US Business Law / Taxes

Many colleges and universities have begun their summer breaks, and high schools will be closing for the summer soon. Maybe you are considering hiring a high school or college student for the summer. Before you start running ads and interviewing those summer workers, some things to remember:

1.  Complete all New Hire Forms

Summer hires should complete all the required new hire forms, just like all other new employees. This includes having each new hire complete a W-4 for federal income tax withholding, and an I-9 or E-verify to check U.S. work eligibility. Check out this article on new hire forms to make sure you and the employee have completed all the required forms.

2. Check Minimum Wage Laws

Federal minimum wage rates are set by the Department of Labor. Some states have different minimum wage rates, so be sure to check these rates before you hire summer workers and start paying them. Younger workers (under age 20) may be aid a lower minimum wage of $4.25 per hour during their first 90 consecutive calendar days of work, as long as their work does not displace other workers.

3. Check Child Labor Laws

If you are hiring workers under age 18, you should also check to be sure you are complying with federal and state laws relating to hiring minors. Hours of work and types of work are restricted for young workers, even in the summer.  If federal and state laws differ, you must comply with the most restrictive. This article provides details on federal and state child labor laws.

4. Treat Like Other Employees

If summer workers qualify for benefits, you must treat them the same as other workers. For example, if you hire a summer worker 30 hours a week, and other employees working 30 hours a week are eligible to sign up for health coverage, you must give the summer worker this option too.  You don't have to provide summer workers with paid time off, unless they qualify

5. Update Your Employee Handbook

Finally, if you hire summer workers regularly, you should include your policies and benefits for summer workers in your employee handbook. Having a written policy about pay and benefits for summer workers can help avoid issues.

More about Hiring Summer Workers

Related: Hiring Your Children to Work in Your Business

Image: Getty Images

My husband works for a small business that does contract work for a large company. Very often, the checks are held up by the big company, someones for months, while my husband's business waits, and sometimes the boss has trouble meeting payroll.

Why do big companies delay payments? Well, it's that 500 pound gorilla thing - because they can. And with the economy still in the doldrums, many more big companies are avoiding paying their vendors as long as they can. According  Wall Street Journal, in 2011, "small businesses waited up to 46 days on average to get paid, six days longer than in 2010 and 10 days longer than 2006, according to the National Federation of Independent Business, a small-business lobby group."

That's an average, but it's still a significant number and a significant cash flow problem for small businesses.

It's about Cash Flow

This is a cash flow problem, which is a significant continuing concern for small businesses. What to do when you don't get paid and you need money?

1. Trickle-down. The trickle-down effect is to delay payments to your creditors. While this may help temporarily, it may cost you early-payment discounts and goodwill with companies you do business with.

2. Delay paying employees. This is NOT a good solution. Employees can sue for non-payment of wages, or file a complaint with the state labor commission, and while this will take some time to resolve, it means lots of attorney fees, which is an expense you don't need.

Some suggestions on managing cash flow from other About.com Guides:

• Rosemary Peavler at Business Finance shows you how to do a cash flow analysis and provides tips for increasing cash flow
• Phillip Campbell, CPA says you should always be able to look out six months and know what your cash balance will be six months from now, and
• Susan Ward, at Small Business Canada, provides information on how to protect your cash flow.

Image: Getty Images

The phrase "nibbled to death by ducks" might apply to this situation: Amazon is being picked at by many U.S. states who want the big online retailer, and all retailers, to collect sales taxes on all online transactions. The states are individually going after online sales tax laws, but a national sales tax law may not be far behind. Recently, Kay Bell at Don't Mess with Taxes reports that Amazon, the large online seller, has agreed to collect sales taxes in Texas and Nevada.

If you are an online retailer, you must now collect sales tax for all online sales to buyers in Texas and Nevada. The Nevada collection of sales tax deal will begin January 1, 2014, while the Texas Taxes begin July 1, 2012. According to the Wall Street Journal, Amazon has also reached an agreement with California to start collecting sales tax for affiliate sales in that state starting September 2012.

