equine

Article Dean Dorton

Jen Shah, Dean Dorton’s equine industry team leader, was recently elected to the Thoroughbred Aftercare Alliance (TAA) board of directors. Eight new members were elected, including a new board president. The new board members include representatives of industry organizations such as Darby Dan Farm, Breeders’ Cup, Del Mar Thoroughbred Club, The Jockey Club, Ocala Stud, New York Racing Association, and Persley Den Farms.

TAA accredits, inspects, and awards grants to approved aftercare organizations to retire, retrain, and rehome Thoroughbreds using industry-wide funding. TAA has accredited and provided funding to 64 aftercare organizations across the U.S. and Canada to date.

“I am honored to join the TAA board and look forward to enhancing the financial well-being of an already successful organization. There continues to be a significant need for TAA’s guidance and through the unwavering commitment of TAA’s staff and board members, I believe the TAA’s industry influence will continue to grow as a leading financial provider and supporter of Thoroughbred racehorse retirees and quality aftercare.”

Jen Shah, Director of Tax Services

Jen Shah pictured with American Pharoah

Article Dean Dorton

The U.S. Department of Labor recently released its final regulations, issuing changes to Part 541, which govern certain overtime exemptions under the Fair Labor Standards Act (FLSA) for executive, administrative, professional, computer, and outside sales employees.

Under current law, certain executive, administrative, and professional employees are exempt from overtime pay if their salary is at least $455 per week ($23,660 per year) and other criteria are met regarding job roles and responsibilities. In addition to the salary requirement noted above, the respective duties for executive and administrative positions are:

  • Executive: Employee’s primary duty must be managing the enterprise (or a department of the enterprise), must regularly direct the work of at least two other full-time employees, and must have the authority to hire or fire employees.
  • Administrative: Employee’s primary duty must be the performance of office or other non-manual work related to management or general business of the employer and includes the exercise of discretion and independent judgment.

Effective December 1, 2016, the exemption from overtime pay for the above positions addressed in Part 541 is applicable if the employee’s salary is at least $913 per week ($47,476 per year). This amount is based on the 40th percentile of the lowest income region of the country, currently the South. Up to 10% of this salary threshold may include certain bonus or incentive payments (including commissions) that are paid at least quarterly.

This salary level will increase automatically every three years to match national wage growth. Note that the final regulations did not make any changes to the duties tests that partially determine whether a position qualifies for an overtime exemption under Part 541.

Personnel in the equine industry who meet these criteria governed by Part 541 may include trainers who train at the racetrack and back office support staff who work with racing or training operations.

Agricultural Exemption
It is important to note that the final regulations did not include any changes to the agricultural exemption addressed in Part 780. Under Part 780, employees who are engaged in agriculture are exempt from overtime pay*. For this purpose, employees engaged in the breeding, raising, and training of horses on farms are considered agricultural employees. Qualifying farm employees may include grooms, foremen, stallion managers, trainers, watchmen, and others directly involved with the care of horses on the farm. In addition to those directly involved with the care of horses, positions that are incidental to or in conjunction with the qualifying farming activities are also treated as agricultural employees. Financial staff, booking secretaries, office support and general maintenance positions that support farm operations qualify.

A significant exclusion from the agricultural designation applies to activities performed by an employee off the farm in connection with racing. A training track at the racetrack is considered off the farm. Special care should be given to track employees’ hours, if significant time is spent off the farm in this capacity.

In summary, since most personnel employed on a thoroughbred horse farm will fall under the agricultural exemption as addressed in Part 780, the newly finalized regulations may have little effect for farms. However, horse racing and training ventures that operate primarily off the farm should consider the impact of these new rules.

* Kentucky law requires overtime be paid to employees who have worked seven days in any given work week for all hours worked on the seventh day.

Contact your Dean Dorton advisor or Jen Shah at jshah@deandorton.com for more information.

View Jen Shah’s Bio

Article Dean Dorton

Elizabeth Woodward and Nick Lynch recently presented on fraud risk considerations at the University of Kentucky’s National Conference on Equine Law. They covered top 10 considerations specific for equine clients and operations:

  1. Horse farms are often controlled by high net worth absentee owners. Ensure proper controls are in place to mitigate fraud risk in their absence.
  2. Farm management is often passionate about horses, but may lack financial sophistication. Make sure they are treating the farm like a business and implementing proper internal controls.
  3. Employees at farms (and related family offices) may develop a sense of entitlement that allows them to rationalize fraud based on the farm owner(s) lifestyle. (e.g., I give everything to this farm. Why shouldn’t I enjoy a higher lifestyle? They won’t miss the money anyway.) Be aware that this increases the risk of fraud.
  4. Farms may rely on a single employee or small group of employees for all accounting functions. Ensure duties are properly segregated, especially within the cash receipt and disbursement processes.
  5. There sometimes is a lack of transparency in syndicate expenses. Ensure that expenses are being segregated and billed appropriately. Syndicate managers and members should exercise due diligence to see that only appropriate expenses are being captured and billed.
  6. An ethical culture is the cornerstone of a strong internal control environment. Management must set the tone; employees will tend to follow their lead.
  7. Develop proper purchasing procedures, including authorizations, approval thresholds and strong bidding practices.
  8. Credit card usage is a common area of abuse and should be limited to necessary situations. Most expenses should follow the normal check disbursement or expense reimbursement (e.g., travel expenses) processes.
  9. Horse farms often lack formal policies and procedures. Develop formal policies and require employees to review and acknowledge them.
  10. Tips are the most likely source of fraud detection. Consider an ethics hotline to facilitate tips.

Three Themes:

  1. Absentee Owners
  2. High Wealth Families
  3. Passion for Industry

For more information, contact Elizabeth Woodward at ewoodward@deandorton.com or Jen Shah at jshah@deandorton.com.View Elizabeth Woodward’s BioView Jen Shah’s Bio