Start Taking Interest in Interest Calculations
by Chris Leitch of Verve, a Credit Union
Efficiency and profit go hand-in-hand. One way to control costs and gain efficiencies without changing day-to-day operations is to review the interest method used on commercial loans.
Interest rates aren’t as straightforward as they seem.
A bank or credit union issues a written loan commitment letter that includes the annual interest rate. However, this document typically does not include the method used to calculate repayment of interest due, which can have a significant effect on interest costs over the life of the loan.
For example, if a business owner was receiving a $1,000,000 interest-only loan at 6 percent annual interest, it makes sense to assume the borrower should expect to pay $60,000 per year in interest. However, the actual interest repaid can be more than the borrower expected because of the method used to calculate interest, which is typically listed in the loan documentation at the time of closing.
Two ways to calculate interest—Stated Rate Method vs. Bank Method.
Interest is typically calculated using either the Stated Rate Method (365/365 method) or the Bank Method (360/365 method).
The Stated Rate Method uses a 365-day year, and, using our previous example, the borrower can expect to pay 6 percent interest annually, or $60,000.
The Bank Method uses a 360-day year and charges interest for the actual number of days the loan has yet to be repaid. Since the $60,000 in interest is accrued on day 360 using the Bank Method, there are five additional days of interest due for the calendar year. With our example above, the borrower would end up paying an additional $833.33 in interest each year, which results in an actual yearly interest rate of 6.083 percent.
A small difference that can have a big long-term effect.
This difference in interest payments will be compounded for the life of the loan and can be a costly line item for businesses over time. Accordingly, it is important for business owners to review loan calculations carefully and compare loan proposals to control their capital costs.
Chris Leitch is a VP of Private Banking and provides leadership for a variety of member services at Verve, offerings that include residential and small business lending, consumer lending, depository needs and more. Founded in 1937, Verve, a Credit Union, is a member-owned, not-for-profit financial cooperative with more than $800 million in assets and serving over 56,000 members at 15 locations. Learn more at www.verveacu.com. Federally insured by NCUA.
When Considering Employee Exempt Status,
Don’t Forget About the Duties Test
by Chad Wade of Strang, Patteson, Renning, Lewis & Lacy, s.c
While preparing for the regulatory increase to the minimum salary requirement for exempt employees, many employers were surprised to learn some of their employees were misclassified even if they met the prior salary threshold because they did not perform the necessary duties of an exempt employee under the law. Although the future of the proposed regulations remains unclear, it is important to remember employees must meet one of the “duties tests” to be exempt from wage and hour laws.
Employees may be treated as exempt executives if they: 1) have the primary duty of managing the enterprise or a customarily recognized department or subdivision; 2) customarily and regularly supervise the work of two or more employees; and (3) have the authority to hire or fire other employees or if their recommendations are given particular weight regarding hiring, firing, advancement, promotion or other status changes.
Employees may be treated as exempt administrative if they: 1) perform office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and 2) the employees’ primary duties must include the exercise of discretion and independent judgment with respect to matters of significance.
Finally, employees may be treated as exempt professional employees, if their primary duties require advanced knowledge in a field of science or learning customarily acquired by a course of specialized instruction or if the primary duties require invention, imagination, originality, or talent in a recognized artistic or creative field.
Reminder to Review Job Duties
Wisconsin also has substantially similar versions of employee duties tests. The duties tests do not always provide bright line rules for when an employee is exempt or nonexempt. Further, job duties evolve over time. It is important that employers periodically review their employees’ job duties to determine whether they remain classified correctly.
For advice and counsel pertaining to the wage and hour laws, please contact Attorney Chad Wade, (844) 833-0826 or via email at firstname.lastname@example.org.
Chad Wade is an attorney with Strang, Patteson, Renning, Lewis & Lacy, s.c. and is located in the firm’s Oshkosh office. This article is intended to provide information only, not legal advice. For advice regarding a particular labor or employment situation, please contact the attorneys at Strang, Patteson, Renning, Lewis & Lacy, s.c. (www.strangpatteson.com).