5 Tips for Hiring and Managing a Summer Intern

Caron_Beesley — Wed, 15 May 2013 11:35:42 +0000

Is your small business looking to hire an intern this summer? You’re not alone! According to a December 2012 survey by Internships.com, 53 percent of the 300 companies surveyed plan to hire more interns in 2013 than they did in 2012.

In fact, internships are becoming increasingly important to both students and business owners. The difficult economic climate means that new graduates face unprecedented challenges as they try to enter the job market. Internships give them a vital foot in the door and also provide employers with nurtured and eager talent to help them grow their business.

Just look at the data:

47 percent of employers have a structured internship program
39 percent of small businesses made full time job offers to interns in 2012
85 percent of employers say hiring an intern was a positive experience

If you want new ideas and the opportunity to nurture a potential future employee – at a low cost – read these five tips for hiring and managing an intern (within the law).

Assess your Needs

Interns will be looking for the right kind of experience, so it’s important to evaluate your needs and create a job description that is appealing for both parties. Think about how an intern can help you achieve your business goals? Do you have enough work to support an intern? Who will supervise, train and mentor this individual? What about resources – like office space or a computer?

Think about potential workload that you can hand-off in terms of short and long term assignments and be sure to plan well in advance (hiring takes time)!

Should you Offer a Paid or Un-Paid Internship?

Should you pay your interns? Interestingly, most students state that compensation is the least important factor when considering an internship. And according to Internships.com, one third of businesses surveyed chose not to pay their summer interns (choosing to offer college credits, company perks or travel stipends instead).

If you want to attract right talent and take your investment seriously, then it’s worth compensating your intern(s) appropriately. (The average hourly rate for a bachelor’s degree-level intern is $16.21, according to the National Association of Colleges and Employers.)

Why not get an un-paid intern? Perhaps the biggest rationale for paying interns is that the U.S. Department of Labor puts limits on the work un-paid interns can perform under the Fair Labor Standards Act. For example, your business can’t be seen to derive any benefit from the intern. Essentially, the following applies:

Unpaid interns cannot do any work that contributes to a company's operations. This includes any tasks that help you run your business, like documenting inventory, filing papers, or answering emails.
Unpaid interns can shadow other employees and perform duties that don't have a business need. For example, a bakery may allow an apprentice/intern to decorate a tray of cookies that will not be sold to customers. Because the task was only a training exercise for the apprentice/intern and the bakery did not receive any benefit from that work, the bakery would not have to pay that student worker for that time.

For more information on what exactly unpaid interns can do, according to the Department of Labor, read The Truth Behind Unpaid Internships.

Clearly, a paid internship program will give both your business and your intern(s) more flexibility.

The Hiring Process

This process isn’t a whole lot different than hiring a regular employee. You’ll need to write a job description – be sure to state whether the internship is paid or un-paid, your objectives for the position, responsibilities and assignments of the job, and specific experience that the intern can expect to gain.

Where should you look for interns? In addition to posting the opportunity to your website and online job boards, approach local colleges and schools and register with their career services office. Many of these candidates are screened and motivated. Another option is the Department of Labor’s Summer Jobs+ Bank, a Presidential initiative designed to connect youth with employment and internship opportunities. Post your listing here.

Managing Interns – Considerations to Remember as an Employer

Perhaps the most important thing to remember is that this is a learning experience for your intern, not a traditional “summer job”. Consider the following:

Expose them to Real World Experiences and Tasks - There’s no harm in giving your intern mundane, tactical tasks to complete, but be sure to mix it up and give them real business experience as well. Have your intern sit in on meetings and sales calls. Give them the opportunity to take a first stab at a project, guide and mentor them through it, don’t be afraid to let go of the reins a little, and step in when you need to.
Mentor – An intern is used to feedback (college tutors provide it all the time), so be prepared to coach and provide honest feedback about what they are doing well on a particular project and where there’s room for improvement.
Set Parameters and Guidelines – This may not be something you are used to doing with your regular employees, but expectations need to be set about appearance, business attire, work hours, and acceptable internet/social media use.
Set Expectations Among Other Employees – If you choose to delegate mentoring to another employee, be sure that employee is aware of your expectations. Likewise, set expectations across your staff so that the intern doesn’t find him or herself being taken advantage of or assigned tasks that are not within their job description.

Workplace and Labor Laws

Many of the labor laws that apply to employees, such as workplace discrimination laws, also apply to interns. You must also ensure you comply with workplace health and safety laws. Some states also require that you carry workers’ compensation insurance for interns.

Related Resources

7 Ways to Protect Your Small Business from Fraud and Cybercrime

Caron_Beesley — Wed, 08 May 2013 10:57:08 +0000

How secure are your small business assets from fraud, identity theft and cybercrime?

According to the Association of Certified Fraud Examiners (ACFE), companies with less than 100 employees lose approximately $155,000 as a result of fraud each year. Small businesses also have a higher fraud rate than larger companies and non-business owners. One of the most frequent sources of fraud is credit card abuse – largely due to the fact that few business owners actually take the time to go through every line item on their bill or choose to mingle business and personal accounts.

Other sources of fraud stem from an overall lack of security across the business – such as inadequate network and computer security and a lack of background checks when hiring employees.

Don’t be a victim! Here are some tips you can take to better protect your business from some common forms of fraud and cybercrime.

Protect Your Credit Cards and Bank Accounts

Since this is a common area of fraud for everyone from sole proprietors to employee-based firms, this one goes at the top of the list. Start by separating your personal banking and credit cards from your business accounts – this will ensure fraudsters don’t get their hands on ALL your money. Separating your accounts will also make it easier to track your business expenses and report deductions on your tax return.

Next, make sure you use your card wisely. Don’t hand over your plastic or your card number to employees or companies with which you don’t have a familiar relationship. Switch to online bill pay or make sure you store paper bills securely. Likewise, use a secure mailbox for receiving and sending bills. If you don’t have one, deposit your mail directly at the post office (this goes for any mail that contains sensitive information – you don’t want to leave it lying around in an unsecured mailbox).

Lastly, be sure to check your online banking every day for suspicious activity.

Secure Your IT Infrastructure

Every business owner should invest in a firewall as well as anti-virus, malware and spyware detection software. Backing-up is also a must and will make it a lot easier for you to continue working in the event of a cyber attack. This blog offers more advice on what to look out for and digs deeper into your options: 4 Ways to Safeguard and Protect Your Small Business Data.

Use a Dedicated Computer for Banking

This is a great idea from Forbes magazine’s 5 Ways Small Businesses Can Protect Against Cybercrime. Use a dedicated computer for all your online financial transactions and, ideally, make sure it’s one that isn’t used for other online activity such as social media, email and web-surfing which can open up the machine to vulnerabilities. Avoid mobile banking if you can.

