With this new age of smart applications, it’s getting harder to tell what’s human-made from what’s AI-generated. That lack of distinguishability is what makes AI so interesting and controversial for humankind. As we become more accustomed to AI, small business owners, like others, are looking for ways to implement these tools to achieve what they couldn't before due to human constraints like time and money.
"Artificial intelligence" is the broad term used for technology that performs a task or solves a problem that previously required human intelligence. AI can be used for a large range of purposes, from finishing your sentences to writing a novel. The simplest example is the ability of your smartphone to suggest the next word in your text message.
The application in your phone has created a database of sorts of the words you commonly use (or that commonly follow other words). That’s how it knows to suggest “Berkeley” if you often send a message to your friend, suggesting lunch in Berkeley; and it might also suggest “me up” after you write “pick.” The app doesn’t use magic or thought—it uses data.
We use many other more sophisticated types of AI. You can pay your bills by phone using prompts from an automated voice. There, the software application uses a series of pre-programmed questions and responses, such as “Do you want to pay with the credit card on file?” to guide you through the process.
Siri is another instance of AI; when you ask for the name of the best Italian restaurant in town, Siri canvasses online reviews and distills them into a few sentences. The pop-up messages on websites, offering to help you, are nothing other than a response to what you have done so far on the site (or haven't done). The app figures out what you need by placing you among the thousands of users who've already visited the site (and ended up buying something).
As you can see, AI isn’t always the stuff of science fiction movies. It’s often as simple as a collection of information that the application consults when asked a question.
Yet newer, more sophisticated applications, like ChatGPT, can write a screenplay, design a clothing line, or respond in a way that’s sometimes indistinguishable from talking to a human. These newer applications, known as generative AI, can learn and improve as new data is added; but the more they learn to do, the more questions are raised about what they should be doing.
The use of sophisticated apps raises questions as to the app’s accuracy and, in some contexts, the ethics of using it. The sections below explore the challenges of using apps for various tasks in a small business.
AI applications fall into one of three categories, from the simplest to the more complex:
Let’s look more deeply at each of these increasingly sophisticated uses.
Small businesses have been using AI to book appointments, order items from a menu, take payments, and answer customer questions like, “When will my order ship?” These uses are fairly noncontroversial, with the possible exception of the ubiquitous “How can I help you?” pop-up. Many people find these pop-ups intrusive and they don’t trust them to really know what the customer wants or needs.
AI can help with both simple and complex marketing tasks such as:
Scheduling and implementing follow-up strategies, like drip campaigns. Let’s say a customer visits your website and requests an e-book or other information you offer. You can use an AI application to automatically send additional emails to the customer tailored to their area of interest.
Targeting specific groups of customers. AI can identify and group customer segments, to allow you to customize messages for each segment based on their preferences and needs.
Writing blog or social media posts, landing pages, and emails. AI can automate messaging such as emails for prospecting new business. It can also sort and direct responses to the appropriate person or department for follow-up.
If you don’t have the time or staff to write your own website blogs or social media posts, AI can write them for you. Some applications are even able to generate topic ideas.
Analyzing advertising responses and customer surveys. If you’ve ever used customer surveys to uncover problems with your products or services, you know that getting responses is only half the battle. The other half is analyzing the responses and identifying ways you can improve. AI can analyze and categorize responses, to help understand what’s going right or wrong with your systems or products.
When you advertise on social media like Facebook, you're already receiving AI analytics. They tell you how many people clicked on your ad and give you other information to help you evaluate the effectiveness of your advertising.
A number of AI applications are designed to let salespeople focus on selling instead of paperwork. They can accomplish tasks such as:
Prospecting for new business and generating leads. AI can reduce or eliminate the time it takes to chase down leads by sending outreach emails and categorizing and prioritizing responses for the sales team.
AI applications allow your sales team to focus on buyers most likely to make a purchase in the near future and to deploy strategies to follow up with longer-term prospects.
Qualifying buyers who respond to outreach campaigns. AI can ask potential buyers simple questions, like whether they're looking to make a purchase in the near term or how much money they expect to spend on a purchase. The answers to these questions help the sales team to prioritize the calls they make and reduce the chances that they’ll spin their wheels needlessly on buyers who aren't the right fit for your products.
In general, AI applications that handle back-office and administrative tasks are designed to eliminate the need for manual data entry. They can:
Monitor and manage inventory. Automating inventory management gives businesses real-time information on merchandise that needs to be replenished and reorders that should be processed, so they don’t miss out on sales opportunities.
Store and sort customer information. Applications can route customer information to the proper files and update databases, by making changes to customer addresses and the like.
Process orders and invoices. AI can automate your business’s processes, from requisition to invoicing, and integrate these procedures with accounting and inventory management software.
Process and issue refunds. Using AI to process and issue refunds eliminates the need for a person to monitor and respond to phone inquiries, and usually shortens the lead time for processing refunds.
Review documents for missing or incomplete information. If your business relies on numerous forms that you and your customers must review and sign, AI can replace the need to manually review the forms by alerting you when a document is incomplete.
Before you begin interviewing vendors who supply AI software, it’s a good idea to learn the terms the technology industry uses. Once you’ve clearly defined what you want the technology to do, these terms will help to refine your online search for the best suppliers for your needs.
While AI can, in some areas, replace human workers, this technology is most often used to free up time for workers to focus on more essential aspects of their jobs.
For example, salespeople can use AI to manage their prospect database and update it for each customer contact, freeing up time to contact the most likely buyer prospects and close sales.
Some additional reasons to use AI include:
Providing faster customer service. Automating processes like placing orders and handling returns means customers don’t have to spend time waiting on hold for a live representative.
Reaching more customers. Suppose you want to notify your customers of a new product you’re introducing. Automating your email system allows you to send more emails than a human worker can in the same amount of time.
Avoiding mistakes, oversights, and miscalculations. Using AI will eliminate the mistakes that typically occur when you're manually entering information for databases and recordkeeping. Automated systems can accurately track inventory and reorder promptly to avoid running out of stock.
Improving productivity. Using AI for marketing analytics helps to understand where your advertising dollars are producing the best returns.
Performing tasks you don’t have the resources to accomplish. AI can help small businesses make use of social media when they have neither the time nor human resources to manage these types of campaigns.
No matter how much you spend on AI, it’s likely not going to be a standalone solution for your business’s every need. To succeed, even the best AI solutions will require human intervention at some point in the process.
For example, AI that generates leads for your business won’t do a lick of good if the sales team doesn’t make follow-up calls to the most likely buyers.
AI that analyzes the results of your marketing reports won’t help you decide where to best put your advertising dollars if no one reads the reports the automated system provides.
AI that is premised on an outdated data scoop will not give you accurate results.
Likewise, when AI isn’t able to handle more complex customer inquiries or complaints. You won’t generate much customer goodwill if you don’t include an option to talk with a live agent.
When you're purchasing AI tools, you must first decide on the tasks you want the software to accomplish. Each application is designed for a specific purpose, and, in some cases, for a specific industry. For example, automated ordering software designed for restaurants is different than software designed for ordering wholesale merchandise.
The companies that offer software you already use are a good place to start when you want to add AI capabilities. These same companies might offer AI tools you can add on, or they might partner with other companies that offer AI software. When you start your research with vendors you already use, you’ll also be certain that the new tools you purchase are compatible with your existing software.
Your research should also explore the degree of technological expertise required to use the application and the training and support the vendor offers.
Like many IT solutions, AI is sold in off-the-shelf applications for hundreds of dollars or less, or you can customize solutions for hundreds of thousands of dollars.
The more complex the chore that you want AI to complete, the bigger the tech stack (series of technologies stacked one over the other) required to build the app. Accordingly, those apps are more expensive than a simple tool that auto-fills a repeat customer’s orders.
Email management software is the least expensive of AI applications. Vendors typically offer the software for a monthly subscription at costs that range from $10 a month to a few hundred dollars a month.
The cost of chatbots varies widely, depending on the capabilities you want.
When you're budgeting for the cost of implementing AI, remember to include the technical support and training you’ll need in addition to the software licensing fees.
It’s also a good idea to pay attention to the integrations a vendor offers (the ability of one company’s software to interact with software from other companies). Choosing a vendor that offers numerous integrations allows you to expand your AI capabilities by adding new software down the road when your needs change or expand.
Following common sense rules, such as involving human oversight into your use of AI, can help avoid common problems associated with AI. As noted earlier, it’s important to give customers the option of talking to a real human, so they don’t become frustrated when an automated response doesn’t solve their problems.
However, the most serious problem with AI, and the reason it's become so controversial, is that the technology is quickly advancing to a point where it'll be difficult, if not impossible, to distinguish between images and information that are computer generated and those created by humans.
It won’t be long before AI technology is able to generate a completely lifelike avatar that can be used to sit in for the human it was designed to replicate on a video conference. Imagine the consequences if one of these avatars is substituted for the CEO of a powerful organization and provides shareholders, the press, or others with false information.
Left unchecked, AI can be used by bad actors to steal identities, bully the unsuspecting, spread misinformation and fake news, or release propaganda for political or competitive purposes.
Even when no harm is intended by the user, AI can make mistakes. A mayor in Australia recently threatened a defamation lawsuit if the developers of a popular AI application didn’t quickly fix an erroneous report that named him as a participant in a bribery scandal. He was, in fact, the whistleblower who reported the criminal activity to authorities.
One of the most widely recognized flaws of AI is its tendency to fabricate information when it doesn’t have all the data it needs. The result can be libelous as exemplified above, misleading, or just plain weird.
In one instance, an AI program used by the Los Angeles Times became confused and reported that a large earthquake had just occurred in Santa Barbara. It turned out that the earthquake in question took place in 1925.
AI can be one of your business's greatest assets or a serious liability. As you choose which AI processes to invest in and start incorporating them into your daily operations, it's important to continuously monitor their performance and your business's. Remember that these applications are tools to help you run your company—they're not meant to take your place. At the end of the day, you'll need to make the final business decisions.
]]>How and how much you pay yourself as a small business owner depends on a host of considerations, from your business entity to your business’s finances and IRS rules.
Depending on their business entity, owners pay themselves by taking an owner’s draw (a portion of profits) or by taking a salary.
Taking an owner’s draw means withdrawing your pay from your business’s net profit, which is the amount left over after you pay your expenses from your revenues.
Before dipping into your net profits, you should allocate a portion to reinvest in your business, and keep some funds as a cushion for unexpected expenses. After that, you can withdraw all or a portion of what’s left of your profits to pay yourself. The amount will depend on your financial needs and wants.
You can arrange to draw your pay as you need it or on a fixed schedule, such as weekly or monthly; and you can vary the amount of each withdrawal based on your profits or your personal needs in that period.
Business owners who use this method must pay the IRS their estimated income and self-employment taxes (Social Security and Medicare) each quarter. The amount of tax you’ll pay is based on a percentage of the income your business earned in that quarter, not a percentage of the owner’s draw you took (more on how taxes are calculated below).
If you have ever been an employee, working for someone else, you’ll recognize this method: Your business will pay you a fixed amount on a set schedule, such as weekly or monthly. Federal and state income taxes, and Social Security and Medicare taxes will be deducted from your paycheck.
Sole proprietorships can use only the owner’s draw method, because the business and owner are one and the same under this business structure. The IRS doesn’t consider sole proprietors to be employees, so they can’t be paid a salary.
Partnerships also must pay themselves using an owner’s draw (referred to as a "distributive share" when it’s a partnership). Like sole proprietors, partners in this business structure aren’t considered employees by the IRS and they can’t receive a salary.
Partnership draws typically track the partners' ownership share in the business. For example, if two partners share equal ownership of the partnership, they equally distribute the profits as draws. However, partnerships have great flexibility in distributing their profits.
For example, one owner could get 75% of the profits and the other 25%, even though they are each equal owners of the partnership. Partnership profits can be distributed according to each owner’s collection of revenue or receipts, shared equally, shared according to each owner’s percentage of ownership, or based on a combination of methods. For example, draws could be based partly on ownership percentages and partly on collections.
Partners also have the option of being paid "guaranteed payments," also called partners' salary. These are treated the same as employee wages. They can be a set amount—for example, $1,000 each month—or based on the partnership's profits. (You can learn more in our article on how partnerships are taxed.)
Limited liability company (LLC) members pay themselves according to the way they've chosen to be taxed.
