As a business owner, you are under pressure to either maintain your existing base or expand your business. Increased sales, good employee relations, firm financial footing are all important components to your business’ continued success and may take the majority of your time. Critical tasks, such as handling important legal matters may fall by the wayside. Building a strong legal foundation now will potentially save you both time and money in the future and allow you to focus on your business. This article will help you to become informed on some pressing issues that your business may face. It is important to consult a lawyer about the specifics of your business.
Employment Issues
Overtime laws: The Fair Labor Standards Act requires that overtime be paid for non-exempt employees at a rate of one and one-half times their regular pay for all hours worked over 40 hours a week. However there are exceptions, managers, administrators, learned professionals, creative professionals, and computer employees are all not eligible to receive overtime if they earn more than $455 a week ($23,660 per year) and perform certain duties. Just because you pay an employee a salary does not mean that they are exempt from overtime pay. For complete information visit www.dol.gov and click on the link to Fair Pay Overtime Rule. It is also advisable to have a written rule stating that the employee cannot work overtime without written permission from their supervisor.
Contracts with employees: It is important to create and maintain good contracts with your employees to insure mutual understanding and protect your businesses interests. Important issues to address with these contracts can be non-disclosure agreements, usually used to protect your trade secrets, and non-compete clauses, usually used to protect your customer base. The creation of employee handbooks is advisable to insure that all of the rules are understood. INDEPENDENT CONTRACTOR VS. EMPLOYEE It is important to determine the legal status of the people you hire for tax and business purposes. Making this determination can be tricky as there are a number of things to consider, but using the following criteria suggested by the IRS should make the process easier.
- The extent to which the business has reimbursed expenses
- Company training is not usually given to independent contractors
- The extent of the worker’s investment
- The extent the worker makes their skills available to the free market
- How the business pays the worker. (Wage or salary vs. flat fee)
- Written contracts regarding the nature of the relationship
- Whether or not employer provides the worker with benefits
- The amount of control the company has over the instructions it can give to the worker.These include:
- What other people to hire,
- What equipment to use,
- What supplies to buy,
- What tasks to assign to whom and what sequence to follow
All of these are important issues to consider when making the determination between independent contractors and employees. If you are unable to determine your relationship with a worker, you should consult your attorney or the IRS.
Contracts
Having written contracts for all aspects of your business can help mitigate future problems. The contracts should be clear and concise, explaining what both parties are agreeing to. If you sell goods or services out of state without a contact and your customer does not pay, you will have to bring legal action in their home state. Because of this, you should make sure your contracts indicate Arizona as the state of jurisdiction. Your company should have written contracts with at least the following three groups:
- Key vendors
- Customers
- Key suppliers
- Tax Issues
One of the most important decisions that your company will make is to select the appropriate entity to protect your investment and provide maximum flexibility. It can be a corporation, a limited liability company, a sole proprietorship, or in some cases, a partnership. Each one has distinct advantages and disadvantages. While there may be tax consequences, a business entity can be changed or modified for an existing business. There are many opportunities for tax planning with a business. Some ways to increase your employee satisfaction and possibly lower the taxable base for the business or its owners are employee benefit plans such as Section 125 cafeteria plans, Health Savings Plans or retirement plans such as 401(k) plans. Additional tax planning is important and can be done with a tax professional such as an accountant or tax attorney.
Estate Planning / Succession Planning
Your estate planning needs to integrate both your personal and business planning, taking into consideration your personal objectives and special assets that your business may have such as a closely held company, partnership, limited liability company, real estate, life insurance and retirement plan distributions. Minimizing estate taxes and exposure to the probate process are also important elements of estate planning. An estate plan is implemented by preparation of documents that fit your specific needs. These documents may include wills, pre-marital or post-marital agreements, revocable trusts, irrevocable trusts, living wills, and powers of attorney for health and financial purposes. In addition to estate planning documents, another key agreement to consider is a buy/sell agreement which requires one party to sell and another party to buy a particular ownership interest in a business in the event of the death or retirement of an owner or other triggering events such as disability divorce, bankruptcy, termination or the desire to sell to a third party. This agreement defines the rights of the parties involved and may restrict the transfer of stock to an outsider.
Accounts Receivable Collections Plan
No sale is finished until the money has been collected. Poor cash flow can get a business in trouble very quickly. It is important to spell out your payment terms in the contracts that you have with your customers and then to expect to be paid within those terms. Early attention to any past due accounts receivable is essential to your continued success. Your company should have a written plan for AR collection including who is responsible for the collection.
Summary
Good business planning is essential to the success of your business. Taking the time now to create policies and procedures will save you time and money in the future.