Amazon reached an agreement with the state of Texas to begin to collect and remit sales taxes. In addition, according to the agreement, "the Company plans over the next four years to create at least 2,500 jobs and make at least $200 million in capital investments in the state."

Both Amazon and the state of Texas emphasized the importance of a national sales tax law. Amazon said, "We strongly support the creation of a simplified and equitable federal framework, because Congressional action will protect states' rights, level the playing field for all sellers, and give states like Texas the ability to obtain all the sales tax revenue that is already due."

National online sales tax bills are going through the Senate (S. 1452 "The Main Street Fairness Act") and the House of Representatives (H.R. 3179 "The Marketplace Equity Act"), and both are said to have bipartisan approval, but it's unlikely that any law will be enacted before the November election. In the meantime, I'll monitor state-by-state changes in online sales taxes and let you know of changes.

For more about online sales taxes:

Background and Issues in Online Sales Tax

Do I Have to Collect Taxes on Online Sales?

How to Collect, Report, and Pay State Sales Taxes

Keep up to date with the latest on business laws and taxes  - subscribe to my weekly newsletter, my Twitter feed or my Facebook page.

One of the most confusing parts of starting a business is knowing what types of licenses and permits you are required to obtain. Of course, if you are starting a partnership, LLC, or corporation, you must file the appropriate legal documents with your state.

But even if you are a sole proprietorship, and are not required to register your business with your state as a legal entity, some states require you to have a state business license. Some examples:

• Nevada state business license information. If you have registered your business entity with the state, you don't need to complete this license application. But sole proprietorships must have a state business license, in addition to any local business licenses or permits.
• Washington state also requires a business license for every business, and
• The Alaska business license requirement is for individuals, partnerships or companies that engage in business activity in Alaska.

Business License? Business Registration?

Just to confuse things even more, some states require businesses to register with the state, which is not the same thing as a business license. Utah requires each new business to complete a business registration which includes registration with the:

• Utah State Tax Commission
• Utah Labor Commission
• Utah Department of Commerce
• Utah Department of Workforce Services
• Utah Department of Environmental Quality

It's all very confusing. North Carolina, for example, has "over 700 regulatory, state issued and occupational licenses and permits. In addition, a local license may be required for your business." And many service and technical professions require licensing. How are you supposed to know what to do and what is required?

Search for License Information on the SBA Website

The best place to start your search is on the SBA website, which has a great page with links to all state licensing websites. For example, I clicked on "Kentucky" and was taken to their "One Stop" business license page, which says, "Kentucky does not have a statewide business license that applies to all businesses...." but there are, of course, special permits and licenses for special types of businesses. Find your state, click on the link, and find out the state business licensing requirements for business startup.

More Useful Information

Local Business Licenses and Permits

Business Licenses - FAQ

Special Licenses and Permits

State Sales Tax Registration Information

Keep up to date with the latest on business laws and taxes  - subscribe to my weekly newsletter, my Twitter feed or my Facebook page.

This month, I'm emphasizing the LLC as a business form. Since many people want to form LLCs, and have questions, I will try to provide answers to the most common questions. Today, answers to some questions about LLC startup, with an emphasis on naming your LLC.

How many people does it take to form an LLC? Just one. You can form a single-member LLC in any U.S. state. See this LegalZoom video for more.

Do I need a DBA (fictitious name statement) with an LLC? If you are running the business under the name of the LLC, you don't need a DBA. If you are operating under a different name from the name of the LLC, you will need to file a DBA with your city. For example, if you own Smith Enterprises LLC but you have a garden center named Great Garden Stuff, you will need to let people know about the ownership by the LLC.

In a similar question, many people want to know if they have to register their LLC name with the state. Your filing of the Articles of Organization meet this requirement, so you don't need to register the name separately.

