have passed away, your finances are in order and arrangements are made to care for your loved ones. There are a variety of tools available to achieve these goals, but one of the most fundamental and useful for millennials is a testamentary will. A will is a legal document that sets forth your wishes regarding the distribution of your property and care of any minor children.

In the event that you die without a will (or other similar instrument), the disposition of your property will be determined by the court. This means that your assets may potentially end up in the hands of someone other than who you intend. These days, many millennials are involved in committed romantic relationships, but put off marriage or avoid it all together. While marriage creates default rules that give spouses a legal entitlement to your property, unmarried partners have no such right and will be left with nothing in the event of your death. In Idaho, even if you are married your estate may be split between your spouse, parents or your children in ways that you may not have foreseen. The creation of a will allows you to spell out how you want to divvy up your property and assets in the manner of your choosing.  

For millennials that have children, a will allows you to designate a personal guardian who will care for your children when you are gone. If this issue has not been addressed before you die, the court could make the decision and the resulting guardian may not be who you would have intended if the choice was yours. Frequently, parents opt to include a trust to be administered along with their wills naming their children as the beneficiaries.  The creation of such a trust allows you to provide further instruction on how to tend to your children’s financial needs as they grow.

Millennials are the first generation to grow up online. As a result, many have amassed a number of digital assets. Some digital assets such as cryptocurrencies, online financial accounts and airline points have significant worth. Other digital assets, such as social media accounts, photos and videos have sentimental value and should be preserved or appropriately shut down. Do you want revenue generating assets be transferred to people who can continue to manage them or should cash values be redeemed? Should social media webpages be deleted or updated memorial page? A properly drafted will should include instructions in accordance with your wishes along with a separate list of account names, passwords.

As the old saying goes, in this world nothing is certain, except death and taxes. With that in mind, a simple estate plan can ease the burden of both, regardless of how much stuff you have or how old you are. While it may sound like an exhausting process, in truth, you don’t need much to start planning.  

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Let’s talk about the Fair Labor Standards Act (FLSA), and how simple oversights can cause you major legal headaches.  As a background, the FLSA was passed by Congress in 1938 to protect “all covered employees from substandard wages and oppressive working hours.” Barrentine v. Arkansas Best Freight Sys., Inc., 450 U.S. 728, 789 (1981); see also 29 U.S.C. § 202(a) (stating that the FLSA protects “the minimum standard of living necessary for the health, efficiency and general well-being of workers.”). The FLSA requires that an employer pay overtime compensation to employees who work more than forty in a work week. 29 U.S.C. § 207(a)(1). The FLSA provides an exemption from the overtime requirement to “persons employed in a bona fide executive, administrative, or professional” capacity. 29 U.S.C. § 213(a)(1).

In order to classify an employee as exempt under the FLSA, the employer must be able to prove that (1) the employee performs executive, administrative, or professional duties; (2) the employee is paid at least the minimum salary level; and (3) the employee is paid on a salary basis.  Employers can find a substantial amount of guidance freely available on other legal publications and blogs regarding what duties satisfies the first requirement, and the minimum salary level required to satisfy the second requirement. However, very little guidance exists  discussing the salary basis test.

            The Department of Labor’s regulation, 29 C.F.R. § 541.602, governs the application of the salary basis test for exempt employees (i.e. salaried employees) under the FLSA. Under § 541.602, an employee is paid on a salary basis when: “(1) ‘the employee regularly receives each pay period on a weekly, or less frequent basis, (2) ‘a predetermined amount constituting all or part of the employee’s compensation,’ and (3) the amount ‘is not subject to reduction because of variations in the quality or quantity of the work performed.’”  29 C.F.R. § 541.602(a). To qualify under the salary basis test, “an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked . . .” Id. 

            There are seven exceptions to the general rule, which are set forth in are listed in 29 C.F.R. § 541.602(b) (1) – (7).  One such exception provides that:

Deductions from pay may be made when an exempt employee is absent from work for one or more full days for personal reasons, other than sickness or disability. . . However, if an exempt employee is absent for one and half days for personal reasons, the employer can deduct only for the one full-day absence.

What does this mean?  You cannot deduct salaried employee’s salaries for showing up late. For example if you deduct a salaried employee’s paycheck for being tardy because his or her yoga class ran late, you’re violating the FLSA.

 Another exception provides, in part:

Deductions from pay can be made for absences of one or more days occasioned by sickness or disability . . . if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary caused by such sickness or disability. The employer is not required to pay for any portion of the employee’s salary for-full day absences for which the employee receives compensation under the plan, policy or practice. Deductions for such full-day absences also may be made before the employee has qualified under the plan, policy or practice, and after the employee has exhausted the leave allowance thereunder.   