By default, LLCs with one member (owner) are taxed like sole proprietorships. Accordingly, single-member LLCs pay themselves using a draw. However, single-member LLCs can elect to be taxed as S-corporations by filing the necessary paperwork with the IRS. In this event, the member becomes an employee of the LLC and is paid a salary plus shareholder distributions (similar to an owner's draw).
Multiple member LLCs are taxed like partnerships by default, but they can also elect to be taxed as S-Corporations. In this event, they become employees of the LLC. (For more, read our article about how LLC members are taxed.)
S-Corporation owners who are actively engaged in running or managing the business must be paid a salary. However, the IRS allows these owners to take shareholder distributions in addition to their employee salary. Such distributions are free of payroll tax.
C-corporation owners actively engaged in running or managing the business are employees of the business and must also use the salary method for paying themselves. These owners, who are shareholders of their corporation, can also take shareholder dividends of the corporation's profits in addition to their salary. C-corporation dividends are free of payroll tax, just like for an S-corporation, but they're not a deductible expense for the C-corporation. So, a C-corporation gets taxed twice—the corporation pays a 21% corporate tax on the profits and the shareholders pay tax on it at their personal tax rates—as high as 37%.
You should think about how you want to pay yourself when you choose how to legally organize your business. If you run your business as a sole proprietorship, partnership, or LLC (that files taxes as a sole proprietorship), you'll have to use an owner's draw. If you choose the corporation form, you must be paid an employee salary. You’ll want to weigh the relative advantages and disadvantages of both methods, based on your business needs and the taxes you’ll incur with each method.
The main advantage of an owner’s draw is flexibility. You can adjust the amount of money that you take from your business, depending on your profits and your needs. This method is typically very helpful for startups with inconsistent cash flow. You won’t be locked into taking a set amount of money out of your business when it can least afford the expense.
One disadvantage of using an owner’s draw is your pay will likely fluctuate from one month or one quarter to the next, and you’ll have to budget carefully to cover your personal expenses. You’ll also have the responsibility of keeping careful records of the money you withdraw and paying your income taxes quarterly. The IRS requires you to pay taxes on your income as you earn it, and you can be penalized if you owe a large sum at the end of the year.
If you pay yourself an employee salary, you’ll get a consistent income to cover your personal expenses, and your income taxes will automatically be deducted from your paycheck. You won’t have to worry about making quarterly tax payments to the IRS.
However, if your business misses its targets for a given period, the fixed expense of a regular salary can eat into your cash flow and leave you unable to pay other expenses.
You can find information on the average salaries paid to those with the same or similar job responsibilities to yours (although not specifically for small business owners) on a number of websites including Payscale and the U.S. Bureau of Labor Statistics.
However, when you're the owner of the business, deciding how much to pay yourself isn’t as simple as knowing what others with similar job responsibilities earn.
Some sole proprietors, partners, and LLC members (who file taxes as sole proprietorships) don’t pay themselves anything when the company is a startup. Others simply don’t generate enough profits to pay themselves what they’re worth.
As a practical matter, you’ll want to pay yourself enough to cover your personal expenses. If your personal expenses exceed the amount available from your business profits, you’ll have to find a way to reduce your expenses or use savings or another source of income to cover your personal needs.
The IRS sets guidelines for paying both employees and owners of corporations, because under IRS rules, corporations can deduct salaries as a business expense. If the IRS determines that your salary is excessive, it might not allow the company to deduct it.
The amount you pay yourself as an owner-employee of a corporation must:
Some of the guidelines the IRS uses to determine a reasonable salary include:
The IRS uses many more guidelines to determine whether a salary is reasonable. It’s a good idea to review all of them before setting your salary.
Sole proprietorships and partnerships must pay income and self-employment taxes on their business’s net income, not on how much the owners pay themselves.
Nor do owners’ draws count when calculating the business’s net profits. Owners’ draws can’t be counted as a business expense. In fact, draws don’t count at all when you are calculating your tax bill as a sole proprietor or partnership.
Example: Let’s say you're a sole proprietor whose business revenues for the year total $60,000. After deducting business expenses like rent, utilities, and supplies, your business earned $50,000. You’ve determined that your federal income tax rate is 10%. (Tax rates vary for each individual, based on their taxable income. Taxable income depends on numerous factors like whether you take the standard deduction or itemize your deductible personal expenses such as mortgage interest, property tax, and charitable contributions. A tax professional can help you determine your taxable income.)
In this example, the business owner would pay 10% of $50,000 or $5,000 in income taxes, regardless of how much they paid themself. (A partnership works the same way except each partner pays taxes based upon their distributions.) The owner also must pay self-employment taxes (Social Security and Medicare taxes) on net self-employment income--a combined 15.3% tax.
It doesn’t matter whether the owner takes $5, $5,000, or any amount in draws. The owner’s draws don’t reduce your tax bill, and you’ll still pay $5,000 in income taxes plus $7,650 in self-employment tax. (Read more about how sole proprietorships are taxed.)
Another thing to keep in mind is that sole proprietorships, partnerships, almost all LLCs, and S-Corporations are "pass-through entities" for tax purposes. They pay no taxes themselves. Instead, all the profits they earn pass through the business and are taxed on their owner's personal tax returns at their personal income tax rate, not the corporate tax rate. C-Corporations are separate entities for tax purposes with their own corporate tax rate, which is a flat 21%.
Single-member LLCs that don’t elect to be taxed as corporations must pay taxes the same way as the sole proprietor described above. When an LLC has more than one member, each member pays taxes based on partnership draws plus any guaranteed payments.
If you're an owner-employee of an S-corporation or a C-corporation, you’ll pay income taxes on the salary you received from the business. However, the business can deduct your salary and the portion of Social Security and Medicare taxes it pays on your salary from its taxes.
]]>Many small business owners think only of the money they’re spending and the tax write-off they’re getting when they tally up the pluses and minuses of donating to charity. But giving back can also give your business unexpected returns.
In addition to the tax benefits (discussed later in this article), a charitable giving program can help small businesses gain brand recognition, improve employee retention, and get more sales.
Here are some of the ways donating to charity can make a difference in your business:
Attract more customers. The size and stature of a company are no longer the only things consumers consider when they make buying decisions. They want to do business with companies that share their values. A charitable giving program shows you care about your community. It raises awareness and draws customers to your business.
Aid in promoting job satisfaction and retaining employees. Employers and employees don’t often view the workplace in the same way: Bottom-line improvements might energize a small business owner, while workers are more likely to focus on things like getting recognition for a job well done. But a common cause between the two groups closes some of that gap. A charitable giving program that brings social purpose to a job function can help you motivate workers and improve job satisfaction—an important factor in employee retention.
Enhance your brand. Supporting charitable causes gives your business an identity; it also builds brand awareness and sets you apart from the competition. When you sponsor charitable programs, customers can tie your brand to a mission, spurring conversation around your company.
Expand your professional network. By supporting charitable organizations, you’ll get an opportunity to network with professionals you might never meet otherwise. You’ll also get the opportunity to rub elbows with prominent community and business leaders who often sit on the boards of nonprofits.
Think about your charitable giving program as part and parcel of your business model and find ways to integrate the charity into your day-to-day business.
Your donations don’t have to be monetary. You can donate products, services, or time such as:
When you make monetary donations, consider ways to incorporate customer incentives into your giving programs. For instance:
A small business can also make socially responsible improvements to its operations to attract and engage customers.
For example, a manufacturing company might reduce the product packaging it uses to promote sustainability, or it could source products from minority-owned businesses to promote social and economic equity.
The best charitable giving programs are personal. They reflect causes you, as the business owner, are genuinely interested in. Choosing a cause that has a meaningful connection to your business will help attract customers and strengthen your branding efforts.
These are some examples of ways to align your small business with a charitable cause:
You can also engage your employees in selecting a charity. Their ideas are likely to reflect the community you serve so their interests can help you identify causes your customers care about.
Once you've decided which charitable cause you want to connect with, you'll need to select a charity that aligns with that cause. For instance, if your cause is wildlife preservation, then you need to sort through the various animal charities to find one to support.
Here are some ways to screen a charity.
Verify that the charity you select is tax-exempt. The Internal Revenue Service (IRS) allows you to claim a tax deduction only for donations to bona fide, tax-exempt charity organizations. Charities qualified for tax-exempt status are categorized as 501(c)(3) organizations and listed with the IRS. Use the IRS tax-exempt organization search tool on the agency's website to verify the charity’s tax-exempt status.
Research the charity’s mission and financial condition. The charity’s website should clearly state its mission, services, and the audience it serves. Make sure the charity has the financial wherewithal to accomplish its goals. Check to see how much of its funding goes to the actual services it provides rather than to administrative expenses. Websites like GuideStar, Charity Navigator, and Charity Watch provide financial statements (tax-exempt organizations file IRS Form 990), and other valuable information about the charity’s operations.
Meet with the charity’s leadership team. Especially if you plan to develop an ongoing relationship with a charity, it’s a good idea to meet with its management to assess its commitment, capabilities, and fit with your business.
Check the internet for negative press about the charity. By thoroughly vetting any charities you donate to, you’ll ensure the charity is legitimate and avoid scams and scandals that can taint your business’s reputation.
As a general rule, you can deduct cash donations and donations of property or equipment to 501(c)(3) organizations on your federal tax return. You can also deduct travel expenses related to work you do with a charity.
However, the value of the time you or your employees spend doing volunteer work isn’t tax deductible. Neither is paid time off you give employees to do volunteer work.
Limits and conditions apply to all types of donations. So you should consult the IRS website or a tax professional when taking charitable tax deductions. Keep in mind that the federal deduction you’re allowed might be reduced if you receive a state or local tax credit for it.
How you deduct cash donations will depend partly on your business structure.
Pass-through businesses: Pass-through entities like sole proprietorships, partnerships, and limited liability companies (LLCs) are allowed certain deductions on their personal income tax. Because owners of pass-through entities pay individual taxes on their share of the business’s income, any deduction will reduce their personal income tax, not their business taxes.
Pass-through businesses that itemize deductions can generally deduct cash contributions up to 60% of their adjusted gross income. You’ll report these contributions on Schedule A of your personal federal tax return. Some deductions are subject to limits of 20%, 30%, or 50%.
While charitable contributions are generally noted in a pass-through entity owner's personal return, this is not always the case. Sole proprietorships and other pass-through businesses can deduct charitable contributions on Schedule C of their business tax return when the contribution yields a business benefit. For example, a sole proprietor who owns a sporting goods store might get a revenue boost from sponsoring a local children’s baseball team because the sponsorship is likely to attract more shoppers to the store.
Corporations: A corporation can deduct contributions of cash, property, or investments —usually up to 10% of its taxable income —as a business expense.
To claim a tax deduction for cash donations, you’ll need receipts detailing the amount and date of the contribution.
Property and equipment include items like automobiles, real estate, and intellectual property.
To take a tax deduction for property or equipment you donate, you’ll need to establish a dollar value for your contribution. In general, you can deduct the lesser of either:
You’ll need accurate records for any business asset donations you claim, including documentation of their original value and other costs associated with their purchase. Consult the IRS website or a tax professional for detailed information on valuing property and taking a tax deduction for your non-cash donation.
For non-cash contributions of $250 or more, you’ll need a letter from the charity recognizing the donation.
You must file IRS Form 8283 for property contributions of more than $500. For vehicle donations that are more than $500, you must attach the IRS Form 1098-C you received from the organization. You must provide both an acknowledgment and Form 8283 for contributions with a value of more than $5,000.
It’s not necessary to file IRS Form 1099 for charitable contributions.
While you can’t deduct the value of your time volunteering, you can deduct the cost of travel required for charitable work. Standard IRS mileage rates for the year in which you’re filing apply.
Instead of writing a check at year-end, structure a program that keeps your efforts front and center throughout the year. A continuing effort will keep you on customers’ radars and keep employees motivated.
When you make monetary donations, consider framing your donation as a percentage of sales rather than the dollar amount. Studies show consumers regard donations that represent a portion of sales as more valuable than the actual dollar amount you give.
Here are some of the ways you can show your ongoing commitment to giving back.
Let people know what you’re doing. Tell your charitable giving story on social media, your website, and your newsletter. Report news of the charities you work with and the results they’re achieving. Remember to ask permission from the charity if you want to use its logo or other branding materials.
Keep your charities in the loop. Stay in touch with your chosen charities and keep them updated on your efforts and your plans. Consider inviting the charity to business events you hold. They’ll welcome the opportunity to network with your clients and employees and meet new potential donors, and you’ll foster long-term relationships.