Have a Password Policy

Another easy step you can take to protect your IT systems is to institute a password policy.

Make sure you and your employees change them regularly (every 60 to 90 days is good rule)
Set rules that ensure passwords are complex (i.e. contain one upper case letter, one number and must be a minimum of eight characters)
Use different passwords for different online and system accounts

Educate Your Staff

Employees are perhaps your biggest point of vulnerability when it comes to fraud, but they are also your first line of defense. Hold regular training sessions on basic security threats (online and off) and prevention measures – both for new hires and seasoned staff. Enforce the training by instituting policies that guide employees on the proper use and handling of company confidential information, including financial data, personnel and customer information.

For ideas on what to include in your training, check out the resources offered by small business groups like your local Small Business Development Center or Women’s Business Center (find one near you here), you could also look out for free online webinars from security organizations and businesses.

Consider Employee Background Checks

One of the first steps to preventing fraudulent employee behavior is to make the right hiring decision. Basic pre-employment background checks are a good business practice for any employer, especially for those employees who will be handling cash, high-value merchandise, or have access to sensitive customer or financial data. This blog offers tips on which background checks you can legally pursue and some tips for doing your own detective work: Conducting Employee Background Checks – Why Do It and What the Law Allows.

Insure Your Business

Fraud and cybercrime does happen; however, you can still seek to cover your damages by purchasing an insurance policy that protects you against any losses that you may incur from crime or fraud. Likewise, find out what your bank is willing to do to help you out if your credit card or business account is compromised.

How do you protect your business against fraud and cybercrime? Leave a comment below!

Does Your Website or Online App Target Kids? Stricter COPPA Rules Go into Effect Soon

Caron_Beesley — Wed, 01 May 2013 11:56:46 +0000

Do you target children or a youth demographic online? Perhaps you’ve developed or are marketing a mobile app that appeals to a youth market? If so, you should be aware of the Children’s Online Privacy Protection Act (COPPA) – a federal ruling enforced by the Federal Trade Commission (FTC) that gives parents control over what personal information websites can collect from children under the age of 13.

The COPPA Rule recently underwent an important overhaul of which online marketers need to be aware. The revised rule (which goes into effect in July 2013) put additional protections in place and streamlines other procedures that companies covered by the rule must follow.

If you run a website or mobile app designed for children or collect any kind of information from someone you know is under 13, here’s what you need to know about the revisions to COPPA:

Key COPPA principles remain unchanged

Most of the key requirements of COPPA haven’t changed. You must still give notice to parents and get their verifiable consent before collecting, using or disclosing personal information from children under 13. You must keep collected data secure and you can’t request that a child disclose more information than is reasonably necessary in exchange for participation in an activity.

Expansion of who is covered by COPPA – Plug-Ins and advertising come under the spotlight

If you operate a child-directed website and you allow outside services—including plug-ins (like YouTube videos) or advertising networks—to collect personal information from visitors, you will be required to comply with COPPA. This means you will need to provide notice and get parental consent for any user that identifies themselves as under 13, before the third party can collect the child’s information. In effect, as the site owner or operator, the FTC will now hold you liable for any personal information requests made by these third parties.

According to the FTC, this “close(s) a loophole that allowed kid-directed apps and websites to permit third parties to collect personal information from children through plug-ins without parental notice and consent.”

In addition, plug-in or ad network operators who have actual knowledge that they are collecting personal information through a child-directed website or service must also comply with COPPA.

What constitutes personal information has changed

Under the new Rule, the types of personal information that cannot be collected from children under 13 (without parental consent) has expanded to include geolocation information, as well as photos, video and audio that contain a child’s image.

In addition, persistent identifiers (such as cookies, IP addresses and mobile IDs) that can be used to recognize a user over time and across different websites or online services are also now considered personal information and parental consent must be obtained before collecting this data. If, however, you use persistent identifiers solely to support the internal operations of your site or service, rather than for marketing purposes, parental consent is not required.

Certain information collection is now permitted in “support for internal operations”

COPPA now allows businesses to apply for formal approval to collect certain information if it is used in “support for internal operations.” Permitted activities include contextual advertising, frequency capping, site analysis and more. However, you can’t use the information collected to contact a specific person through behavioral advertising or to amass a profile on that person for any other purpose – without parental consent.

Changes to how businesses get parental consent

COPPA has always required that parental consent must be requested via email or postal mail. The new Rule requires that key information (such as how the information will be used) is displayed up front in that notice so that parents can get the details they need quickly.

The new Rule also offers more ways for businesses to get the “OK” from parents (for more details of what was previously acceptable read the Direct Notice to Parents section of the FTC’s How to Comply with COPPA). These include scans of parental consent forms, videoconferencing, use of a government-issued ID and more.

Stronger provisions to keep kids info secure and confidential

Before releasing information to service providers and third parties, site operators must take reasonable steps to make sure these companies are capable of maintaining the confidentiality, security and integrity of that information – with assurances that they’ll follow through. In addition, you are now only allowed to retain kids’ personal information for as long as is reasonably necessary, and must ensure that it is disposed of securely.

Safe harbor programs to get more oversight

COPPA previously allowed industry groups to create self-regulatory programs that governed member-compliance with COPPA. The new Rule strengthens the FTC’s oversight of these programs with new auditing capabilities.

More Information

For more information about all these changes, read the FTC’s December, 2012 press release and refer to the site’s Child Privacy Guide for more tips and insights.

It is highly recommended that you discuss any concerns you have about COPPA compliance with a lawyer. The new rules are complex and have consequences beyond the content that you create or originate on your business website of online service. In addition, you can also email your questions to CoppaHotLine@ftc.gov.

Check out these related articles too:

Which is the Best State to Incorporate Your Brick and Mortar or Online Business?

Caron_Beesley — Wed, 17 Apr 2013 11:16:37 +0000

One of the most frequently asked questions by prospective business incorporation filers is, “which state should I incorporate in?”

It’s a good question and the answer isn’t always clear cut. For example, you’ve no doubt heard about the perceived tax and operational advantages of incorporating in states such as Nevada (with its low filing fees and zero state corporate income, franchise and personal income taxes) and Delaware (with its flexible and pro-business statutes). But do these advantages really come into play for small business owners? Do you really want to tie your small business up legally with a state other than your own? What if your business operates largely online with customers in many states?

Here’s what you need to know about choosing a state in which to incorporate.