What does this mean?  If you deduct from your salaried employee’s paycheck because he or she is sick, unless you have a PTO or sick leave policy and the employee has already exhausted the leave provided, you are violating the FLSA.

These two exceptions are easy enough, right?  Not so fast. Employers had best make sure their deductions are “proportionate” to the time the salaried employee missed, otherwise you have misclassified your otherwise salaried employee as an exempt/salaried employee, and you now owe the formerly salaried employee for all of the overtime he or she worked over at least the last two years.  And if you make that mistake with one salaried employee, chances are that your payroll department make it with all of your salaried employees.  29 C.F.R. § 541. 602(c) provides, in relevant part:

(c)  When calculating the amount of a deduction for pay allowed under paragraph (b) of this section, the employer may use the hourly or daily equivalent of the employee’s full weekly salary or any other amount proportional to the time actually missed by the employee. Id. (emphasis added).

            So, how can your payroll practices cause you legal headaches exceeding your worst nightmares?  In many ways, but one easy way is to use a semi or bi-monthly pay period and then calculate your employees’ deductions based on a percentage of time missed relative to the amount of working hours (or days) in any given pay period.  While that might seem like a logical way to allocate deductions, and some employers certainly do it, you have created a system that will give you disproportionate deductions for your employee’s missed workdays.  The reason being is that in semi or bi-monthly pay periods, you have some pay periods that have 72 hours (9 workdays), some with 80 hours (10 workdays), some with 88 hours (11 workdays), and the occasional 96 hours (12 workdays) that employees are expected to be at work.

 Let’s assume you pay your salaried employee $2,0000 each pay period, and for the purposes of making deductions, you attribute an effective hourly wage of $25 per hour (80 hours X $25 per hour = $2,000 salary). If you calculate a deduction for an employee who missed 8 hours (1 workday) during an 80 hour (10 workdays) pay period by subtracting the 8 hours (time missed) from the 80 hours you expected that employee to work during that pay period, and then multiply the amount of hours worked (e.g. 72 hours) by the employee’s effective hourly rate ($25 per hour), you will be deducting $200, or 10% of the employees paycheck during that pay period.  That deduction is perfectly proportionate and does not violated the FLSA’s Salary Basis test because the employee missed 10% of the hours/workdays during that pay period. 

            The calculation for the deduction of an employee who missed a single day in an 80 hour pay period (10 workdays) will look like this:  80 (hours in pay period) – 8 (hours missed) = 72 (hours actually worked); 72 (hours actually worked) X $25 (per hour) = $1,800 (salary). This is a $200 reduction from the $2,000 semi-monthly salary, which is directly proportionate to the time missed.

            If, however, your employee misses a single day of work during a 72 hour pay period (9 workdays), your calculation for the deduction will look like this: 72 (hours in pay period) – 8 (hours missed) = 64 (hours actually worked); 64 (hours actually worked) X $25 (per hour) = $1,600 (salary).  This is twice as much as the deduction from the 80 hour pay period, and is unquestionably disproportionate to the time the employee missed.

            That is a relatively cut and dried example of a Salary Basis violation.  How much will that cost you?  First you will be required to pay your employees all of their overtime for at least the past two years.  Then double that for the FLSA’s near mandatory liquidated damages, which can only be avoided if the employer shows “good faith” or “reasonable grounds” for the employer’s belief that they were not violating the FLSA—which is much more difficult to prove than employers typically believe. Then add in all of the Plaintiff’s attorney’s fees—who probably won’t be anywhere as efficient as your attorney—under the FLSA’s attorney’s fees requirement, which is one of the strictest and most certain fees shifting provision under federal law.  Don’t forget about your attorneys’ fees. In short, you will be paying a ridiculous amount of money.

            One way to calculate proportionate deductions would to be to calculate an equal amount for every day in a fixed period of time—like one week, two weeks, or even a full year.  For example, an employee makes $2,000 per semi-monthly pay period makes $48,000 per year (24 pay periods X $2,000).  Since there are 52 weeks per year, you divide $48,000 by 52 and you get a weekly salary equivalent of $923.08 per week.  Assuming a general workday is from 9 to 5 on Mondays through Fridays, divide the weekly salary equivalent of $923.08 by 40 hours in a general workweek to get an effective hourly rate of $23.08 (you can skip this multipart calculation by dividing the annual salary by 2080, which is 40 hours a week multiplied by 52 weeks a year).  If an employee misses a day of work, and the FLSA permits you to make a deduction, multiplying the effective hourly rate of $23.08 by 8 hours for the day missed, and you have a proportionate deduction of $184.64.  The Courts will not scrutinize minor variations in the amount deducted if it is comparable to the rate the employee is paid for the time he or she actually worked.