Get employees involved. Ask employees about the charities they’d like to support. Organize a volunteer day and give employees time off to donate their time to a charity organization.
The impact you make with your charitable giving program doesn’t depend on the amount of your donation. To get the best results, be thoughtful about the charity you choose and keep your efforts consistent.
]]>Think of fair hiring as equal employment opportunity compliance 2.0. Fair hiring practices are grounded in legislation. Federal employment laws, such as Title VII of the Civil Rights Act of 1964, make it unlawful to discriminate against job applicants because of their race, color, religion, sex, national origin, age, disability, and genetic information.
Fair hiring goes a step further than workplace discrimination laws. It aims to not only prevent discrimination against protected groups, it seeks to foster workplace diversity by providing a level playing field for all job applicants.
Fair hiring strategies take unconscious and unintentional biases out of the hiring process to ensure that all applicants get equal consideration based on merit.
Federal antidiscrimination laws currently identify the following protected groups and prohibit employment discrimination against them.
It’s important to note that legislation and case law are always evolving. For example, Title VII now includes protections for the LGBTQ+ community pertaining to discrimination based on gender identity and sexual orientation.
In addition to Title VII, laws directly and indirectly related to hiring include:
The Pregnancy Discrimination Act (PDA) makes it unlawful to discriminate on the basis of pregnancy, childbirth, or a related medical condition.
The Americans with Disabilities Act (ADA) requires employers to make reasonable accommodation to allow workers with disabilities to do their jobs.
The Age Discrimination in Employment Act (ADEA) prohibits discrimination against those who are at least 40 years old.
The Equal Pay Act requires employers to give men and women equal pay for equal work.
The Immigration Reform and Control Act (IRCA) prohibits discrimination based on citizenship or national origin.
The Civil Rights Act of 1866 protects against discrimination based on race or ethnicity.
The Genetic Information Nondiscrimination Act (GINA) prohibits the use of genetic information for employment decisions.
Any business with 15 employees or more is subject to Title VII regulations. The U.S. Equal Employment Opportunity Commission (EEOC) enforces these laws, and companies that fail to comply risk stiff fines and penalties.
As a business owner, you also risk expensive lawsuits if a job candidate who believes they’ve been discriminated against takes you to court. Even a lawsuit that settles will be expensive, and more so if you lose your case at trial.
Besides avoiding negative legal consequences, fair hiring practices can advance your business’s performance in several ways.
Fair hiring fosters innovation. People naturally gravitate to others who are like them. In business, this tendency often means that the people doing the hiring choose applicants who share their experiences and backgrounds. All that sameness leaves little room for the introduction of new ideas and approaches that the homogeneous workers might not have considered.
Fair hiring practices, on the other hand, lead to a diversified workforce and contribute to an environment where fresh ideas and viewpoints can flourish. This fair hiring outcome is one reason companies with a diverse mix of employees have been found to be more profitable than those that don’t actively seek to employ a diverse workforce.
Fair hiring reduces turnover. One of the biggest drivers of employee turnover is job satisfaction (or the lack thereof). Employees who feel well suited to their jobs are likely to be more engaged and less likely to quit. Fair hiring focuses on matching a job candidate’s experience and skills to job responsibilities. As a result, employees tend to have greater job satisfaction, and employers spend less time and money filling job openings.
Achieving hiring standards that are truly neutral requires paying attention not only to who you hire, but also the way that you hire.
Job descriptions, job advertising and posting language, interview questions, and the actions of the team members responsible for recruiting and hiring all play a role in achieving a fair hiring standard.
Here’s how.
Make sure your employment application is free from questions that require an applicant to reveal non-job-related information, such as their age or race. Many states also have Ban the Box laws that prohibit questions about an applicant’s criminal history and arrests.
All too often, business owners shortcut the process of developing detailed job descriptions and ask for candidates who are “a good fit with company values,” or “know how to get things done.” Instead, job descriptions should describe the specific behaviors, skills, and knowledge needed for the job.
For example, suppose your job description says you’re looking for a candidate who’s a “good fit” for a company that puts customer service above all else. In your job description, you might include requirements for not only customer service experience, but also a belief that customer service is a highly important business objective.
Your job description should focus on the practical benefits a qualified candidate will bring to your company rather than whether someone fits in with the company culture. Opting for this type of job description could expand and diversify your pool of applicants and help you find the right person to fill the job.
Aside from obvious no-nos like using salesman instead of salesperson or other gender-specific pronouns, look out for language that might exclude otherwise qualified candidates.
For example, suppose you own a consulting firm and you’re looking for an entry-level data analyst. The job requires a business degree but you’re willing to train on the job and don’t need someone with prior work experience in data analysis. You decide to write a job posting asking for a recent college graduate with a degree in business. You like the idea of giving a chance to recent college grads who are famously faced with the dilemma of needing work experience to land their first job.
It sounds well-meaning enough. But what if someone with a business degree is looking to make a career transition? Worse yet, what if that someone is 40 years old or older (a protected class under anti-discrimination laws)? Your ad could be considered discriminatory.
Keep in mind, too, that different cultures might view traits you deem positive as negatives. Using words like “aggressive” or “ambitious” might dissuade some individuals from applying for your job because it’s an unattractive trait in their culture. These individuals might have the same drive and desire to climb the corporate ladder that you’re looking for; it’s just that they exhibit those traits in different ways. And isn’t that cultural difference exactly what your fair hiring practices are designed to achieve?
To avoid these cultural pitfalls, consider using a phrase like, “proven track record exceeding sales goals” instead of “aggressive, go-getter.” Or, use the phrase “career-minded project manager seeking a management-track position” instead of “ambitious project manager.”
While it’s always helpful to spend a few minutes at the start of the interview making applicants feel comfortable, it’s important to quickly move on to strictly job-related questions. Lawyers and judges will presume that you’ll use the answers to questions you ask during your hiring process, so keep non-job-related questions out of the interview.
By establishing standard questions for each position, you’ll ensure that all applicants will get the same shot at your job opening and be evaluated based on the same criteria.
Using a uniform set of interview questions can also help you to score applicants’ responses. A scoring system that assigns a value to each interview question keeps all applicants on an even footing. This standardized analysis also allows you to make the best hiring decision because it incorporates both strengths and weaknesses into a single score.
Instead of having one person conduct interviews, assemble a diverse team of interviewers charged with reaching a consensus on job candidates. The different points of view represented by the team will help weed out biases, especially unconscious ones that a single interviewer might have.
Consider using one of the available artificial intelligence programs to remove names, photographs, year of college graduation, hobbies, and other similar, non-job-related references before you review resumes. These identifiers can trigger biases and assumptions that derail your fair hiring goals. You can better prevent unconscious biases by removing identifying information completely than trying to disregard it after you’ve already learned the information.
Skill assessments are another tool to evaluate candidates objectively. When a job requires skills like writing, bookkeeping, coding, or proficiency with software such as Excel, testing will save time by screening out applicants before you spend time interviewing them.
Be careful, however, because the EEOC and courts can hold employers liable for pre-employment skill testing that’s not job-related or that’s administered improperly.
Pre-employment tests can’t be the only assessment method used for evaluating job applicants, and they must not have a disproportionate impact on any protected group. You must also ensure that all applicants get the same instructions, time limits, and conditions for taking tests.
All those involved in recruiting and hiring should receive training in employment laws, as well as best practices for fair hiring (including recordkeeping requirements).
As businesses more widely adopt artificial intelligence (AI) tools, many employers have turned to AI to assist in hiring.
AI holds the allure of streamlining the hiring process, especially when it comes to screening resumes using keywords tailored to experience requirements. However, the use of this technology is increasingly coming under state and federal scrutiny. AI that isn’t well trained or is fed bad data can perpetuate stereotypes and result in discriminatory hiring practices. How will the regular employer know?
Employers should take note of EEOC guidelines meant to ensure that the use of AI doesn’t disproportionately impact protected groups. They should also monitor state and local laws that are increasingly targeting these practices.
Legislation in New York City, for example, requires employers using AI for hiring to conduct regular, independent bias audits. The law also requires employers to notify candidates when they use AI tools in the selection process. (N.Y.C. Loc. Law 144 of 2021 (2023).)
In addition, Illinois and Maryland have enacted laws to limit the use of facial recognition software in video interviews for employment.
It’s not unreasonable to assume that other states and localities will follow suit.
Navigating antidiscrimination laws can be complex, but when it comes down to it, fair hiring practices are little more than sound business strategies.
Focusing on the background, skills, and knowledge needed to get a job done is certain to yield a more qualified employee than haphazardly defining job requirements and prioritizing irrelevant characteristics like where an applicant went to school. Lawful hiring practices don’t just reduce liability for employers, they also increase your business’s competitive advantage.
If you're working on fair hiring practices for your business and you have compliance questions, consider talking to an employment expert like a human resources specialist or employment lawyer. They can review your hiring practices or help you create new policies that comply with federal and state laws.
]]>If your Washington business has just one employee, even if that employee is part-time, you’re generally required to carry workers’ compensation insurance. However, there are a variety of narrow exceptions to carrying workers' compensation insurance, such as:
For a complete list of exceptions, check the L&I Employers’ Guide.
In addition, business owners, such as members of LLCs, corporate officers, partners in partnerships, and sole proprietors, usually are not required to be covered by workers’ compensation insurance. However, there are some limitations on this exception.
The Washington State Department of Labor & Industries (L&I) is the primary state agency that handles workers’ comp claims. Most of the law for WC insurance is contained in Washington’s Workers’ Compensation Act (Title 51 of the Revised Code of Washington). In addition to the Act, there are also administrative rules (Chapter 296-17 of the Washington Administrative Code) that cover workers’ compensation in Washington.
In Washington, you typically will obtain workers’ compensation insurance through an insurance pool called the Washington State Fund. You apply for coverage by filing a business license application with the Washington Department of Revenue. There is also an option to self-insure, but this may not be practicable for smaller businesses, in part because it requires that a lot of money be set aside to cover potential claims.
You are responsible for ensuring that an injured employee immediately gets required medical care for a doctor or hospital of the employee’s choice. This includes providing transportation, such as an ambulance, if necessary. For initial treatment, the employee may see someone outside the L&I Medical Provider Network. However, additional or ongoing care must come from providers in the network. For most injuries, employees must make a claim within one year. For a few types of injury or illness, an employee has two years to make a claim.
The injured employee should report the injury to you as soon as possible. In cases where a medical provider is involved, the provider will give the employee a Form F242-130-000, Report of Accident (Workplace Injury, Accident or Occupational Disease), known by the abbreviation ROA, which the employee completes and submits to L&I to start the claims process. Often this filing will be done online.
You will receive a request for information form from L&I. You should complete it and return it as soon as possible. Include your copy of the ROA. Beyond these initial steps, there are subsequent steps to the WC claims process, not covered here.
If you don’t think your employee’s workers’ comp claim is valid, state that on the request for information form that you return to L&I . Then, within 60 days of a decision by L&I to accept the employee’s claim, you can file a protest through L&I’s Claim & Account Center webpage.
Disputes about the validity of claims initially are adjudicated by L&I. If you are unhappy with L&I’s decision, you can file an appeal with the state Superior Court within 30 days of the decision. You can then further appeal the matter to the Court of Appeals.
If you don’t carry workers’ compensation insurance you may be subject to various penalties and fines. There are also penalties for not paying WC premiums on time and not filing required WC reports. A few penalty rules are contained in Section 296-15-266 of the Washington’s Administrative Code.
There are many other workers’ compensation requirements for Washington employers that are not covered here, such as putting up posters about workers’ compensation coverage where employees can see them. The Nolo website has a section devoted to workers’ compensation. In addition, the L&I website also contains many useful resources.
]]>A diversity, equity, and inclusion (DEI) policy is an action plan that assists and guides companies in recruitment, hiring, promotion, and other human resource management functions. It aims to build a workforce that reflects the demographics of the larger community and a workplace that offers equal opportunities to all, regardless of their backgrounds, lifestyles, and beliefs. Companies whose DEI policies are known to the public sometimes gain a marketing edge over competitors, as customers gravitate towards companies whose social stances they admire.
DEI policies focus on three key values:
Diversity. The workforce should reflect the full range of demographic groups, including race, ethnicity, gender, culture, sexual orientation, and socioeconomic status.