Why Incorporating in Your Home State May Be the Best Option

If you operate a small business and anticipate having less than five shareholders or members of your incorporated business, then it’s widely considered the best strategy to incorporate in the state where you have a physical presence (property, shareholders, employees) – and for most small businesses, this is in their home state.

Why? Even with the benefits of incorporating in states such as Nevada and Delaware, the hassles often outweigh the benefits.

Consider the following:

Even if you incorporate in tax-friendly Nevada, if you are operating or doing business in your home state, you’ll still have to pay business taxes on revenue that originates in that home state.
If you don’t have a physical address in the state in which you incorporate, you’ll need to hire and pay a registered agent in that state to act as your legal representative.
If you are incorporated outside your home state, you’ll need to file for a foreign qualification in both your home state (if you wish to do business there) and in the state in which you are incorporated. This means double-duty paperwork, filing fees, taxes, and even penalties if you inadvertently skip this important step. You may even have an increased tax liability in your home state because you are registered as a foreign entity there. You are also subject to the same annual reporting requirements in both states.
If you register out of state, you’ll be subject to the laws of that foreign state of corporation. These laws may differ from those of your own state (and state laws can vary significantly in many areas). This can have complicated ramifications and may require your presence in court in your registered state, if you run into even the simplest of legal disputes.
As a “foreign” business, you may also encounter difficulties opening a business bank account in either or both the states in which you are incorporated in and physically located.

Unless you intend to transact business in states like Nevada or Delaware, filing in these states has very few long-term advantages. Yes, the tax laws and ease of doing business may be appealing at first, but peel back the onion and you’ll find that, in the long run, it is more economical and time-saving for small businesses to pursue home-state incorporation.

Where Should You Incorporate an Online Business?

Choosing a state in which to incorporate your online business involves pretty much the same steps as a brick and mortar business. For example, if you intend to market and sell to a relatively local market, then filing in your home state will make the most sense.

However, it’s important to get legal advice and weigh the pros and cons. Many small online businesses choose to incorporate in their home state because that’s where they have a physical presence (such as a home-based business) and it’s also often where most of their employees are situated, regardless of where their customer base is.

If your online business grows and you open a physical location in another state, you’ll need to apply for a foreign qualification in each state in which you are doing business (including your original home state). Foreign qualification is technically a form of incorporation, and your company will be responsible for the associated fees and laws in that state. As a rule of thumb, if your business meets any of the following criteria in a state other than your home state, then you should check with the state government and/or a lawyer to find out about applying for a foreign qualification:

Your business has a physical presence in the state
Your business has employees in the state
Your business accepts orders in the state
Your business has a bank account in the state

Disclaimer: The information in this blog doesn’t constitute legal advice. Always consult a lawyer to find the incorporation option that best suits your needs.

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6 Legal Factors to Consider When Hiring Global Employees

Caron_Beesley — Wed, 03 Apr 2013 11:47:33 +0000

Are you thinking of hiring overseas-based employees? Whether you are operating an overseas branch of your own business or looking for specific skill sets that aren’t readily available here at home – there can be benefits to hiring overseas employees, but there are also challenges.

How do you make sure your staff turns up for work on time? How do you hold them accountable and keep them motivated? What about communication across different languages, cultures and time zones? These are all concerns and challenges that many business owners have faced and their suggestions for tackling them are discussed in this guide from The New York Times: Running a Business With Staff Scattered Around the World.

But what about the legal and regulatory side of managing employees in other countries? Labor laws will likely differ from those in the U.S., so it’s important to understand those laws before you make your first overseas hire. For example, U.S. “at-will” employment laws don’t apply overseas. Most countries demand that employers have a concrete reason to fire someone (whereas most U.S. states permit employers to terminate any employee at any time, for any reason, or for no reason at all).

What other factors of foreign labor law should you consider?

Ben Macaluso, writing for the Denver Business Journal, suggests that U.S. employers watch out for the following:

Time Off Laws – Foreign companies, most notably Europe and Australia, are very generous in their vacation, sick and maternity leave policies. Certain countries also extend leave policies to encompass other activities such as building homes or career development.
The Power of Unions – Unions carry a lot of weight overseas and employee benefits and work conditions are strongly controlled by these. For example, you might not be able to change existing policy or conditions without union approval.
Non-Compete Agreements – Many U.S. businesses write non-compete agreements into employee contracts. Foreign countries generally prohibit these.
Notice – How much notice you are required to give in the event of a lay off or firing also varies overseas.

Some U.S. laws also apply when it comes to hiring employees in other countries, for example:

Bribes – U.S. federal law prohibits corruption in the form of payments to foreign officials for business favors.
Employee Privacy – Other countries may have strict laws that govern what employee information you can share publicly (even apparently harmless records such as an employee directory could run the risk of violating privacy laws).

To ensure you are complying with local labor and tax laws, consult in-country experts who are familiar with business and regulatory matters in the country you intend to base employees out of.

Additional Resources

Buying a Small Business Overseas – 5 Tips for a Smooth Transaction

5 Tips for Ensuring Your Blog Doesn’t Get You into Legal Trouble

Caron_Beesley — Wed, 13 Mar 2013 11:28:59 +0000

More and more small companies are using blogging to promote their business. In fact, in 2012, “small business” was one of the fastest growing categories in Technorati, a global blog search engine, with 20 percent growth that year alone (source: Small Business Blogging Proved Effective for the Year 2012 by Rahul Manekari).

Why? Blogs are a great tool for connecting with your customers and sharing your expertise. They also improve your company’s search engine rankings. Search engines love fresh, relevant and local content—and blogs deliver on this need.

While you’re busy wondering what you should be writing about (the articles at the end of this blog offer tips on that), it’s important to assess any potential legal risks you might be taking. Think about it: many bloggers combine original content that they’ve written with quotes, references and even ideas from other bloggers. But at what point does this become plagiarism or an infringement of copyright? Likewise, if you’re planning on showcasing customer quotes or testimonials in your blogs, is this even legal?

Here are five tips for ensuring you stay out of legal trouble as you write your business blog!

Don’t Get Slammed for Copyright Infringement

Copyright infringement is the number one reason that bloggers get into trouble. Never copy or paste the content of others, whether it’s words, images, video or music, unless you have written permission to do so. For a deeper dive into this topic (in plain English) read: Can You Use or Reproduce the Work of Others on Your Website or Blog?

If you do reference the work or opinion of others, give them credit (you can see an example in the opening paragraph of this blog).

Don’t Bash the Competition

Blogging is about building community and trust, and helping customers feel good about doing business with you. It’s not a vehicle for bashing the competition, price comparisons, or other marketing tactics. Blog writing lends itself to a conversational voice, so slamming the completion can often come across as “catty” and unprofessional. That’s not to say you can’t talk about your products or business in the context of the competition, but focus on how you are different (how your products are made, how people use them, or how to get more out of them)—not how bad/poor/expensive the competitive marketplace is.