Can I name my LLC anything I want? Yes, you can use any business name with two conditions (1) the name must not have been used in your state or be so similar to another name that it is confusing, and (2) all states require that you include "LLC" with the business name so it's clear that it is an LLC.

Find answers to more questions in this article about LLC startup.

Related articles:

Learn how to form an LLC

Image: Getty Images

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Many businesses are owned by husbands and wives together. As of 2007, there were more than 1.4 million husband-wife businesses in the U.S, according to the U.S. Census Bureau. Going into business with your spouse might sound like a great idea, but there are some legal and tax decisions to be made before you open. You must plan for a successful business, but you also need to put agreements in writing in case of disputes.

Decisions for Husband-Wife Businesses

Will the business be owned by both spouses? Or will one spouse be an employee? What business legal form is best for your husband-wife business?

There's no one right answer to these questions. It depends on the specific situation, on the skills and interests of the spouses, and on the state where you live.

In my new article on Husband-Wife Businesses, I discuss the decisions you must make regarding your work relationship, and the types of business to consider in each situation.  It's a little simpler if one spouse is an employee, but that means the other spouse has all the profits. That may be acceptable if the employee spouse has outside interests or can't devote as much time to the business.

Most Important: Put Agreements in Writing

Toilet Paper Entrepreneur has 99 tips for building a successful husband wife business partnership. The most important tip of all is the one I always emphasize: GET IT IN WRITING! If you don't put down all the assumptions in an agreement, you will have disagreements that could jeopardize both your business and your marriage. And I say "WHEN," not "IF" these disagreements will arise.

Create agreements:

• For spouse employee, an employment agreement
• For both spouse owners, documents for the legal form (operating agreement for LLC or partnership agreement) and buy-sell agreement

Before you decide the status of both spouses and choose a business legal form, check with your tax advisor. Decisions you make now can have far-reaching tax and legal consequences.

Image: Getty Images

It's great to have your children working in your business, particularly in the summer. It keeps them busy and useful and it gives you a break from figuring out how to care for them while you are working. And there is something very appealing about having your son or daughter working alongside you, together. It can be a wonderful experience.

There are some tax benefits to hiring your child. But hiring your children and giving them pay means you must comply with federal and state laws relating to children as employees.

Most important: If you want the tax benefits of hiring your child, the child's work must be both necessary and essential to the business. Sweeping the floor might be necessary (occasionally), but it's not essential to running the business. Handing out advertising flyers or business cards is both. Be sure that what your child is doing in the business meets these criteria.

Tax benefits to hiring your child include:

• No FICA taxes are required (Social Security and Medicare), if your business is not a corporation
• You can deduct their wages as business expenses
• Your children may not have to pay income taxes, if their income is below the minimum ($800 a year).
• You can put some of their earnings aside for an IRA (check with your tax advisor to see what kind is best).

Laws Relating to Children at Work

Before you put your child to work in your business, make sure you are in compliance with tax laws and child labor laws, both federal and state. For example:

• You must have the child complete Form W-4 at hire and you must withhold federal and state income taxes from the pay of your child, unless the child is exempt from income taxes.
• You must still comply with federal and state child labor laws regarding hours and type of work, depending on your child's age. If you are self-employed you aren't restricted in the number of hours your child works, but you may not have your child working with hazardous materials or tools.

More about:

Hiring your children to work in  your small business

Hiring your children, spouse, or other family members

Related Articles:

Using employment contracts in a family business

Keep up to date with the latest on business laws and taxes  - subscribe to my weekly newsletter, my Twitter feed or my Facebook page.

Image: Getty Images

Everyone loves LLC's these days, but they may not be the best type of business for your startup.

Advantages of LLC's

The biggest advantages of an LLC over a corporation are:

1. LLC's are easier and cheaper to form. You may be able to form an LLC online without an attorney (I still think you need an attorney, though).

2. LLC's don't have the same record keeping requirements as a corporation. I'm talking here about records of the business's legal actions, meetings, actions of the members, etc. That doesn't mean LLC's shouldn't keep good records of meetings and actions.