Equity. The company’s processes and programs, such as training and team building, should ensure equal access to opportunities for all employees.
Inclusion. The work environment should be designed to enable employees and customers to feel welcome, seen, and heard. It should honor and respect differences in backgrounds, beliefs, appearances, and communication styles.
Your business might need to take further steps for your policy to be meaningful and effective. For example, a company might use specific channels to recruit people with physical disabilities. But the business won’t be successful at increasing the number of people with disabilities in its workforce if it doesn’t provide ramp access to the facility.
Unlike employment laws, which mandate rules for hiring, staffing, and compensating employees, DEI policies are voluntary (although having one might assist an employer to defend against a discrimination lawsuit). These policies also tend to focus on the whole work experience, not just the hiring process.
Here’s the difference between what your company must do and what it can do: Suppose the hiring manager at a wholesale distribution company faithfully applies employment laws like Title VII of the Civil Rights Act of 1964 (which prohibits employment discrimination based on characteristics like race and gender) by, for example, giving equal consideration to all applicants for its sales positions. Nevertheless, a staffing analysis shows that women represent only a tiny fraction of the sales force.
The hiring manager reviews hiring records and realizes that many of the women who were qualified and offered a position nonetheless turned down the position because it required a lot of travel. These women were unable to meet the travel requirements due to family responsibilities.
To attract more women to its sales jobs, this company might include an initiative in its DEI policy that restructures sales territories to create more positions that require little or no travel, thereby opening up sales opportunities to a larger number of women applicants.
The goal of a DEI policy is to create a workforce that reflects the larger community and a workplace that recognizes and embraces individual differences. The policy can focus on any number of characteristics, including:
You might not be able to specifically cover all of these characteristics in your employment practices. In your DEI policy, you should aim to promote equal access and opportunities for everyone. But the specific programs you implement can be designed to address recruitment and hiring based on a particular characteristic.
Making your business diverse, equitable, and inclusive is more than the latest management trend. A well-executed DEI policy can also give you a competitive advantage and improve your company’s performance.
Let’s look at the advantages of having an effective DEI policy.
Once you’ve decided to create a DEI policy for your business, you need to take the appropriate steps to put one in action. Look at your company’s current culture, set goals for your business, and make plans to meet these goals.
Before you can begin to formulate a DEI policy, you’ll need to consider your company’s current practices and challenges, and what you want to accomplish.
When you have a good understanding of what your company looks like at present, decide how you want it to look in the future.
Set objectives. Set clear, measurable objectives for what you want your policy to accomplish. Do you want to increase eligibility for promotions among certain groups of employees? Do you want to solicit feedback about company operations from team members? Do you want to focus recruiting efforts on disadvantaged groups? Do you want to add products that target the needs of certain groups of customers? Don’t be afraid to put specific numbers in your DEI policy. For example, you could say that your goal by the end of the year is for leadership positions to be made up of at least 50% women. Just make sure that these numbers are reasonably attainable.
Create an action plan. Create a plan of action for each objective, including the quantifiable results you want to achieve. For example, if you want to solicit feedback about company operations, you might establish monthly meetings where team members can share their thoughts. If you want to increase eligibility for promotions, you might assign coaches who regularly meet with those employees.
Resources and templates are available from sources such as the Society for Human Resource Management. When you use a template, make sure you tailor it to your company and your DEI objectives.
Don’t just distribute your policy by email and expect employees to read it. Hold a company meeting and consider following up with smaller group meetings where employees can feel free to comment and express concerns.
Diversity training, whether online or (better) in person, serves two purposes: It's an occasion for employees to voice their concerns, hopes, and expectations for the workplace. Secondly, those voices are themselves the people who can convert these views into action. For the training to be effective, everyone needs to feel safe to speak out and everyone must be open to learning.
Choose a trainer from inside or outside the company. Remember that biases can be unintentional and unconscious. You’ll need trainers who are able to encourage free and open dialogue, so managers shouldn’t be in charge of training their direct reports. Instead, consider hiring an outside consultant or using your in-house HR specialist, if you have one. A professional trainer can help to create an environment that fosters open discussion and provides constructive feedback.
Include managers as well as team members. Team members might not have authority over others, but their attitudes and actions can seep into the company culture.
You need to evaluate the impact of the goals you set and the initiatives you carry out. Otherwise, you won’t know whether your policy is making a meaningful difference in your company’s experience and translating into measurable results.
Set up a timetable. Assess and measure your progress periodically and revise your procedures as needed. For example, if your action plan calls for hiring employees from certain demographic groups like women or people of color, make sure you record and track the gender or racial makeup of your new hires. Review your progress on a quarterly or bi-annual basis, depending on the frequency and the number of employees your company hires.
Determine the core issue. If your results don’t meet the goals you initially set, find the reason for this lower-than-anticipated performance. Do you need to revisit the program itself or should you try different ways to carry out the plan?
Report results. Remember to keep employees as well as managers apprised of your progress.
Creating change in organizations takes continual reinforcement, especially when it comes to company culture. You’ll need patience and vigilance in equal measure to put your diversity, equity, and inclusion policy into practice.
]]>Here are some basic facts that you need to know about workers’ comp insurance in Ohio as a business owner and employer.
If your Ohio business has at least one employee, you’re generally required to carry workers’ compensation insurance. There are exceptions to the workers' compensation requirement for:
In addition, business owners, such as sole proprietors, partners in partnerships, and members of limited liability companies, are not required to be covered by workers’ compensation insurance in Ohio.
The Ohio Bureau of Workers’ Compensation (BWC) is the primary state agency that handles workers’ comp claims. Most of the law for WC insurance is contained in Ohio’s Workers’ Compensation Act (Chapter 4123 of the Ohio Revised Code). In addition to the Act, there are also administrative rules that cover workers’ compensation in Ohio.
Ohio is one of four states where workers’ compensation insurance is provided through the state itself rather than through private insurance companies. You can apply for WC insurance from the state by completing the BWC’s Form U-3, Application for Ohio Workers’ Compensation Coverage, online. There is a minimum $120 application fee.
Apart from coverage through the state, there is also an option to self-insure, but this may not be advisable for smaller businesses, in part because it requires that a lot of money be set aside to cover potential claims.
Apart from getting medical care, the injured employee should notify you of his or her injury. The employee, the employee’s medical provider, your business’s managed care organization, or you as the employer must report the injury or accident to the BWC. This initial report, a Form FROI, First Report of an Injury, Occupational Disease or Death, An injury report can be filed on paper or online.
Beyond filing the initial report, there are also subsequent steps to the WC claims process, not covered here.
You can reject an employee’s workers’ comp claim. Otherwise, the BWC makes an initial decision about the claim. If you either reject the claim or wish to dispute the BWC’s decision, the dispute initially will be referred to the Industrial Commission of Ohio (IC).
The IC is a state agency specifically intended to resolve WC disputes through a series of hearings. There can be as many as three levels of hearings, depending on how far you or the employee wishes to appeal the matter. The first hearing is held before a district hearing officer (DHO) within 45 days after you appeal a BWC order. The second hearing is held before a staff hearing officer (SHO) if you or the employee appeals the DHO decision. The third hearing is held before the IC Commissioners’ Panel if you or the employee appeals the SHO decision.
Beyond IC hearings, you can appeal decisions to the Ohio state courts, starting with the Court of Common Pleas, then to Appellate Court, and ultimately to the state Supreme Court.
If you don’t carry workers’ compensation insurance you may be subject to various penalties. For example, if an employee makes a claim to the BWC while you are without coverage, and the BWC accepts the claim, you must reimburse the BWC for all costs. In addition, the injured worker can sue you directly for all damages and expenses related to the injury.
If you fail to make timely premium payments to the BWC, you may have to pay other penalties that could be as much as 15% of the premium amount. There are also penalties for failing to file required payroll reports with the BWC on a timely basis.
Check this BWC webpage for more information.
There are many other workers’ compensation requirements for Ohio employers that are not covered here such as putting up posters about workers’ compensation coverage where employees can see them. For more information, see the Nolo website section on workers’ compensation and the BWC’s online guide for employers and employees.
]]>If your Minnesota business has just one employee, even if that employee only works part-time, you’re generally required to carry workers’ compensation insurance. Limited exceptions apply to workers in private homes who earn less than $1,000 in a three-month period, certain farming situations, and some cases where an employee is a family member. In addition, business owners, such as members of LLCs, certain corporate officers, and sole proprietors are not required to be covered by workers’ compensation insurance.
The Minnesota Department of Labor & Industry (DLI) is the primary state agency that handles workers’ comp claims. Most of the law for WC insurance is contained in Minnesota’s Workers’ Compensation Act (Chapter 176 of the Minnesota Statutes). In addition to the Act, there are also administrative rules (Chapter 5520 of the Minnesota Administrative Rules) that cover workers’ compensation in Minnesota.
In Minnesota, workers’ compensation insurance is available through private insurance companies. If your business is unable to obtain coverage through a private insurer, you can get coverage through so-called assigned risk-pool insurance. There is also an option to self-insure, but this may not be advisable for smaller businesses, in part because it requires that a lot of money be set aside to cover potential claims.
Depending on the circumstances, an employee may have 14 days, 30 days, or even 180 days to notify you of an injury. As soon as you are notified, you should immediately report it to your workers’ comp insurance carrier. Use Form FR01, First Report of Injury. You must complete this form within 10 days of being notified. If the injury is “serious” — or results in death — you must file the report within 48 hours. The insurer, in turn, must file the report electronically with DLI. You must also provide a copy of the form to your injured employee and retain a copy for your records.
Beyond these initial steps, there are subsequent steps to the WC claims process, not covered here.
You or your WC insurer may choose to deny your employee’s workers’ comp claim. If that happens, you or your insurer must send a notice of denial of liability to the employee within 14 days of being notified of the injury. The employee then has the option to file a Form EC04, Employee’s Claim Petition, with the DLI.
The DLI will then hold an administrative conference to try to informally resolve the dispute. If you cannot reach an agreement, the DLI will make its own decision. At that point, if you don’t like the decision, you can appeal it and have a hearing before a workers’ compensation judge. The hearing is more formal and can include submission of evidence and testimony of witnesses. From that point, you can then appeal to Minnesota Workers’ Compensation Court of Appeals, and, ultimately, to the state Supreme Court.
You are subject to various penalties if you fail to carry workers’ compensation insurance as required. This includes:
There are many other workers’ compensation requirements for Minnesota employers, such as putting up posters about workers’ compensation coverage where employees can see them, that are not covered here. However, the Nolo website has a section devoted to workers’ compensation. In addition, the DLI website also contains many useful resources.
]]>Most Michigan businesses with employees are required to pay for workers’ compensation insurance (WC or workers’ comp insurance). The insurance provides compensation to employees who suffer work-related injuries. Here are some basic facts that you need to know about workers’ comp insurance in Michigan as a business owner and employer.
Generally speaking, if your Michigan business has even one employee, you’re required to carry workers’ compensation insurance. More specifically, the following types of employers must carry workers’ compensation coverage:
In addition, some business owners, such as sole proprietors, partners in partnerships, and corporate officers of small, closely-held corporations are not required to be covered by workers’ compensation insurance.
The Michigan Workers’ Compensation Agency (WCC) is the primary state agency that handles workers’ comp claims. Most of the law for WC insurance is contained in Michigan’s Workers’ Worker’s Disability Compensation Act (Chapter 418 of the Michigan Consolidated Laws). In addition to the Act, there are also administrative rules that cover workers’ compensation in Michigan.
In Michigan, workers’ compensation insurance is available through private insurance companies. There is also an option to self-insure, but this may not be advisable for smaller businesses, in part because it requires that a lot of money be set aside to cover potential claims.
Unless there is a dispute, employee injury claims often are handled between your business, your insurance company, and the employee, and the WCA is not involved. However, if an injury results in an employee disability of seven or more days, a so-called specific loss, or a death, you must report the injury to the WCA using Form WC-100, Employer’s Basic Report of Injury. Injuries that require medical treatment but don’t result in at least seven days of disability do not need to be reported.
If and when you begin paying benefits to an injured employee, you also must file Form WC-701, Notice of Compensation Payments. Beyond these initial steps, there are subsequent steps to the WC claims process, not covered here.