Be Careful When Mentioning Customers by Name

A great way to differentiate yourself is to have customers share their experiences of doing business with you. A nice quote or interview with a satisfied customer would make for a great blog topic. But wait, did you know you must have written permission from a customer before you can use their name or endorsement? The Federal Trade Commission enforces regulations that govern how customer endorsements are used in marketing materials. For a few quick pointers on how to abide by these regulations, plus tips on using customer testimonials in your marketing materials or blogs read: “Great Service, Will Use Again”: How to Use Customer Testimonials to Market Your Business.

Be Truthful About Any Claims You Make About Your Business

The FTC has clear guidelines on what constitutes “truth in advertising” or “misleading claims”. So be sure that any claims you make about your business or its products and services are correct and can be backed up. This is especially true if you are sharing blogging duty with other employees. If you’re not sure when you might be crossing the line in praise of your products, check out the rules. More info here: How Lawful Are Your Small Business’ Advertising Claims? – Tips for Getting it Right.

Understand Third Party Blog Terms of Service

If you use a third party blog tool to host your blog, familiarize yourself with its terms of service. For example, who has intellectual property rights for the content you post and what procedures are in place if you believe your intellectual property has been violated? How can that third party use that content? Many blogging sites have terms of service that grant that party a license to host, store, reproduce, modify, publicly display and distribute your content. If this is of concern, then you may want to consider hosting your blog on your own website.

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How Minimum Advertised Pricing Impacts Your Retail or Online Store’s Marketing Efforts

Caron_Beesley — Wed, 06 Mar 2013 12:37:11 +0000

If you run an online or retail business, did you know that you might be prohibited from advertising a manufacturer’s products below a certain minimum price?

Minimum advertised pricing (MAP) policies are particularly critical to manufacturers who sell their products for online resale, given the ease at which consumers can now conduct online and mobile price comparisons. MAP policies are also established to help small businesses compete and sell on service and value, rather than entering into a price war with cost-cutting big box stores.

But how legally enforceable are these minimum advertised pricing policies and, as a small business owner, is there a way to get around them in your sales and marketing practices?

The Truth About Minimum Advertised Pricing

Minimum advertised pricing only relates to “advertised” pricing and is perfectly legal under U.S. antitrust statutes. So, essentially, you are limited to advertising MAP-protected products at a certain price, but you can sell these products at any price you choose (often guided by the Manufacturer’s Suggested Retail Price or MSRP).

What Does this Mean for Online Businesses?

Under typical MAP agreements, online retailers can’t “display” any prices that fall below the MAP price. But which part of an online store actually represents advertising display space has caused quite a bit of controversy. For example, say a product is listed on a site for $10. Once a coupon code or other incentive is applied, the actual shopping cart price could come down to $8. Is that still considered “advertising” since a transaction technically hasn’t yet occurred, or is it a commitment to buy and outside the scope of a MAP agreement?

The difference between an advertised price and an actual price that you may be charged has come under scrutiny by U.S. Circuit Courts and FTC rulings, which tend to agree that an actual price displayed in a secure/encrypted shopping cart isn’t subject to MAP – because it’s technically not advertising space, but represents an actual storefront. So in an online world, an actual price may legally end up being a lot lower than the MAP-required advertised price.

In fact, manufacturers are often advised to focus their MAP policies on advertised prices in paid search ads, shopping comparison ads, and internet landing pages but not in shopping carts or other point of sale interfaces.

Look for Alternative Ways to Discount

While it’s not always advisable to lead with price in your marketing efforts, look for other ways to attract customers without breaking any MAP agreements. For example, many manufacturers are okay with your offering free shipping, coupon codes, or a “buy-one-get-one at a discount,” if MAP doesn’t protect that other item. Essentially, as long as the dollar value of the MAP-protected product isn’t reduced, then you are okay. Be careful with coupon codes. It’s safer to advertise the coupon—not the product that it can be applied against—so as not to imply that you are advertising the MAP item at a reduced price. Instead, be clear about what items are excluded from any coupon code promotion.

The Bottom Line

If you are unsure about how your online advertising and marketing practices may border on breaking any MAP agreement you have with a manufacturer, talk to them or consult a legal attorney. Manufacturers do monitor their dealers for potential violations and the law is constantly in flux on this one, so do your due diligence.

For more information about the legality of MAP policies, check out the Federal Trade Commission Guide to Antitrust Laws.

Sole Proprietorship—Is this Popular Business Structure Right for You?

Caron_Beesley — Wed, 27 Feb 2013 16:16:00 +0000

If you’re starting a business, you may be wondering how to legally structure it. Should you incorporate, become an LLC, or operate as a sole proprietor?

Over 70 percent of U.S. businesses are owned and operated by sole proprietors or sole traders.

But what does being a sole proprietor involve and is it the right structure for your small business? Here’s what you need to know about the advantages and disadvantages of being a sole proprietor.

What is a Sole Proprietor?

A sole proprietorship is basically an unincorporated business owned and run by one individual (no partners are involved), with no distinction between the business and its owner. As a sole proprietor, you are entitled to all profits and are responsible for all your business’s debts, losses and liabilities.

A sole proprietorship is the easiest business structure to form (you only need to get a license or permit and register your business with your local government) (hence its popularity). It is also a simple structure to maintain with few forms and little business administration needed. Many freelancers, consultants and independent contractors operate as sole proprietors for ease and convenience.

SBA’s Sole Proprietor Guide offers more details about the process of starting a business as a sole proprietor and the steps you’ll need to follow.

What Are the Advantages of Being a Sole Proprietor?

As mentioned above, the ease of starting and operating a sole proprietorship is one of the reasons this business structure is hugely popular. Also, sole proprietors are relatively unencumbered by government regulations and can run their business autonomously without the need to report to partners, shareholders and board members. You control all your own decisions and the money you make.

Sole proprietors have the benefit of reporting tax on any income earned through their own personal tax return, rather than filing separately as a business – which can save time and hassle. You also won’t need to prepare a balance sheet for your company.

Sole proprietors also have a lot of flexibility when it comes to their careers. You can easily close your business without too much bureaucracy, or work on a full or part-time basis for another employer without worrying about answering to anyone about your own business affairs (aside from your clients, of course) – another reason this is a popular option for freelancers, many of whom hold down two jobs!

What About the Disadvantages?

One of the reasons many new business owners seek to incorporate instead of being a sole proprietor is the liability issue.

