These surprising laws may apply to your small business. Are you in compliance with these regulations?
By Adam Uzialko | Business News Daily
Staying up to date on the ever-changing rules and regulations that apply to businesses can be challenging. Small business owners are often acutely aware of the laws and regulations facing their businesses. However, these laws are constantly being updated, and with the constant demands of day-to-day business operation, it can be easy to overlook them.
Unfortunately, small mistakes can have huge consequences for a small business. Fines and lawsuits can arise if applicable laws are not followed carefully by business owners. Ignorance of the law does not absolve those who break it, so it’s important to stay informed. Here are some of the laws that most often catch small business owners off guard.
1. Freelancer classification can cause confusion.
Many small businesses hire freelancers instead of full-time employees because it’s a more flexible and cost-effective way to outsource work. Unfortunately, the way your small business employs a freelancer could require you to classify the worker as an employee rather than an independent contractor. Failure to do so could result in significant penalties from the government.
“I have consulted with many other small business owners over the years and have found that many of them do not realize there is a legal distinction between independent contractors and employees,” said Lauren Milligan, career advancement coach and CEO at ResuMAYDAY. “Most were classifying and paying their people as independent contractors when, in actuality, they were making requirements of their people that would classify them as employees. When a business owner makes this mistake, they are exposing the company to fines, tax problems and labor violations.”
Independent contractors must meet several criteria; otherwise, the freelancer must be classified as an employee. These are the main criteria for an independent contractor:
- The individual has influence over what work they complete and how they complete it.
- Payment, reimbursement and provision of supplies is controlled by the individual.
- There are no ongoing agreements for typical employee benefits, such as a pension plan, insurance or paid time off.
If a freelancer doesn’t meet these criteria, they might need to be classified and paid as an employee. Failure to do so means the business owner could be liable for employment taxes for that worker, including Social Security and Medicare taxes. It’s also worth noting that some states, such as California, have even stricter guidelines on independent contractor classification.
“Small business owners are often moving full-steam ahead. Pushing for more sales and operational efficiencies. Often ignoring the legal side of things. But there are laws governing almost every aspect of your business and staying on top of the various regulations is just as important, if not more, for the growth of your business.”
Shruti Gurudanti, Rose Law Group Partner and Director of Corporate Transactions