If you or your insurer thinks your employee’s workers’ comp claim isn’t valid, and benefits are denied, the employee can file an Application for Hearing. You should receive a copy of the Application and then, within 30 days, you must file a written response. If you now choose to accept the claim, you or your insurer will file Form 100, Employer’s Basic Report of Injury. However, if you continue to dispute the claim, you or your insurer will file Form 107, Notice of Dispute and Form WC-251, Carrier’s Response.
After these various forms are filed, the next step usually is informal mediation conducted by a WCA representative. After that, if the matter remains unresolved, it moves to a hearing before a magistrate. Beyond that, there is an option to appeal to the Michigan Compensation Appellate Commission and the Michigan Court of Appeals.
If you don’t carry workers’ compensation insurance, an injured employee can sue you for damages in civil court. In addition, the WCA can prohibit your business from having any employees until you have WC insurance. Furthermore, you may be subject to a fine of $1,000, imprisonment for a period ranging from 30 days to six months, or both, with each day that you go without workers’ comp insurance considered a separate offense. Many of the penalty rules are contained in Section 418-461 of Michigan’s Workers’ Disability Compensation Act.
There are many other workers’ compensation rules for Michigan employers, such as putting up posters about workers’ compensation coverage. The Nolo website has a section devoted to workers’ compensation. In addition, the Michigan Workers’ Compensation Agency website also contains many useful resources including useful FAQ pages.
]]>Employers must follow their state's requirements for paying unemployment taxes, reporting new employees, and responding to unemployment claims. Your state's unemployment agency will provide you with more information on your duties, which typically include:
Unemployment taxes. Most employers will have to pay both federal and state unemployment taxes, which fund unemployment insurance programs. The rate depends on the amount of wages, the number of employees, and also the number of charges to the employer's unemployment account.
Reporting. Typically, employers must report all new hires to an employer registry, a workforce tax agency, or both.
Responding to Claims. If a former employee files an unemployment claim, the unemployment agency will notify the employer and give them a chance to respond and contest the claim.
Unemployment benefits are cash benefits to help eligible individuals who lose their job. The amount and duration of the benefits depend on the state where the employee worked and the employee's wages.
To be eligible for unemployment, you must be able and available to work. In addition, if you were at fault for losing your job, meaning that you quit or were fired, you typically can't collect unemployment.
Check with your state's unemployment agency to determine the process for filing for unemployment. The steps might include:
Be sure to review your state's ongoing reporting requirements. Your state might require you to check in about your job search, or maintain a job search log and provide it upon request.
Below are links to each state agency that handles business employment matters, including unemployment insurance tax, employee reporting requirements, and other employee-related matters.
Alabama
Alaska
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Generally speaking, an essential service is one that is necessary for public health and safety. If the government deems the business essential, it may continue to operate while shelter-in-place orders are active. In most areas, the government will not require an essential business to obtain a certificate or verification; the business can simply continue to operate.
However, even essential businesses should implement policies that will protect the health and safety of the community. This might include reducing hours, encouraging social distancing with staff and customers, adopting hygiene and sanitation policies, and allowing employees to work from home when possible. Be sure your sick and family leave policies are in compliance with the law, and that ill employees are encouraged to stay home to self-isolate.
While federal, state, and local governments differ as to the definition of “essential,” a number of businesses are typically included on everyone’s list. Essential services generally fall into one of the following categories:
If the government does not list a type of business as essential and the business does not provide goods or services to an essential company, it is non-essential (though it might still be allowed to operate; see the section below). Government resources might list particular businesses that are non-essential. These typically include:
One locality may deem a type of business essential, while a different locality might consider the same service non-essential. If you operate any of these businesses, be sure to check your city and state regulations. Examples of businesses that might or might not be on the “essential” list of a moratorium or order include:
If you violate the regulations by operating a non-essential business, your business might face penalties. In some areas, you could be charged with a misdemeanor, which means potential jail time and fines. But read on to see whether your non-essential business might still be able to carry on.
You might be able to operate a non-essential business without violating the law, as long as doing so will not result in people violating the shelter-in-place orders. For example, you and your employees might be able to operate the business from home. An accountant could continue to prepare tax forms from home; a yoga teacher might offer classes online instead of in a studio, and a lawyer could offer consultations and prepare documents from home.
Some owners of non-essential businesses have engaged in the following “work-arounds” to the problem of shuttered doors. These owners have lost sight of the purpose of shelter laws, by doing the following:
It is important to check with your local government agencies, including state, county, and city government websites, to see what regulations may apply to you. Some areas do not provide as much guidance as others, and it can be difficult to determine if your business is essential. You can check with other similar businesses in your area to see how they are interpreting the rules. However, if the other business is wrong, this is no defense to violating the regulation and you could still face a penalty. If in doubt, it is best to contact a government official.
Finally, understand that these regulations are changing frequently as time goes on. Be sure to check back for updates, such as when the orders might be lifted, and additional regulations that could apply to your business.
]]>Rather than something you do after you’ve completed the work, invoicing clients for payment is part and parcel of completing your assignment. The invoicing process actually begins when you and your client first agree to the assignment, and it ends when you submit an invoice for the work and receive payment. The contents of your invoice shouldn’t be a surprise to your client. Done right, it should tie together all the elements you’ve already discussed and included in your service agreement in a way that makes it easy for your client to process and send you payment.
At the same time that you and your client discuss the work you’ll do, ask the client about its payment process, including the department name and names of individuals that pay the bills. Ask if the company has preferred payment methods (such as by check or electronic funds transfer), and terms (How long does the company have to pay your invoice?) Prepare for the discussion by asking yourself and your client these questions:
Will you require a deposit? Many freelancers and independent contractors ask for an initial deposit before beginning work. Deposits are customary for some independent workers, such as general contractors, because they must hire workers (who will be paid as the job progresses), and they often incur up-front expenses like buying materials before the work starts. Many freelancers (like web developers and graphic artists) require deposits because of the time that passes between starting and completing a project. Explaining the reasons you are asking for a deposit can help build trust with your client.
What types of payments will you accept? Some types of payments might be easy for you but not for your client. It’s a good idea to offer several payment options (check, credit card, payment services like PayPal, and so on), to learn your client’s preferences, and accommodate them when possible. Making it easy for clients to pay you can help you get repeat business.
Who pays the invoices for your client? In some companies, the contact person a freelancer works with is not the person who pays the bills. Some companies require the person who ordered the service to approve the invoice first, and forward it to the person whose job it is to pay it. Other companies ask you to forward invoices directly to the person who pays the bills. Knowing where and to whom to send invoices will help you get paid faster and follow up if payments are late or missed.
What payment terms will you establish? Payment terms tell the client when payment is due. Some of the commonly used terms are:
Your industry might customarily use a particular term of payment, such as 30 days, but you can also set your payment terms based on your own needs. You should also decide whether you want to offer incentives for early payment. For example, you might require payment 30 days from receipt of the invoice, but offer a small discount if payment is made within 15 days. You’ll also want to decide whether to charge a late fee if payment is late. Letting your client know your terms at the outset will help you avoid problems and delays in getting paid.
You can use the template available here (one of the many free invoice templates available online), or you can purchase an invoicing system or create your own invoice. Whichever method you choose, you’ll want to include the following information in your invoice:
A heading that identifies your company. If your company has a logo, it should appear at the top of your invoice along with your name, company name, address, phone number, email address, and website address if you have one. It’s a good idea to use a font and size that makes this information stand out so that the person who receives your invoice can easily identify it.
Your client’s name and contact information. As discussed earlier, addressing your invoice to the right person and department can be key to getting paid quickly. Use a specific person’s name and department, whenever possible, along with the mailing or email address and a phone number.
The date of the invoice. The date you sent the invoice will usually be different from the date you completed the work, but you’ll need the date the invoice was prepared because it marks the start of the time period that you’ve allowed for payment.
Payment due date. It’s a good idea to include the payment due date right below the date the invoice was prepared so that your client readily sees it. You can include incentives for paying early and consequences for paying late near the end of the invoice, as you’ll see in the payment terms section below.
The invoice number. Assign a separate and unique identifying number to each invoice you send--even if you are invoicing a company you have invoiced before. Choose a numbering system that will allow you to number each invoice consecutively. You can start with the number, “1” or choose a numbering system that shows your optimism about your new business. For example, you might choose to number your first invoice “001” to build in the possibility of issuing hundreds of invoices as your business grows. In this example, your tenth invoice would be numbered 010; your one-hundredth invoice will be 100 and so on. Including the current year in the invoice, such as 2021-1, is another way to number invoices.
The purchase order number (“PO”) if one was provided. When the company you are working with uses purchase orders (a document issued by buyers that details the items to be purchased), include the P.O. number on your invoice.
A description of services provided. The description of services provided should match the description used in the service contract. Your description should be concise, but it should also be complete and itemized so it’s easy to see the breakdown of services and the charges for each. For example, a website designer would include the number of pages and the titles of each page created. If the designer also bought or provided photography or other artwork such as graphs, those items should be listed on a separate line. When charging hourly for assignments, itemize the number of hours worked and the hourly rate. For example, if you worked 20 hours and your fee is $50 per hour, your description would include a line that reads, “20 hours at $50 per hour.”
The total due. The way you list the total due will depend on what was negotiated at the outset. If your assignment includes several components with a separate fee for each, such as the example above of the invoice for the web designer, you would list the development of web pages with the charge for that service on one line, the artwork you bought or developed with the charges for that service on a second line, and add up the two charges as the total due on a third line. If you agreed to a flat rate for the project, your invoice would list that amount at the end of the services breakdown.
If you’ve previously received a deposit, make sure you list it as a separate item and deduct it before you enter the total due.
Payment terms: This can be a simple statement, such as, “Payment is due 30 days from receipt,” or a list of the incentives you are offering for paying early and fees you will charge for paying late as described earlier.
A thank-you note. Always end your invoice with a note of thanks to show that you appreciate the business.
It’s customary to send the invoice when you’ve completed the work. You might also consider a monthly invoicing cycle for long assignments performed over several months or more. Here too, you’ll want to first have a conversation with your client about the billing cycle you use and the way you allocate the fees. When freelancers haven’t yet established a relationship with a client, they sometimes send the invoice along with the signed client service agreement. But sending the invoice at so early a stage can pose problems when the work you’re asked to do or materials you’re asked to use change over the course of the assignment. Keep in mind too that some clients might not look favorably on getting an invoice before the work is completed, and doing so might actually jeopardize your efforts to build a relationship.
If you choose to send your invoice upon completion of the work, make sure you do so promptly. Waiting weeks or longer before sending an invoice sends a message that collecting your fees isn’t a priority, and if the delay is long enough, the client might forget about the work that was done or worse, spend the budgeted money on something else!
It’s customary to send invoices by e-mail in today’s world. If you’ve created your invoice in a word document, you’ll want to save it to a PDF format before sending so that it can’t be altered.
It’s important to set up a system that allows you to record prompt payments and follow up on late payments promptly. Keeping your invoices together in a computer file organized by date can help alert you when payments are past due. Automated invoicing systems like QuickBooks have built-in reminder features.
If a due date arrives and you haven’t received payment, you should act promptly by calling the client or resending the invoice, marked “past due,” or, for a softer touch, “Have you forgotten? Your payment is due now.”
Your relationship with – and knowledge of – the client will usually help you decide how many reminders to send before taking additional action.
]]>In almost all cases, if your Maryland business has just one employee, you’re required to carry workers’ compensation insurance. An exception applies for agricultural employers with less than three employees or an annual payroll not greater than $15,000. Business owners, such as sole proprietors or partners in partnerships, also don’t need to be covered by WC insurance.
The Maryland Workers’ Compensation Commission (WCC) is the primary state agency that handles workers’ comp claims. Most of the law for WC insurance is contained in Maryland’s Workers’ Compensation Act (Title 9 of the Maryland Code). In addition to the Act, there are also administrative rules that cover workers’ compensation in Maryland (Title 14, Subtitle 09 of the Code of Maryland Regulations).
In Maryland, workers’ compensation insurance is available through private insurance companies. If your business is unable to obtain coverage through a private insurer, you can get coverage through the Chesapeake Employers Insurance Company (CEIWC), which is the state’s WC insurer of last resort. There is also an option to self-insure, but this may not be advisable for smaller businesses, in part because it requires that a lot of money be set aside to cover potential claims.
An injured employee should report his or her injury to you immediately. In addition, the employee is responsible for filing Form C-1, Employee Claim Form, through the WCC’s online filing system. You, the employer, are required to file Form SF-1, Employer’s First Report of Injury (FROI), with your workers’ comp insurance carrier and the WCC. You can get the form through the WCC’s online filing system. You file the form within 10 days of being notified, orally or in writing, of the injury or accident.