You may not think now that you need protection against liability, but what if a client holds you in breach of contract or threatens to sue you? Can you afford to put your personal assets at risk to satisfy any claims against your business? As a sole proprietor, there is no legal distinction between the owner and the business. This means that you are personally liable for all business losses and debts. Business incorporation can limit your liability as a business owner, essentially putting your personal assets off limits if anyone brings a judgment against you. So sole proprietors are inherently exposed to risk that incorporating as a corporation or limited liability company can help alleviate.

Other disadvantages can potentially impact your bottom line and growth plans. For example, banks typically require that businesses incorporate before they’ll lend them money, leaving you to rely on savings, credit cards and other sources of capital. Then there’s the perception issue – being an incorporated business can give you a more professional appearance to potential clients.

Finally, because you aren’t required to produce financial statements or a balance sheet, your financial controls might not be as sharp as the need to be and this could be detrimental in the long term.

The Bottom Line

If you are starting a business, operating it as a sole proprietor can afford many benefits:

Ease of start-up (from an administrative perspective)
Lower start-up costs (incorporation involves forms, fees and sometimes legal advice)
Quicker and simpler tax preparation
Autonomy of business decisions and control of profits

Then again, it’s important to consider the downsides.

Liability – If you run a business that could expose you to risk in the form of debt or lawsuits (e.g., industries such as a child care or a food service business), then operating as a sole proprietor could leave your personal assets vulnerable.
Raising capital can be hard
Lack of financial controls
Lack of professionalism

If you still have questions, there are a number of counseling resources in your community that can help, including Small Business Development Centers. Find them here.

Additional Resources

For a complete guide to your available business structure options and how to set them up refer to SBA’s Choosing a Business Structure guide.

If you think incorporation might be right for your small business, check out this recent blog: Top 10 Questions about Small Business Incorporation Answered.

Selling into the U.S. as a Foreign Business: Should You Incorporate Your Business Here?

Caron_Beesley — Wed, 06 Feb 2013 11:36:53 +0000

Do you run an overseas business? Thinking of expanding and selling into the U.S. market?

Because U.S. residency or citizenship is not required, non-U.S. citizens can readily sell into the U.S. However, many overseas business owners aren’t clear on whether they are required to incorporate in the U.S. and the associated tax implications.

Here’s what you need to know:

Should I Incorporate My Business in the U.S.?

This is a question that comes up frequently on the SBA Community Discussion Boards and there’s not a clear cut answer for all businesses.

Essentially, if your intent is to sell goods into the U.S.—whether online or through U.S. partners such as a wholesaler—you may not have to file for incorporation in the U.S. However, if you plan to have a physical presence in the U.S. (such as an office or employees), then incorporation, whether as a corporation or limited liability corporation (LLC), is worth considering. Likewise, for online businesses in particular, remember that many U.S. consumers feel more confident buying from a registered U.S. business, so that’s another important factor to weigh up.

Each business is different and it’s important to look at incorporation in the context of your overall business goals, state incorporation laws, taxation considerations, as well as your ability to scale and manage that legal entity from overseas.

To understand the factors that might impact your decision, book some time with a good U.S. business attorney who understands both international and U.S. law.

How to Incorporate a Foreign Business in the U.S.

Once you’ve made the decision to incorporate, you’ll need to understand the process.

In the U.S., business incorporation occurs at the state level for all business owners, regardless of whether you are a citizen or a foreign national.

The process will vary from state-to-state, but generally involves two steps: applying to register in that particular state, and establishing a registered agent with a valid address in that state (no P.O. Box numbers). A registered agent can be either the business owner or another person who is authorized to receive legal papers on behalf of the business, such as an attorney or secretary.

What Business Structure Should I Choose?

The most popular choice of business structure for non-U.S. citizens is to form an LLC, although you can also legally form and own shares in a C corporation. Non-U.S. citizens cannot retain shares in an S corporation because business income is reported on personal U.S. income tax returns.

To learn more about choosing the right business structure and how to file for incorporation, check out SBA’s Choose your Business Structure guide. This blog offers more insight: Top 10 Questions About Small Business Incorporation Answered.

Which State Should I Incorporate In?

If most of your clients are concentrated in a specific state or you have an office or physical presence in a state, it may make sense to incorporate there. If you don’t plan on having a physical presence in the U.S., you can form a corporation or LLC in states such as Nevada and Delaware, both of which are considered friendly to foreign companies.

If you operate in more than one state, you can elect to incorporate in any of these states. However, you are required to register your business in the other states in which you operate; this process is called foreign qualification and you can apply for it with the help of a lawyer or online incorporation service. Again, for the best advice, consult a U.S. business attorney who has expertise in both U.S. and international law.

Do I Need to Pay U.S. Taxes?

If you are a non-resident business owner, the U.S. Internal Revenue Service (IRS) will tax you on income that is sourced in the U.S. If your business is incorporated in the U.S., you may also be required to pay an annual fee to the state where your business is incorporated.

The IRS offers a guide specifically on International Business, but if you are still left with more questions, it is always good to check with a qualified attorney or accountant.

U.S. citizens will likely need an Employment Identification Number to start up, a process that requires their social security number (SSN). In the case of foreign businesses, an Individual Taxpayer Identification Number (ITIN) will suffice. The IRS issues these 9-digit tax processing numbers to individuals who are required to pay US taxes but who are ineligible for a SSN, including resident and non-resident aliens and foreign nationals.

Meal and Rest Breaks – What Small Business Employers Need to Know

Caron_Beesley — Wed, 23 Jan 2013 12:32:54 +0000

Should you pay employees for rest and meal breaks? Are you even required to offer such breaks?

We all need rest and meals during work hours and the law stipulates standards for these breaks, including whether your employees should be paid for them. Here’s what you need to know:

Federal Wage and Hour Laws

Under the Fair Labor Standards Act of the U.S. Department of Labor, non-exempt employees can take short breaks (although it’s not mandatory). A short break is typically considered to be 20 minutes or less, and employees must be paid for these as hours worked. When it comes to meal breaks, anything more than 30 minutes does not generally need to be compensated as work time (although again, meal breaks aren’t required under federal law). But here’s the caveat – if your employee does any kind of work during that meal break, such as answering email or taking a business phone call, then you must pay them for that break.

Bathroom breaks, which are required under the Occupational Safety and Health Administration, are excluded from the definition of rest breaks.

To avoid any legal hassles, be sure you communicate your break policy to employees. For example, employers have been known to come under the spotlight for permitting certain workers to take frequent (paid) cigarette breaks, while other employees do not. If employees are taking unauthorized breaks, or unauthorized extensions of authorized breaks, you are not required to count the unauthorized time as hours worked (so long as the terms of what is authorized/unauthorized have been expressly communicated to employees).

