Legal expertise that business leaders need to know

From employment law changes sparked by sweeping federal legislation to the foundational importance of operating agreements in commercial lending, today’s legal landscape is anything but static. To help business owners stay informed, New Hampshire legal experts offer timely insights on how recent developments may impact your workforce, financing and operational structure.

Experts:

• Hannah L. Devoe, attorney, Drummond Woodsum, dwmlaw.com
• Austin Mikolaities, attorney of business law and real estate, Shaheen & Gordon, shaheengordon.com

Hannah Devoe, attorney, Drummond Woodsum

What are among the employment law implications of recent federal legislation?

On July 7, 2025, President Trump signed HR 1, commonly known as the “One Big Beautiful Bill” into law. This law has been making headlines because it is expansive and includes several provisions touching on tax, nutrition, transportation, and more. Relevant to many New Hampshire employers, this law includes a provision that purports to provide no tax on overtime, leading to several questions about what this might mean for employers. The bill provisions on this topic are limited and many details rely on further guidance from the IRS. This article aims to provide employers with clarity, based on the information available now.

Is there really no tax on overtime?

“No tax on overtime” is not as simple as it sounds. This provision allows a tax deduction for qualified overtime compensation received by an individual, subject to a deduction cap and income limitations, through 2029. The deduction amount shall not exceed $12,500 for an individual ($25,000 for a joint return). This deduction amount shall be reduced by $100 for every $1,000 if the taxpayer’s income exceeds $150,000 for an individual ($300,000 for a joint return). Deductions apply to taxable years between Dec. 31, 2024 and Dec.31, 2029.

What counts as “Qualified Overtime Compensation”?

The bill applies to “qualified overtime compensation,” not necessarily all overtime compensation. Qualified overtime compensation is all overtime compensation paid to an individual as required under Section 7 of the Fair Labor Standards Act (FLSA). Section 7 of the FLSA establishes the overtime requirement under federal law. Remember that Section 7 of the FLSA requires employers to pay covered, nonexempt employees at least minimum wage and requires employers to pay at least one and a half times the regular rate of pay to nonexempt employees for all hours worked over 40 in a work week.

Does this include all types of overtime pay?

Of note, the plain language of the bill does not include other payments that employers may have agreed to pay as overtime per contract or policy, nor does it include overtime pay required by state law. For example, some employers provide, by policy, for overtime for time worked during a holiday. Such overtime is not required by Section 7 of the FLSA and is, therefore, not considered qualified overtime for this provision. Additionally, for those employers with employees who work in several states, it is important to note what overtime is paid under state law, as that would also not be qualified overtime for this provision. This is important because most employers do not separately account for overtime payments that are required by federal law as compared to overtime that is permissible, i.e. agreed to by policy, contract, or applied by state law. The bill states that employers will now be expected to report the “total amount of qualified overtime compensation” on employee’s IRS Form W-2. While the bill contemplates a transition period for the 2025 tax year during which time approximation may be permissible, thereafter employers will need to have the necessary structures in place to track “qualified overtime compensation” so that it may be reported to employees.

What should employers do next?

As noted, more specific guidance is anticipated from the IRS. Such guidance may alter the details provided in this article. Employers are encouraged to stay up-to-date on IRS guidance as the year progresses, particularly moving into the 2026 tax year.

Austin Mikolaities, attorney of business law and real estate, Shaheen & Gordon

Why do operating agreements matter?

One of the most prevalent corporate entities in New Hampshire for businesses of all sizes is the Limited Liability Company (LLC). LLCs have become the entity of choice due to their flexibility, low cost of formation and maintenance, and ease of formation. As an LLC navigates the corporate world, financing and lending play a crucial role in the business’s expansion and growth. From a commercial lender’s perspective, the flexibility and ease of formation of an LLC pose additional legal and operational complexity throughout the lending process, namely, the thoroughness of an LLC’s operating agreement, or lack thereof.

A well-drafted LLC operating agreement is critical to the success of the entity. This document not only governs the internal affairs of the entity, but also plays a central role in determining whether the borrower has the legal authority to enter into a loan, collateralize assets or property, and comply with continuing assurances required by financial institutions.

Who has authority to bind the LLC?

A fundamental issue in commercial lending is whether the individual signing loan documents has actual authority to bind the LLC. Unlike corporations, which are governed by clear officer roles, LLCs operate under a quasi-contractual governance model memorialized by the operating agreement. An LLC may be member-managed, with management shared equally amongst members, or manager-managed, with management centralized in one manager. In both structures, the operating agreement must specifically outline the group of members that can bind the entity.

In some cases, the operating agreement may place restrictions on the manager’s authority to take on debt above a certain threshold or encumber certain assets without unanimous member consent. In other cases, the operating agreement may allow the unfettered authority of the manager to take on debt as it deems reasonably necessary.

A complicating factor is that operating agreements are not publicly recorded, and not all businesses have a valid, updated operating agreement.

What are barriers to the transfer of membership interests in the LLC?

One major area of concern that often arises in loan agreements is the prohibition or restriction on changes in membership of an entity. Financial institutions will prohibit the admission of new members to an LLC, a majority change in ownership, or a transfer of any membership, without the prior approval of the lender. Failing to get prior approval may default the loan. These prohibitions come as a shock to some business owners.

Conversely, an operating agreement may restrict a member’s ability to transfer membership interests, even to a lender upon default. Therefore, a lender’s review of the operating agreement is a critical piece of due diligence.

Where the loan involves a pledge or encumbrance on membership interests, it is imperative that lenders ensure the loan documents are drafted in alignment with the operating agreements of the borrower. A failure to align these documents may impair the lender’s ability to exercise voting rights, slow down the process of foreclosing on membership interests in the event of default, or cause unintended consequences post-closing.

What are the benefits of operating agreements?

In commercial lending to LLCs, the operating agreement is not merely a background document used for internal purposes; it is a foundational tool that controls the business and the power each member possesses. A well-crafted transaction must be built on a clear understanding of how the LLC is governed, who has authority, and what limitations apply to both parties. By incorporating a careful review of the operating agreement into the due diligence process, lenders can better protect their interests, reduce enforceability risks, and avoid unintended disputes post-closing.

Shaheen & Gordon’s knowledgeable corporate and real estate attorneys can help you avoid common commercial lending pitfalls while protecting your financial institution or business. Our team has proudly represented businesses across northern New England for decades and is always ready to guide clients through their legal needs.