You also should forward employee medical bills to your insurer for payment. If you are not contesting the claim, you or your insurer must start paying benefits within 21 days.
Beyond these initial steps, there are subsequent steps to the WC claims process, not covered here. The WCC has a helpful flowchart you can consult for further information.
After a claim is filed, you will receive a copy of a Form C-30 (claim form) and a Form C-40 from the WCC. Form C-40 will contain a consideration date. You must file so-called contesting issues (or, simply, issues) prior to the consideration date. This triggers the claim dispute process.
Initially, disputed claims are handled through hearings conducted by the WCC. If you are not happy with the WCC’s decision, you can appeal to a local circuit court within 30 days of the WCC’s decision. From there, you can also appeal to the state’s Court of Special Appeals.
If you don’t carry workers’ compensation insurance you may be subject to a fine of up to $10,000. In the case of corporations, individual corporate officers may be directly liable to the state for fines. Some of the penalties and fines are contained in Subtitle 11 of Maryland’s Workers’ Compensation Act.
There are many other workers’ compensation requirements for Maryland employers, such as putting up posters about workers’ compensation coverage where employees can see them. The Nolo website has a section devoted to workers’ compensation. In addition, the Maryland Workers’ Compensation Commission website also contains many useful resources.
]]>Prior to the Tax Cuts and Jobs Act (TCJA), which took effect in 2018, employees who worked at home for the convenience of their employer could get a tax deduction. This was a miscellaneous itemized deduction that could only be claimed by employees who itemized their personal deductions on IRS Schedule A. And it was available only if, and to the extent, it and any other miscellaneous deductions exceeded 2% of the employee's adjusted gross income.
The TCJA temporarily eliminated all miscellaneous itemized deductions, including the deduction for employee home offices. The deduction is scheduled to return in 2026. Thus, unless the law is changed, employees who are working at home in 2020 due to the coronavirus pandemic don't get a tax deduction for those costs.
All is not necessarily lost for employees forced to work at home. They can ask their employer to reimburse them for their home office expenses. In some states employers are required by state law to reimburse their employees for their necessary job expenses. These include California, Illinois, Iowa, Pennsylvania, Montana, and New Hampshire.
In addition, the federal Fair Labor Standards Act (FLSA) prohibits employers from requiring employees from paying for job-related expenses if doing so would cause the employee’s wage rate to fall below the minimum wage or overtime compensation rate.
Even if such reimbursement is not required by law, the employer may be willing to provide it anyway. It can only help with employee morale and productivity in this time of crisis. Moreover, such a reimbursement can be tax free to the employee and fully deductible by the employer.
The tax law permits employers to reimburse employees for legitimate job-related expenses, including home offices that meet the requirements for the home office deduction.
To qualify for the home office deduction, the employee must regularly and exclusively use a portion of his or her home for work--it need not be a whole room. And the home office must be for the employer's convenience. Employees forced to work at home due to the coronavirus qualify.
An employee may be fully reimbursed for any items purchased just for the home office, such as a computer, monitors, printer, internet service, or other equipment. But, if the employer later converts any of these items to personal use, he or she would presumably have to pay tax on their value.
The employee can also be reimbursed for a portion of the expense of maintaining his or her home. The employee must calculate what percentage of the home is used as the office--this area must be used exclusively for the office. The employee can be reimbursed for the home office percentage of rent or mortgage expenses, depreciation, utilities, and other costs of maintaining the home.
Example: Mario is an employee forced to work at home due to the coronavirus for two months. He exclusively uses 10% of his apartment as his office. He pays $2,000 in monthly rent and utilities. His employer reimburses him $400 for the two months. The $400 is tax-free to Mario and deductible by his employer.
To be tax-free, such reimbursement must be made under an “accountable plan.” An accountable plan is a set of procedures that ensures that employees don’t get reimbursed for personal expenses. In brief, the employee must:
Such a plan need not be in writing. If the employee fails to follow the rules, any reimbursements must be treated by the employer as employee income subject to tax. Thus, the employer must include the amount as taxable wages on the employee's W-2.
There's another way an employer could make tax-free reimbursements of an employee's home office expenses. They could be characterized as qualified disaster relief payments. A provision of the tax law (IRC Sec. 139) allows employers to make tax-free payments to employees to to reimburse or pay them for reasonable and necessary personal, family, living, or funeral expenses they incur due to a national emergency. The coronavirus pandemic has been declared such an emergency.
Such qualified disaster payments would certainly include reimbursing employees for any out of pocket expenses incurred in setting up a home office, such as equipment, internet, cell phones, and other expenses. Could they also include a portion of an employee's mortgage or rent? This is not entirely clear. This provision of the tax law has been rarely used.
One advantage of qualified disaster relief payments is that they need not be made under an accountable plan. Indeed, virtually no recordkeeping is required by the IRS.
]]>If your company is using volunteers or considering doing so, there are certain interests that you might want to protect, even from those who are contributing services to your business free of charge. On the one hand, you don’t want to offend or alienate people supporting your business in any way, particularly if they’re doing so without being paid. This article, however, discusses certain topics you might want to address, even with respect to volunteers. If any of the matters below are of particular importance to you, then either you or your legal counsel should prepare a standard agreement for each volunteer to sign and return (the Volunteer Agreement).
It’s pointless to have a volunteer sign a contract that can’t be enforced. In order to be legally binding, every contract needs both parties to receive something of value, often referred to as consideration (see Consideration: Every Contract Needs It). This is usually a non-issue, because most contracts involve the exchange of cash for either a good, a service, or a right. However, because volunteers aren’t paid, your contract must first establish that they’re receiving some benefit in exchange for their services.
As an illustration, here’s a description of the consideration received by volunteers who worked for a for-profit life coaching business:
“The Parties hereby acknowledge and agree that the Volunteer shall derive substantial benefits from the Volunteer’s performance of the Volunteer Services, including, but not limited to, (i) administrative and support training in a professional environment, (ii) marketing experience, (iii) complimentary attendance at Company events, and/or (iv) training in writing skills and other creative disciplines.”
Feel free to be thoughtful and creative when preparing this section of the agreement. Your description of the benefits derived by the volunteer should be as detailed, expansive, and substantive as possible, which will make it easier to demonstrate that the parties have validly exchanged valuable consideration in good faith.
As with regular employees, volunteers commonly have access to your company’s non-public, confidential information that your company might want to protect, for numerous reasons. Even nonprofit entities have incentives to protect their confidential information (for example, customer lists, suppliers, financial information, employee data, know-how, processes, and so forth) from being misappropriated by the private sector and others.
Furthermore, your particular industry might have additional legal requirements regarding the protection of confidential information. For example, if your business is in the healthcare sector, then it might be necessary for your Volunteer Agreement to incorporate specific references to the protection of patient information under HIPAA guidelines.
For further guidance on including a nondisclosure provision in your Volunteer Agreement, see Sample Confidentiality Agreement (NDA).
It’s possible that in the course of their service, volunteers might improve or create new processes, or even inventions, that benefit your business. This is of particular concern in the technology industry, where businesses want to be 100% certain of owning all intellectual property rights connected to anything created by their personnel. If this issue is of concern to you, then your Volunteer Agreement should also include a proprietary rights provision whereby your volunteers automatically (and irrevocably) assign to your company all intellectual property rights that might attach to their work product. For further information on this topic, see How to Protect Your Intellectual Property Rights in Works Created by Contractors.
Furthermore, your agreement can require volunteers to return all company property in their possession (for example, documents, equipment, keys, memos, disks, and so forth), either prior to the cessation of their services or within a certain amount of time thereafter. See Nolo’s article How to Protect Company Property in an Employee Separation Agreement for further discussion on this topic.
As with regular employees, volunteers often cultivate close, positive working relationships during their time with a company. You might be anxious that volunteers could possibly take advantage of those relationships by soliciting your employees, contractors, or other representatives after they depart. If you have any such concerns, then include a standard non-solicitation provision in your Volunteer Agreement. See Nolo's article, Standard Non-Solicit, Non-Disparagement, Proprietary Rights, and Return of Company Property Provisions for Contracts.
Due to the unique nature of working for a company without compensation, volunteers are commonly treated as a cherished commodity; as such, one would think that they’d be less likely to disparage the company after their departure than would a regular employee. However, because no one can predict the circumstances surrounding the exit of any particular person, whether they’re a paid employee or a volunteer, feel free to include a non-disparagement provision that mirrors the guidance provided in Nolo’s article How to Protect Your Company’s Goodwill in an Employment Separation Agreement.
As with the hiring of independent contractors, your Volunteer Agreement must make it clear that volunteers aren’t considered “employees” for legal purposes, and that your company will not be responsible for paying any taxes on behalf of any volunteer. Here are some sample clauses:
Status. Nothing in this Agreement creates or shall be construed to constitute an employment relationship, partnership, joint venture, or agency relationship between the Company or its affiliates, on the one hand, and the Volunteer, on the other hand, or entitling the Volunteer to control in any manner the conduct of the business of the Company or any of its affiliates.
Tax Returns. The Volunteer shall file all tax returns and reports required to be filed by the Volunteer on the basis that the Volunteer is a volunteer rather than an employee. The Volunteer shall pay in full all applicable taxes in connection with the Volunteer’s performance of any Volunteer Services under this Agreement, including federal, state, and local income taxes. The Company shall not pay any unemployment or workers’ compensation taxes or premiums on behalf of or regarding the Volunteer.
Each of the topics above relating to prohibitions on the volunteer’s future conduct (confidentiality, assignment of proprietary rights, non-solicitation, and non-disparagement) are often collectively referred to as “restrictive covenants.” Given that volunteers work for no compensation, you’ll have to get creative in including consequences and penalties in your Volunteer Agreement that are persuasive enough to motivate the volunteer’s full compliance with these provisions.
If you don’t have a corporate attorney to assist you in preparing your Volunteer Agreement, then see How to Draft a Letter Agreement or an MOU and Ten Tips for Making Solid Business Agreements and Contracts for direction on how to draft your own contract.
Note that, ideally, you should have each volunteer sign your Volunteer Agreement prior to commencing any work for your business. Admittedly, presenting such an agreement to volunteers can be a sensitive topic, given that they’re donating their efforts to your company. However, always remember to present the agreement in as casual and routine a manner as possible. If necessary, simply explain that it’s a standard, administrative document that all volunteers must sign. And if things get really uncomfortable, feel free to blame it on your lawyers — that usually works.
]]>Federal law requires businesses to report cash payments of more than $10,000. Most, but not all, businesses are subject to this requirement. If you are a landlord, attorney, jeweler, auto dealer, loan shark, or nearly anyone involved in selling goods or services, you’ll need to report cash payments of more than $10,000.
To meet the reporting requirement, you must complete Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. Form 8300 requires the payor’s name, tax identification number, address, and identification form, among other items. You must file Form 8300 within 15 days after receiving the payment.
In addition to lump sum payments over $10,000, you also need to be on the lookout for installments of cash payments totaling more than $10,000. For instance, Mr. Moneybags comes in to your jewelry store to purchase a $12,000 watch. He gives you $4,000 to hold the watch that day. Two weeks later, he comes with an additional $4,000, and then pays the balance two weeks after that. Even though you received the money in a series of payments, it totals more than $10,000 so you must file Form 8300.
Cash doesn’t just mean American dollars and cents, either. Cash includes foreign currency as well. In some circumstances, cash can also include cashier’s checks, bank drafts, traveler’s checks, and money orders. It does not include, however, a check drawn from someone’s personal bank account.
Why does the IRS care if someone pays cash? Of course, it’s not a crime to pay for something in cash. There could be legitimate reasons for doing so. But the federal government wants to keep track of large cash payments to combat money laundering and other crimes. Sometimes, individuals paying large sums of cash are engaged in illegal activities, like drug dealing or tax evasion.
There are two ways to file Form 8300. You can complete a paper copy and mail it to:
Internal Revenue Service, Detroit
Computing Center, P.O. Box 32621,
Detroit, Ml 48232
If you mail Form 8300, make sure you send it certified mail so there is proof it was timely filed. Alternatively, you can file Form 8300 online using FinCEN’s Electronic Filing system. It can be accessed here. Whether you mail a paper copy or file online, make sure to keep a copy of exactly what was filed and when.