State Wage and Hour Laws

Even though meal and rest breaks aren’t required under federal law, some states do impose mandatory breaks for employees in specific industries after a certain amount of hours worked. For example, in California, a meal break must be provided no later than the end of the employee’s fifth hour of work. So giving employees the option of skipping lunch to get out of work early is breaking the law.

Generally, state laws stipulate a 30-minute paid meal break. For laws in your state, check this consolidated breakdown of state meal break requirements and rest break laws from the Department of Labor. You can also refer to your individual state labor office.

Related Resources

SBA Small Business Employment and Labor Law Guide

Related Blogs

How to Craft a Social Media Policy for Your Small Business

Caron_Beesley — Wed, 16 Jan 2013 12:37:12 +0000

If your business interacts with consumers via email or on the web, then it’s likely that you have an online privacy policy that governs how you collect, use and store consumer information. But do you have policies or guidelines that govern how your business uses social media to engage and interact with your followers?

Social media opens up new avenues for communication and engagement with consumers, but it also brings with it an element of risk. For example, perhaps your employees have access to social media at work, or are posting on behalf of your business. How can you be sure they aren’t releasing confidential company information, slamming the competition, or breaking copyright by posting images or user-generated content without permission?

Blogging also falls under the social media umbrella and is one of the Internet’s biggest sources of copyright abuse. Blogging is also subject to certain product endorsement laws that you should be aware of.

Crafting a social media policy or code of conduct can help protect your business and your employees. Here are some considerations you should bear in mind, plus some policies developed by other businesses that can help you craft yours.

Start With Your Employees

Do you allow employees to access social media in the workplace? The choice is yours, although the law does provide some guidance on just what you can restrict employees from doing. For example, last year the National Labor Relations Board ruled against employers who fired workers for complaining on social media sites about their workplace conditions during non-work hours, stating that these cases “…interfere with the rights of employees under the National Labor Relations Act, such as the right to discuss wages and working conditions with co-workers.”

It’s hard to avoid employees gaining access to social media in the workplace; smart phones or tablets provide anywhere access. However, it’s a good practice to develop a clear policy about which instances warrant access to social media during work hours and for work purposes, and if you intend to discipline employees who abuse your code of conduct.

If you choose to permit access to social media, be sure your social media policy guidelines outline your expectations with regard to sharing company confidential or proprietary information such as photos, videos, or documents.

Laws are changing constantly, so it’s a good idea to work with lawyer to ensure you are complying with federal, state and local laws as they pertain to social media and employment law.

If You’re Not Sharing Your Own Content – Be Warned

Social channels (including blogs, social networking sites, and image sharing sites), are a potential minefield for intellectual property abuse. So it’s critical that your policy clearly details what can and can’t be shared online by employees who post on the company’s behalf. For example, if a Facebook moderator wants to use a wholesaler’s image of a product to help promote your newest line, be sure to get written permission from the wholesaler first, unless permission was previously granted.

Endorsements Must Be Disclosed

Many companies reach out to other bloggers or social media page owners to solicit reviews, mentions or endorsements. If you offer cash, freebies or any other form of compensation for this favor, then the Federal Trade Commission requires that the “endorser” clearly state in their post that the review or mention was in exchange for a fee or other compensation. Read more in this blog: Bloggers and Social Media Users Must Disclose Freebies, Comps, and Paid Endorsements Under New FTC Rules.

Likewise, if you ask employees to promote your product or service on their social networks or blog, they must disclose their affiliation with your business.

What Should Your Social Media Policy Look Like?

Your social media policy doesn’t need to look like a legal document; it should simply outline how your business and its employees will represent itself in a virtual social world.

Such policies often include rules on when and how employees will be using social media, plus tips for adopting a social media voice and reminders to respect customer service policies and intellectual property. Some also set forth expectations for courteous and respectful engagement from social media followers themselves (a good defense should you ever need to remove offensive posts).

Many businesses have implemented social media policies and guidelines targeted at employees only. While these don’t have to be published in the public domain, if your policy addresses points of consumer concern, then you should consider posting it on your website and social networks.

Here are a few useful examples that you can refer to as you craft your company’s social media policy:

Walmart – Breaks down engagement guidelines by social media network, such as Twitter and Facebook, while separately addressing corporate concerns such as intellectual property or employee disgruntlement.
Best Buy – Offers clear do’s and don’ts for company employees engaged in social media
Environmental Protection Agency – A good example of more formal employee-centric social media guidelines

Related Articles

Contract Law – How to Create a Legally Binding Contract

Caron_Beesley — Wed, 02 Jan 2013 12:56:21 +0000

Whether you are entering into a relationship with a customer, a vendor or an independent contractor, contracts are a fact of business. You need them because they serve as legally valid agreements protecting your interests.

But aren’t contracts laden with legalese? Don’t they have to be blessed by an attorney to ensure their validity? Not always.

In fact, I’ve seen contracts come across my table that are less than one page in length, in plain English, and still legally binding. How?

Generally, to be legally valid, most contracts must contain two elements:

All parties must agree about an offer made by one party and accepted by the other.
Something of value must be exchanged for something else of value. This can include goods, cash, services, or a pledge to exchange these items.

In addition, certain contracts are required by state law to be in writing (real estate transactions, for example), while others are not. Check with your state or with an attorney if you are unclear, but it’s always good business practice to put every binding agreement in writing.

Here’s how your small business can comply with these requirements and ensure your contracts are legally valid:

1) The Ins and Outs of Reaching an Agreement

The point when two parties come to an agreement can be a little fuzzy. For example, many businesses will put a standard contract template before an independent contractor and expect it to be signed without any discussion. At that point – and the law is clear on this – a legal contract exists only when one party makes an offer and the other accepts all terms of that offer. So in this example, the contractor is still free to rebut any of the points in the contract and make a counter offer, until an agreement has been reached.

How Long Should an Offer Stay Open?

Offers are rarely accepted immediately and further discussions or amendments may be required. Unless the offer has a deadline for acceptance, it can remain open. It’s good practice to include an expiration date to ensure you have room to maneuver should you wish to change the terms or revoke the offer before a certain date.

Offers that are subject to an expiration date – known as option agreements – are typically price-driven or give the buyer the opportunity to mull the decision without fear of losing out to a competing buyer. It’s important to understand that a seller can place a fee on option agreements. For example, if you decide to give a buyer 30 days to think over a purchase, you can charge him for that. This typically occurs when the product or service is of high value or when the seller pledges not to sell that product to another customer during that 30-day option period. Likewise, a seller can’t revoke the offer until that 30-day period ends.