            With the FLSA, the old adage “an ounce of prevention is worth a pound of cure” might be an understatement.  In retrospect, spending a couple of thousand dollars to make sure you have all of your FLSA ducks in a row can save you from, at best, an extreme legal headache down the road.

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In the past few months, federal courts have shown more of their cards on how they will apply The Howey Test when determining what cryptocurrencies will be considered securities.

Civil suits have worked their way through federal courts to an extent where a few decisions now serve as guidance on when a cryptocurrency may qualify as a security under federal law.

To determine if a cryptocurrency meets the legal definition of a security, federal and state courts use a well established legal analysis known as The Howey Test.

The U.S. Supreme Court adopted the Howey Test in 1946 in order to provide a uniform analysis for lower courts and litigants to apply when determining if an investment qualified as a security.

A recent federal court decision has given coin proprietors and regulators a framework in understanding how some federal judges may apply The Howey Test to cryptocurrencies.

In Balestra v. ATBCOIN LLC, a federal court in the Southern District of New York held that the cryptocurrency ATB Coin could be considered a security because its investors expected a profit from their investment and relied upon the coins promoters for guidance.

The Balestra Court held that ATB Coin met the second element of the Howey Test, common enterprise, could be met because Plaintiffs had plausibly alleged that “potential profits stemming from the future valuation of the ATB Coins were entirely reliant on the success of Defendants’ new blockchain.”

“Defendants encouraged investors to purchase ATB Coins based on the claim that the speed and efficiency of the ATB Blockchain would result in an increase in the coins’ value.” Balestra v. ATBCOIN LLC, 380 F. Supp. 3d 340, 354 (S.D.N.Y. 2019).

The Balestra Court also held that ATB Coin met third prong of The Howey Test, the expectation of profits, was met because “purchasers of ATB Coins reasonably believed that those coins would increase in value based primarily on Defendants’ entrepreneurial and managerial efforts.” Id.

Critically, however, the Court found that ATB coin did not operate on a decentralized system, such as Ethereum or Bitcoin, but instead resembled a more centralized investment fund.

Although this decision should put coin proprietors on notice that they may be exposed to civil suits from investors, the SEC has also consistently hinted that it does not consider decentralized cryptocurrencies to be securities.

The SEC has taken the position that a very important distinction between “a replacement currency” and “tokens”. As SEC Chairman Jay Clayton stated last year:

” … there are different types of crypto assets. Let me try and divide them into two areas. A pure medium of exchange, the one that’s most often cited, is Bitcoin. As a replacement for currency, that has been determined by most people to not be a security.

Then there are tokens, which are used to finance projects. I’ve been on the record saying there are very few, there’s none that I’ve seen, tokens that aren’t securities. To the extent something is a security, we should regulate it as a security, and our securities regulations are disclosure-based, and people should follow those and provide the information that we require. “

The SEC has recently released an extensive guidance on the difference between mediums of exchange and tokens entitled “Framework of ‘Investment Contract’ Analysis of Digital Assets” (available here: https://www.sec.gov/files/dlt-framework.pdf).

In thiswhitepaper, the SEC takes the position that the first two elements of the Howey Test, Investment of Money and Common Enterprise, “typically exists” in digital assets.

In its analysis of the third element, Reasonable Expectation of Profits Derived from Efforts of Others, the SEC focuses its inquiry on active participation or promotion by a cryptocurrency proprietor.

“When a promoter, sponsor, or other third party (or affiliated group of third parties) (each, an “Active Participant” or “AP”) provides essential managerial efforts that affect the success of the enterprise, and investors reasonably expect to derive profit from those efforts, then this prong of the test is met.”

Conversely though, the SEC also heavily relies upon the nature of the cryptocurrency to determine whether the Howey Test is met. If a fully operational decentralized network exists, the SEC states “the less likely the Howey test is met.”

Taken as a whole, these recent developments should lead cryptocurrency promoters to conclude that they may be subject to securities suits from investors if they indicate their coin may be used as an investment vehicle. However, cryptocurrency promoters should also note that the SEC will be less likely to regulate their coin as a security if it operates off of a distributed ledger.