If you intentionally do not file a correct Form 8300 by the deadline, the penalties are severe. You can be hit with a penalty that is the greater of $25,000 or the amount of cash you received and were required to report. The maximum penalty is $100,000.
There are also potential criminal penalties for willfully not filing or for willfully filing a false Form 8300. The government can fine you personally up to $250,000 or $500,000 if your business is a corporation. If that’s not enough to discourage filing false reports, the government can also sentence you up to five years in prison.
Even if you are merely negligent and not willful, the IRS can impose penalties. The penalty for not filing timely is $250 per return. If you file, but the information is not complete or it’s not correct, the IRS can still impose a $250 penalty. So make sure you are not only filing Form 8300 timely but also that all the information contained in the form is complete and accurate.
In addition to filing Form 8300 15 days after receipt of the cash, there is also an annual filing requirement. You are required to provide a written statement to each person for whom you completed a Form 8300. The written statement needs to include: the name and address of your business, a name and contact person for your business, the total amount of cash received for the 12-month period, and a statement letting the person know you reported it to the IRS. The annual filing is due on January 31 of the year following the cash payment.
It’s not enough to simply file Form 8300 timely and complete the annual filing requirement. You must also keep careful records of what was filed and when. The IRS audits Form 8300s like they do any other tax form. If your records are insufficient, you could open yourself up to severe penalties.
For more information on Form 8300, see the IRS website.
]]>If your North Carolina business has three or more employees, you’re generally required to carry workers’ compensation insurance. Exceptions apply in the following cases:
Other exceptions also may apply. There also are special rules for trucking companies. In addition, business owners, such as members of LLCs, partners in partnerships, and sole proprietors, are not automatically counted as employees and are not required to be covered by workers’ compensation insurance. Corporate officers may choose to be excluded from WC coverage but still are counted as employees for the purpose of determining whether a business has at least three employees.
The North Carolina Industrial Commission (IC) is the primary state agency that handles workers’ comp claims. Most of the law for WC insurance is contained in North Carolina’s Workers’ Compensation Act (Chapter 97 of the North Carolina General Laws). In addition to the Act, there are also administrative rules that cover workers’ compensation in North Carolina.
In North Carolina, workers’ compensation insurance is available through private insurance companies. If your business is unable to obtain coverage through a private insurer, you may be able to get coverage through the state’s assigned risk pool, which is administered through the North Carolina Rate Bureau. There is also an option to self-insure, but this may not be advisable for smaller businesses, in part because it requires that a lot of money be set aside to cover potential claims.
When an employee is injured on the job, he or she should give you a completed Form 18, Notice of Accident to Employer and Claim of Employee, Representative, or Dependent. You are required to provide a blank Form 18 to the employee for him or her to complete. As the employer, you must complete Form 19, Employer’s Report of Employee’s Injury or Occupational Disease to the Industrial Commission (Form 19 often is more simply known as a First Report of Injury or FROI). In most cases, your workers’ comp insurer will then file the completed form electronically with the IC. A copy also must be provided to the injured worker.
You should file Form 19 within five days of learning of the injury. Beyond these initial steps, there are subsequent steps to the WC claims process, not covered here.
You or your WC insurer may choose to deny some or all workers’ comp benefits to an employee. If there is a dispute regarding injuries or compensation, the matter will automatically be referred to mediation through the IC. If mediation doesn’t resolve the dispute, you may have a hearing before a deputy commissioner of the IC. Beyond that, you may then appeal to the full Commission, and, ultimately, the North Carolina Court of Appeals and Supreme Court.
If you think an employee is engaging in workers’ compensation fraud, you also may choose to contact the IC’s Fraud Investigative Unit.
If you don’t carry workers’ compensation insurance, you may be subject to various financial penalties, as well as criminal charges (misdemeanor or felony), and potentially also prison time. Some of these penalties are laid out in Section 97-94 of the Workers’ Compensation Act.
There are many other workers’ compensation requirements for North Carolina employers that are not covered here, such as putting up posters about workers’ compensation coverage where employees can see them. For more information, see the Nolo website section on workers’ compensation and the North Carolina Industrial Commission website.
]]>The board of directors has a fiduciary duty to protect the best interests of the company and its shareholders. Certain significant transactions can have profound effects on the company, its operations, and its profitability. Board approval of these transactions ensures that there is a process by which the directors examine, discuss, and assess the pending transaction to the extent necessary to make an informed decision and vote accordingly. Furthermore, it is always possible that a transaction that seemed advisable (or noncontroversial) at the time it was approved could ultimately result in some adverse consequence for the company or a conflict with a shareholder; in this instance, the board’s prior conscientious consideration and approval of that transaction could serve as a shield to potential liability. In other words, it’s better for the board to be safe than sorry.
Determining what constitutes a significant commercial transaction does not involve any particular magic. This can vary by industry or by the individual company involved. However, using the ordinary course standard, management should have a pretty good idea of whether a corporate action (such as entering into a contract) would be consistent with the company’s regular conduct. The board might also identify a transaction as significant if it requires an unusually large expense; commitment; or disposition of assets, or if it involves a potential conflict of interest. Commercial agreements such as property leases, loan agreements, purchase or sale agreements, service agreements, supply agreements, licensing agreements, manufacturing agreements, outsourcing agreements, and any contracts with affiliated parties (shareholders, directors, or officers, for example) often fall into these categories.
While some contracts might not technically require board consent under state law, they could still be significant enough for their approval to be beyond the corporate powers of the company’s officers, employees, or other representatives. For example, there may be provisions in the company’s bylaws or in the individual employment agreements of certain officers that allow such persons to conduct day-to-day business on behalf of the company, but also require them to seek board approval for switching suppliers, taking on new clients, committing to a large project, or any other transaction that those documents deem to be important enough to require board approval.
When considering a significant agreement, the company’s management (including any relevant legal representatives) should present the board with any draft contracts and ancillary documents that the company will be expected to become a party to in connection with the entire transaction. In addition, the relevant departments should provide the directors with any pertinent company information (including financials, projections, or other reports) that would be germane to their analysis. The directors should have all information at their disposal so that they can make an informed decision.
Unless your board of directors has allocated the approval of significant commercial contracts to one of its committees or subcommittees, then it can go ahead and provide its consent through various means. One option is for the board to approve the agreement at a regularly-scheduled meeting; another is for the board to call a special meeting specifically for this purpose. In either case, the board will have to comply with notice and recordkeeping requirements under state law.
A more convenient alternative could be for the board to provide its consent in writing, since no physical meeting would be required. However, before the board pursues this option, the company or its legal counsel should carefully consult the company’s bylaws and the corporate statutes in your state to determine whether or not the consent must be signed unanimously and can be executed in counterparts. For any transaction approved by a written board consent, the company should ensure that its management has provided the directors with all relevant documents and information that they would have otherwise received in connection with a regular or special meeting. Furthermore, the text of the written consent should contain as much relevant background and detail as possible in order to substantiate the board’s final determination.
For examples of board resolutions approving various corporate actions (including entering into commercial contracts), see The Corporate Records Handbook.
The company should also determine whether or not any corporate governance documents or contracts require shareholder consent for significant commercial transactions. The company and its counsel should review the articles of incorporation (called a certificate of incorporation in some states), stockholders’ agreements (if any), and loan documents (if any), together with any outstanding promissory notes, options, warrants, or other relevant contracts, for any provisions that would mandate shareholder approval for these agreements. In such cases, the board could streamline the process by coordinating to have all information and materials relating to the proposed transaction presented to both the shareholders and the board concurrently; then, the board and the shareholders could simultaneously either vote for or against the transaction at the same regular or special meeting, or sign a joint written consent of the shareholders and the board in favor of the same.
]]>The nature and objectives of your business will determine the legal expertise that is most valuable to you. For example, if you own a technology company, then you might be satisfied with a corporate attorney or firm that specializes primarily in intellectual property rights and licensing, even if they have little expertise in other areas of corporate law. If you run a more generic manufacturing or service business, then you might merely need a contracts expert to assist you with client negotiations, drafting and finalizing agreements, maintaining proper corporate records, and so forth.
To better define your company’s legal objectives, you can ask yourself the following:
Clearly defining your company’s needs allows you to proceed with your attorney search in a more productive manner.
The best way to narrow your search for a lawyer is to share your company’s specific needs with a former or practicing lawyer, a trusted friend with experience hiring lawyers, or (ideally) someone who is both a lawyer and a friend. Competence, diligence, and trustworthiness are critical factors to consider when selecting legal counsel, and getting a referral from a reliable friend or attorney can maximize your chances of finding a lawyer with those qualities.
Ideally, you should get more than one attorney referral from your trusted source or sources. Unless your business is involved in a criminal or civil proceeding, your referrals will most likely not be litigation attorneys. While most people think of lawyers in the terms of what they see on TV (judges, juries, and courtroom drama), the fact is that courtroom litigators make up only a minority of all the different types of practicing attorneys. The best legal counsel to assist you in the day-to-day operations of your business, or with any specific business matter, will more likely be a transactional corporate attorney, who might not have any litigation experience at all.
Transactional lawyers have the business acumen to advise you in all aspects of business dealings, including forming your business, operating your business, developing a business plan, implementing business strategies, buying or selling a business, effectuating an initial public offering, winding down your business operations, and much more. Lawyers who specialize in mergers and acquisitions (M&A attorneys) can be particularly useful, even if there are no acquisitions contemplated in your company’s foreseeable future. This is because M&A attorneys must have a working knowledge of multiple business considerations, including accounting matters, corporate governance, intellectual property, real property, environmental matters, insurance, and tax. This allows them to readily identify the expertise that is needed for your particular situation and either address the issue themselves or recommend the right legal expert for you. That being said, you should have confidence that your trusted source will recommend one or more attorneys to best suit your particular needs.
You can try to find a lawyer by searching online but you need to be careful and do some of your own research when choosing this way. One thing to keep in mind is that business lawyers specialize in numerous subcategories of expertise, so you need to make sure you find one that is the right fit for your needs. There are some helpful online lawyer directories, like Nolo.com, where you can search for a lawyer by location and practice area.
After you’ve received attorney recommendations, you should then research each attorney and their law firms. The firm’s website should include the lawyer’s educational background, areas of expertise, years in practice, and any notable publications or transactions. More and more often, lawyers and law firms also have a social media presence that you can peruse, whether it be on LinkedIn, Facebook, Twitter, or the like. You can also review the website of an attorney’s relevant state bar association for additional information. The state bar website should verify that the attorney is currently licensed to practice law and indicate whether or not the attorney has any disciplinary history. Lastly, you can conduct a simple Google search of the attorney’s name to find out any other relevant details, whether positive or negative.
With each recommendation, you should set up an initial consultation so that you can share the full scope of your legal needs with your prospective counsel. If possible, you should conduct this first meeting in person, and the attorney should offer to do so at no charge (note that if you ultimately hire the attorney, you should review your first invoice to confirm that it does not include a charge for your initial consultation).
The introductory meeting should serve many purposes. You should fully explain your business goals and the role that you expect your attorney to fulfill. You should ask as many questions as necessary to determine whether the attorney exhibits the requisite competence and sincere enthusiasm to adequately address your business concerns. People often describe their business as their “baby” because it often feels like the company itself is an additional member of the family. You need a lawyer who will treat your business like a member of your immediate family. Furthermore, you should have a rapport with your attorney that allows you to talk to them not only as a friend and trusted confidant, but also as a customer who expects a premier level of service. Respect breeds respect — and results. You both should use the meeting as a way to manage expectations. From your perspective, you should be sincere and direct about your general management style and the amount of time and attention you’ll require from your counsel. Similarly, your candidate should give you as much detail as possible about how their attorney-client relationship typically works, how much they will be personally involved in the process, how much they might delegate to others, and so forth.
If you feel that your initial consultation with an attorney is going well, do not hesitate to bring up the topic of fees. This is a critical element that can either make or break a potential attorney-client relationship, and it’s best to lay the cards out on the table early. Attorneys and law firms can propose a variety of fees structures, with sole practitioners likely having the most leeway and creativity. Depending on your company’s needs, you can usually choose between a flat fee (either on a monthly basis or for a specific transaction) or an hourly fee. Note that litigators often agree to contingency fees whereby they risk working for free, but then earn a percentage of your civil award if your case is successful. However, this fee structure is generally inapplicable to transactional law representation. Also note that it is standard for attorneys to require a retainer prior to commencing any work for the company, so you should not take offense when the lawyer requests this. However, you can always take into consideration how aggressive the attorney is about the retainer, the amount of the retainer, and whether or not the attorney is willing to provide any initial services as a trial run prior to requiring any retainer.