What about Counteroffers?

Bargaining or negotiating can often lead to a counteroffer. Once made, the legal responsibility to accept, decline, or make another counteroffer then shifts to the original offeror.

2) The Importance of Exchanging Something of Value

In addition to ensuring both parties are in agreement on the terms of an offer, the second element that ensures a contract is legally valid is that both parties exchange something of value. This is important since it differentiates a contract from being a one-sided statement or even a gift. “Something of value” might be a promise to perform certain services by one party while the other party agrees to pay a fee for the work performed.

Most business transactions are based on this exchange of promises. However, the act of doing the work can also satisfy the exchange of value rule. For example, if you contract with a vendor to provide you X and Y, but you decide you need to add Z to the final deliverable, the vendor can create a binding contract by actually doing Z – something which you can’t quibble or get out of if you change your mind.

More Information and Resources

For more information about the legality of any agreements, consult a lawyer or attorney.

For insights into what a contract should look like, check out available contract templates from SCORE. Use the search field to find “contract agreements” or other keywords for the type of contract you are looking to create. Also check out these blogs for additional tips:

“Made in the USA” Can Make Good Business Sense, But Watch Your Advertising Claims

Caron_Beesley — Wed, 19 Dec 2012 12:16:28 +0000

Does your business source or manufacture all its goods in the USA? The “Made in the USA” tagline can be a powerful marketing tool, but it can also make good business sense.

According to the Washington Post, manufacturing in the USA can be a smart investment, even in the face of cheaper offshore alternatives. The article, written by Los Angeles-based small business owner Nicholas Ventura, cites “Five ways ‘Made in the USA’ can cut your company’s manufacturing costs.” Ventura is co-founder of Youth Monument Clothing, Inc.

“Made in the USA” is what built my business to what it is today. When starting your new business, ask yourself how you can harness the benefits of domestic production, too. You may be pleasantly surprised…” Why? Ventura cites the following advantages of US-based manufacturing:

Inventory can be cut tremendously – Importing inventory often requires larger production runs to meet minimum orders that can tie up capital and cash flow in stock. But it’s a fine balance, as Ventura explains: “…missed sales due to lack of inventory is worse than having too much inventory in the first place. By being made in the USA, we can fulfill these orders and maintain a skinny inventory because turnaround times are quick.”
Domestic supply chains are quicker – Turnaround time from overseas factories can be substantially slower than domestic suppliers. Sourcing domestic goods can help you meet demand more quickly.
Forecasting becomes much easier – “The larger minimums and longer turnaround time forced us to buy production runs in large numbers and forecast trends with little confidence in our predictions,” explains Ventura. Domestic production increases agility and allows you to “react on the fly to the market” without “sitting on a ton of dead inventory.”
You may save money – “Looking back, we would have made a better investment in developing our supply chains here in America rather than trying to cut costs from the onset,” says Ventura.
“Think of your national pride!” – “Made in the USA” is a hot trend for a reason. “Production equals jobs – it’s a simple equation that many Americans ignore.”

Be Careful About “Made in the USA” Claims

If you are a U.S. manufacturer or are looking to promote your goods as “Made in the USA,” be sure you have a clear understanding of what this means. The Federal Trade Commission (FTC) is charged with preventing deception and unfairness in the marketplace and has the power to take law enforcement actions against false or misleading claims that a product is of U.S. origin.

If half your product is made in the U.S while the other half is manufactured in China, you cannot claim it is "American-made." To comply with “Made in the USA” standard, the FTC requires that all products advertised as American-made must be "all or virtually all" made in the U.S. Even if you don’t expressly state that your products are made in the USA (for example, in advertising or product labeling), giving the impression that your product is of U.S. origin (such as use of a flag or geographic reference) can get you into trouble if it is not accurate. Both of these types of expressed or implied statements are subject to FTC enforcement.

To learn more about potential red flags and how to ensure your “Made in the USA” product labeling, advertising or other claims are compliant with the law, check out this SBA blog: Made in the USA Labels: Information for Manufacturers, Retailers, and Consumers and be sure to refer to the FTC’s guide for business owners: “Made in USA.”

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How Lawful are our Small Business' Advertising Claims? - Tips for Getting it Right

How Lawful Are Your Small Business’ Advertising Claims? – Tips for Getting it Right

Caron_Beesley — Wed, 12 Dec 2012 11:46:05 +0000

Does your product do what your advertising claims it does? Perhaps you’ve invented or imported a product “that will remove even the toughest carpet stain in 10 minutes – guaranteed!” Can you stand behind that claim in a court of law?

Even if you don’t realize that your claims are false, the Federal Trade Commission (FTC) or your state government can take action against you for non-compliance with marketing and advertising laws.

Take for example an actual case scenario (described in this FTC blog post) in which the FTC challenged claims for “Rest Easy,” a natural product available nationwide that claimed to “Kill & Repel Bed Bugs… Rest Easy is HIGHLY effective, killing 90% of bedbugs within 2 seconds of contact, and the rest within 30 minutes…”

According to the FTC, the company behind the product and its corporate officers had no sound science to back up their promises. Under the settlement — which included a $264,976 judgment— the business needed “competent and reliable scientific evidence to support performance or efficacy claims they make about Rest Easy or any pesticide they market in the future.”

So what do advertising laws require you to do when you market your product, promotions or services? Here’s what you need to know:

Federal Truth-in-Advertising Laws

To ensure your business is in compliance with the Federal Trade Commission Act, follow the following rules:

Your advertising must be truthful and non-deceptive – This means it must not contain information that is misleading or omit information that can influence a buyer’s decision.

Example: You must have proof to back up both express (explicit) and implied claims that consumers take from an ad. For example, "ABC Mouthwash prevents colds" is an express claim that the product prevents colds. An implied claim is one made indirectly or by inference. "ABC Mouthwash kills the germs that cause colds" contains an implied claim that the product will prevent colds. Although the ad doesn't literally say the product prevents colds, it would be reasonable for a consumer to conclude from the statement "kills the germs that cause colds" that the product prevents colds.

The same applies when you make claims about free offers such as “buy one get one free” or “buy ABC and get XYZ free.” Be clear about limitations and disclose your terms and conditions.

The evidence must back up your advertising claims – This means you’ll need objective evidence to support your claims. The kind of evidence depends on the claim – at a minimum you must have the level of evidence you say you have.

Example: The statement "Two out of three doctors recommend ABC Pain Reliever" must be supported by a reliable survey to that effect. If the ad isn't specific, the FTC looks at several factors to determine what level of proof is necessary, including what experts in the field think is needed to support the claim. In most cases, these ads need to be supported by tests, studies or other scientific evidence that has been evaluated by people qualified to review it using acceptable, accurate methods.