When Is an LLC Not the Best Form for a Startup?

It depends on your intentions for the business. By that I mean - Do you intend to have investors? Are your trying for venture capital funding?  Investors are not a part of LLC's, because an LLC is owned by members, each one of whom has a personal stake in the business. Trying to get someone (particularly a corporation or other business entity) to invest in an LLC is difficult, because that person is essentially a partner receiving a K-1, not a hands-off investor who just collects dividends. Rush Nigut at Rush on Business discusses the problems of investors in LLC's in more detail.

If you want to form a business with one or more people, all of whom are involved in the daily operations of the business, an LLC might be a great choice. But if you want to grow and raise money from investors, set up as a corporation instead.

As usual, I have to give you my disclaimer: This article and website are for general information purposes only and they are not intended to be legal or tax advice. Every situation is different; check with your tax and legal advisors before deciding on a form for your new business.

12 reasons a startup should not form an LLC (from Startup Law Blog)

Related articles:

How to form an LLC

Tax Advantages and Disadvantages of an LLC

What if someone falls and slips on your front walk? What if a ceiling tile falls on someone sitting in your office? What if...well, we could play the "what if" game all day, but you get the idea. Bad things happen, even at your great business. How do you protect yourself against getting sued?

First, you get good general business property and casualty insurance (liability).

If you have dealings with sub-contractors or vendors, you can also have agreements in place to protect you in case something bad happens based on their negligence.

You can also try to get customers to sign indemnity agreements saying they won't hold you liable for damages or injuries. But these types of agreements are difficult to get people to agree to. Case in point:

I recently went to sign up my dog at a new kennel and they included a phrase in the boarding agreement that I took issue with:

In consideration for XYZ Kennel agreeing to board my pet, I, on behalf of myself and/or on behalf of the owner of the pet, hereby release, acquit and discharge XYZ Kennel and its agents and employees from any liability arising from any circumstance including the negligence of XYZ Kennel or its employees.

I declined to sign. The owner of a company can't ask a customer to hold the company harmless for its negligence. This language negates the whole principle of negligence, in which someone has a duty to act, fails in this duty, and the failure is the cause of harm to someone else. The negligent person must indemnify (make whole) the person who was harmed.

Bottom line: Don't try to put an indemnity clause in a contract. Don't sign a contract that has such a clause in it. By the way, the kennel backed off and their attorney took out this clause.

More on indemnity agreements

More on negligence

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Image: Getty Images

Now that tax season is over, it's time to think about the more routine tax tasks, like sending in your 941 - quarterly payroll tax report - by April 30.

Before you start completing Form 941, make sure you are using the 2012 version, and note the changes to Form 941 for 2012. The primary change is a continuation of the 2% Social Security tax cut for employees, which you should already have been recognizing for employee withholding. The change is reflected in Line 5a.

This payroll tax cut has been continued through the end of 2012, as a way to stimulate consumer spending. The cut doesn't affect your Social Security contribution as an employer.

Form 941 is the Employer's Quarterly Federal Tax Return, on which employers include:

Amounts withheld from employee pay for federal income taxes
Amounts withheld from employee pay for FICA taxes (social security and Medicare),
Amounts owed by employers for FICA taxes, and
Amount already paid to the IRS for the quarter.

Two other continuing changes, from 2011:

• The HIRE Act tax exemption for hiring previously unemployed workers expired December 31, 2010, so this credit is no longer available to employers. Lines 12c and 12d have been eliminated.
• The Advance Earned Income Credit (EIC) is no longer available through employers. Individuals must now claim this credit on their own tax return. So lines 9 and 10 are no longer used for this adjustment.

For more information:

IRS instructions for completing Form 941 for 2012.

More on Form 941, including how to complete the form, when to file, how to file, and how to correct mistakes.

More about how to set up a payroll/payroll tax system.