At the end of the day, choosing the right attorney for your business is more of a feeling. If you have any apprehension about a particular candidate, then continue your search. This is why it is optimal to consider multiple recommendations from your trusted sources and then choose the legal counsel who is the best fit for you and your business.
]]>In certain circumstances, fiduciary duties may also apply to controlling stockholders who possess a majority interest in or exercise control over corporate business activities, but not to other ordinary shareholders. A breach of a fiduciary duty may result in personal legal liability for the director, officer, or controlling shareholder. State statutory law, judicial decisions, and corporate articles of incorporation and bylaws may also impact a person's fiduciary obligations to a corporation.
Here are the key fiduciary duties owed to a corporation and its stockholders.
The fiduciary duty of obedience recognizes that officers and directors have different responsibilities in a corporation. To fulfill this duty, officers and directors must carry out their duties within the scope of their delegated authority under the law and the applicable corporate governing documents.
This duty may be of particular concern for nonprofit corporations where officers and directors are tasked with carrying out their duties in compliance with their organization’s charitable purposes. For example, an office or director may violate their duty of obedience by failing to comply with donor restrictions on pledges or permitting nonprofit resources to be used for non-charitable purposes.
Officers and directors owe a duty of loyalty to a corporation and its shareholders. They are expected to put the welfare and best interests of the corporation above their own personal or other business interests. Conflicts of interest, efforts to compete with the corporation, or making secret profits from corporate business dealings are typical examples of disloyalty. Under the corporate opportunity doctrine, officers and directors may not secretly divert or take advantage of business options for their own personal profit.
For example, officers and directors may confidentially learn about a lucrative development opportunity being offered to their real estate corporation. Officers and directors must not secretly profit from this situation or act upon it in a manner that harms corporate interests. In some states, officers or directors may take advantage of certain opportunities if the corporation has waived its interest to such dealings in its governing documents or appropriate prior disclosures have been made to the board of directors. Violations of this duty may result in officers or directors being sued and required to turn over their secret profits to the corporation.
In a corporate environment, both officers and directors are expected to use appropriate care and diligence when acting on behalf of their corporation. They should exercise reasonable prudence in carrying out their duties to achieve the best interests of the corporation. An officer or director may be held personally liable for failing to exercise reasonable or ordinary care under the circumstances. For example, a lack of due care may be shown when an officer or director fails to undertake a reasonable review of a corporate matter, to regularly attend board meetings, or to adequately supervise staff which ends up damaging the corporation.
Under the business judgment rule, an officer or director may not held liable for business decisions made in good faith and with reasonable care that turn out to harm corporate interests. The courts will defer to erroneous business judgments, provided that the officers or directors did not show gross negligence in their review and decision-making process. Without this rule in place, many individuals would be unwilling to serve as officers and directors and business people might be reluctant to take commercial risks that could benefit a corporation in the long run.
This fiduciary duty is closely aligned with the duties of care, loyalty, and obedience. Under this duty, officers and directors must act with honesty, good faith, and fairness when handling corporate obligations. This continuing duty runs through their daily tasks and operation of the corporation.
Candor in business discussion is important between officers, directors, and shareholders so that they may assess material risks and make informed decisions. Full and fair disclosure of material facts is essential before seeking board or stockholder approval of major corporate business transactions, such as a mergers with or acquisitions of other companies. As part of their duties of loyalty and care, officers and directors should also disclose any potential conflict of interest that may arise between their individual interests and those of the corporation.
]]>If you’re already running your own small business, you know that there are constant challenges to your ongoing success. It’s easier to meet those challenges, and ensure your business continues to grow and thrive if you have solid information about basic business activities. From taxes, insurance, and contracts through financing, marketing, websites, and being the boss, here’s a list of 85 ideas to help you keep your business running smoothly.
Taxes and Bookkeeping |
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Step |
Description |
Resource |
1 |
Learn the rules for paying estimated taxes. |
|
2 |
Find out the details of federal employment taxes. |
Tax Savvy, by Frederick Daily |
3 |
Learn about the various federal tax deductions related to salaries and business expenses. |
Deduct It! Lower Your Small Business Taxes, by Stephen Fishman |
4 |
Familiarize yourself with the basics of business taxes for your legal form of business (Partnership, LLC, S Corporation). |
Tax Savvy, by Frederick Daily |
5 |
Get small business guides from the IRS. |
|
6 |
Learn about depreciation and Section 179 of the IRS Code. |
Deduct It! By Stephen Fishman |
7 |
Find out what to do if you owe money to the IRS. |
|
8 |
Familiarize yourself with the audit process. |
|
9 |
Consider hiring a bookkeeper or accountant if your business has grown big enough or you need someone else with the right expertise. |
Legal Guide for Starting & Running a Small Business, by Fred S. Steingold |
10 |
Know what financial records to keep--and for how long. |
How Long Should You Keep Business Records? |
11 |
Learn how to handle your taxes if you are operating at a loss. |
Tax Savvy, by Frederick Daily |
12 |
Become aware of the key tax issues for employers. |
The Employer's Legal Handbook, by Fred Steingold |
Insurance |
||
13 |
Find out about possible ways to save money on your business insurance. |
Obtaining Busness Insurance |
14 |
Know how to make a claim if you suffer a loss. |
Small Claims Court and Business Disputes |
Contracts and Leases |
||
15 |
Make sure your contracts are legally valid--and try to write them in plain English. |
|
16 |
Learn how to amend an existing contract. |
|
17 |
Get the best possible new lease when moving to a new location. |
Signing a Lease or Rental Agreement FAQ |
18 |
Avoid creating or signing unfair or illegal contracts. |
Unenforceable Contracts: What to Watch Out For |
19 |
Learn the basics of your state's business contract laws. |
Contracts, by Richard Stim |
20 |
Become more familiar with business-to-business contracts. |
Contracts, by Richard Stim |
21 |
Find out what you need to do when the time comes to sign a contract. |
Ten Tips for Making Solid Business Agreements and Contracts |
22 |
Investigate whether it’s better to buy or lease business equipment. |
Business Equipment: Buying vs. Leasing |
Loans, Financing, and Cashflow |
||
23 |
Learn about ways to cut costs if your business is short of cash. |
|
24 |
Find out how to increase your business's cash flow. |
|
25 |
Learn how to keep your cash in your business. |
|
26 |
Find out how to collect on your debts. |
|
27 |
Find out about alternative ways to borrow money. |
Alternative Ways to Borrow Money When Your Business Needs It |
28 |
Learn about ways to deal with bankrupt customers. |
|
29 |
Figure out if you should pursue a bankrupt customer. |
|
30 |
Know more about why you should pay your bills on time. |
Why Businesses Should Pay Their Bills on Time if at all Possible |
31 |
Lower your energy costs. |
|
32 |
Familiarize yourself with the rules for late fees and finance charges. |
|
33 |
Obtain financing from loans or equity. |
Raising Private Money: Gifts, Loans, and Equity Investments |
34 |
Look at various, less traditional sources for raising money. |
Alternative Ways to Borrow Money When Your Business Needs It; Peer-to-Peer Lending (P2P) for Small Businesses |
35 |
Make sure to document money you receive. |
Promissory Notes |
36 |
Know how to extend credit but still get paid. |
Invoicing Customers and Extending Credit |
37 |
Learn the laws about consumer credit. |
Consumer Credit Laws and Your Business |
38 |
Familiarize yourself with options for collecting what you're owed. |
Illegal Debt Collection Practices |
39 |
Learn about your state's debt collection laws. |
What to Expect When Your Debt Goes to Collection |
40 |
Be prudent about using credit cards and checks. |
Credit Repair, by Margaret Reiter |
Marketing and Working with Customers |
||
41 |
Draft an effective business plan. |
Write a Business Plan |
42 |
Find out how to increase customer recommendations. |
|
43 |
Be clear on your business's target market. |
|
44 |
Try to do some market research. |
|
45 |
Improve and grow your business image. |
|
46 |
Figure out the best marketing strategy for your particular business. |
|
47 |
Find ways to advertise through e-mail without sending out junk. |
|
48 |
Use your website to market you do and what you sell. |
|
49 |
Learn which types of list advertising are effective for your business. |
|
50 |
Create ads that stay within the law. |
|
51 |
Create a social media policy that really works. |
|
52 |
Show potential customers what's special about your business. |
Your Business Image: Ten Ways to Build and Market It |
53 |
Innovate by learning to produce--and copy--good ideas. |
|
54 |
Know how to target the right customers. |
Define a Target Market for Your Small Business |
55 |
Be creative in your marketing. |
Marketing Without Advertising, by Michael Phillips and Salli Rasberry |
56 |
Learn the legal ins and outs of warranties. |
Breach of Warranty Cases in Small Claims Court |
Selling Goods & Services |
||
57 |
Figure out the best way to sell your products -- retail, wholesale, or consignment. |
|
58 |
Understand the basics of consumer protection law. |
|
59 |
Understand the basics of consumer credit laws. |
|
60 |
Know the law on shipping products and giving refunds. |
|
61 |
Decide whether it’s better to lease or buy your business equipment. |
|
62 |
Learn when and how to invoice your customers, and whether to extend credit. |
|
Websites and eCommerce |
||
63 |
Learn about what terms and conditions should be posted on your website. |
|
64 |
Make sure to get proper permission when you use other people's work. |
Getting Permission to Publish: Ten Tips for Website Managers |
65 |
Familiarize yourself with search engine optimization and get more traffic to your site. |
|
66 |
Know who owns a website created by independent contractors. |
|
67 |
Learn the proper way to license and get paid for your creative work. |
Licensing Artwork: Negotiating and Monitoring Royalty Payments |
68 |
Familiarize yourself with the best ways to license your work. |
|
Legal Matters |
||
69 |
Find out how to handle business disputes and small claims cases. |
|
70 |
Learn about the mediation process. |
|
71 |
Know whether you need to hire a lawyer. |
|
72 |
Learn about your state's Small Claims Court rules. |
Everybody’s Guide to Small Claims Court, by Ralph Warner |
73 |
Find out how to change the legal form of your business. |
|
Having Employees and Being the Boss |
||
74 |
Find out the right way to advertise a job and handle interviews. |
The Job Description Handbook, by Margie Mader-Clark |
75 |
Create an effective employee handbook and know how to discipline employees for infractions. |
Create Your Own Employee Handbook, by Amy DelPo and Lisa Guerin |
76 |
Ensure you're meeting requirements for record-keeping and payroll withholding. |
The Manager’s Legal Handbook, by Lisa Guerin and Amy DelPo |
77 |
Decide on what kinds of employee benefits you want to offer. |
Employment Law: The Essential HR Desk Reference |
78 |
Be prepared for health and safety inspections. |
OSHA: Complying With Workplace Health and Safety Laws |
79 |
Understand illegal discrimination. |
The Manager's Legal Handbook |
80 |
Approach terminations the right way--avoid wrongful discharge lawsuits. |
Illegal Reasons for Firing Employees |
81 |
Understand employer recordkeeping requirements. |
The Manager's Legal Handbook, by Amy DelPo and Lisa Guerin |
82 |
Consider not showing off in front of your employees. |
|
83 |
Try not to overwork yourself. |
|
84 |
Work with, not against, the best competition. |
|
85 |
Respond quickly when bad things happen. |
The Manager's Legal Handbook, by Amy DelPo and Lisa Guerin |
More Information
Even 85 good ideas may not be enough for your particular business. Nolo has many great resources that can give you the additional information you need. Check out the following products and more on Nolo’s Small business Products page:
Legal Guide for Starting and Running a Small Business, by Fred S. Steingold
The Small Business Start-Up Kit: A Legal Guide, by Peri H. Pakroo
Tax Savvy for Small Business, by Frederick W. Daily
Running a Side Business: How to Create a Second Income. by Richard Stim and Lisa Guerin
Quicken Legal Business Pro (software)
And, if your business has employees, check out the Nolo article “If Your Small Business Has Employees: 40 Things to Know” — or get Nolo’s best-selling book for employers, The Employer's Legal Handbook: Manage Your Employees & Workplace Effectively, by Fred S. Steingold or The Manager’s Legal Handbook, by Lisa Guerin and Amy DelPo.
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