Advertisements cannot be unfair – For example, don’t knock what your competitors have to offer by using false or misleading information.

State and Local Truth-in-Advertising Laws

Next, confirm that you are not violating state and local truth-in-advertising laws. For example, some states expect you to have enough stock in inventory to meet demand for advertised products. If you don’t, then your ad needs to state that quantities are limited. USA.gov provides links to state and local consumer agencies responsible for enforcing truth-in-advertising and related consumer protection laws.

In a Nutshell

The next time you brainstorm your advertising claims, have the following checklist in mind:

Be accurate – Deceiving or misleading your consumers is illegal. And it’s not just your words; your product imagery should be accurate, too.
Get permission for endorsements, quotes or whenever you choose to mention a person or organization’s name.
Be fair to your competitors and accurate in your claims about what your product does and what theirs does not.
Watch your pricing claims – Many retailers make cost comparisons to entice consumers. Whatever you do, don’t make untruthful claims or comparisons on this one.
Claims likely to raise a red flag at the FTC – The FTC pays closest attention to advertising claims about health or safety, such as: “ABC will reduce the risk of skin cancer” and ads that make claims consumers would have trouble evaluating themselves, such as: “ABC refrigerators will reduce your energy costs by 25 percent.”

More Information

Truth-in-advertising doesn’t just affect your ad claims. Read more about marketing to children, green marketing, product labeling, “Made in the USA” claims and more in SBA’s Small Business Guide to Marketing and Advertising Law.
Advertising FAQ's: A Guide for Small Business (FTC)
“Great Service, Will Use Again”: How to Use Customer Testimonials to Market Your Business

Don’t Get Scammed Just Because You Want to Get Into SAM

Stephen Morris — Wed, 05 Dec 2012 20:18:26 +0000

You can count on it, just like clockwork: when a new federal program or interface or system is put in place, someone is going to try to squeeze some extra cash out of people who want to use it.

Here at SBA HQ, we’ve heard recently of attempts to do just that to people who want to register their small businesses in the new SAM database. SAM stands for System for Award Management.

SAM, which is being developed in phases – the first was released in July 2012 – is changing the way you do business by consolidating nine separate and distinct federal systems into one, thus allowing companies to use one login to access all the capabilities previously found in the nine separate legacy systems. Among the systems it’s replacing is the Central Contractor Registration, or CCR, a database where companies that want to do business with the government register.

It wasn’t long before the questions started bubbling up. One of the first was “Does it really cost $599.00 to register for SAM?”

SBA field offices and resource partners – such as the Procurement Assistance Center at the Mohawk Valley Small Business Development Center – started hearing several reports over the past few months that their small business clients were being contacted by firms offering to get them set up in SAM for a fee of $500 to $599.

As Roxanne K. Mutchler, the Government Contracting Coordinator at the Mohawk Valley SBDC pointed out recently to some of these clients: “Please make your current and future clients aware that these are private, for-profit businesses that will charge the client for registering their business. There is no cost to register at the new SAM website! We can assist them with the process for FREE!”

The real SAM website is: https://www.sam.gov/. Always look for the “.gov” after “SAM” in the URL address. Private, for-profit businesses will not have the “.gov” suffix. Even if a site looks a lot like a federal government website, don’t be fooled. Without the .gov ending, it isn’t.

A couple of good places for helpful info about getting into the SAM database are the User’s Guide issued by the General Services Administration, and the SAM FAQ. Both of these are in a PDF format, so you can download them easily to your own desktop. You can access many more online aids at the SAM website by clicking on the “Help” button and “User Guides.”

One caution: Some people have been unable to reach the new SAM site. Mohawk Valley’s Mutchler recommends changing one computer setting: In your Internet Explorer browser, go to “Tools” then “Internet Options” then “Advanced” and put a check mark at “Use TLS 1.0” (it’s down near the bottom).

Another caution: Don’t get sucked into paying for something that’s free, and for which you can get free help from a Small Business Development Center in your area. Find one here. All you need is a zip code.

Are Your Employees Working Overtime During the Holidays? Understand Overtime Wage Law

Caron_Beesley — Wed, 05 Dec 2012 12:38:44 +0000

The holidays tend to complicate small business payrolls, what with employees looking to earn a little extra cash and owners needing coverage for extended hours or shifts. But not all employers must pay overtime and not all employees are eligible. Confused? Here’s what you need to know about your obligations as a business owner when it comes to overtime pay.

When is Overtime Due?

Under the Fair Labor Standards Act (FLSA), both full- and part-time employees have equal rights concerning overtime pay (enforced by the Department of Labor). Some states also have overtime laws. The FLSA requires that covered, nonexempt employees are paid overtime pay at not less than one and one-half times their regular pay rate (hence “time and a half’) after 40 hours of work, per workweek.

It’s important to note that these hours must be within the workweek, so for example, employees who work a 12-hour day on Monday but no other days that week are not entitled to overtime because they didn’t work over 40 hours within that one week – no matter how long their first shift was.

Do all Employers Have to Pay Overtime?

Although most employers are required to pay overtime, there are many exceptions.

To determine if you need to pay overtime, you need to understand what the term “covered” means. A “covered” employee is “covered” by the FLSA and therefore eligible for overtime pay. But not all employees are “covered.” Here’s what you need to know to determine whether your employees are covered:

If your business does more than $500,000 in sales each year and you have at least two employees, then your employees are generally “covered” and eligible for overtime.
However, even if you don’t meet these criteria, you must pay overtime if your employees work in what the Department of Labor calls “interstate commerce.” This is a broad category and includes anyone who is involved in producing goods that will be sent out of state. It also covers an employee who makes phone calls or sends letters out of state, employees who travel for business and even employees who do janitorial work in a building where goods are produced for shipment out of state!

If none of these criteria apply to you, you might still be covered by your state’s overtime law.

Read more from the Department of Labor for official explanation of who is covered and who is not.

Which Employees are Entitled to Overtime?

If your business is covered by the FLSA or state overtime laws, most but not all your employees may be entitled to overtime. We’ve just discussed what a “covered” employee is, but it’s also important to understand what an “exempt” or “nonexempt” employee is and how this factors into overtime pay.

While “nonexempt” employees are eligible for overtime, “exempt” employees are not. But what is an exempt employee? The FLSA has a fairly broad list of job types that are exempt, such as newspaper deliverers or seamen, among others. For the complete list, check out this overview of employees who are exempt from overtime rules from the Department of Labor.

There is one category of exempt workers than can confuse employers – administrative, executive and professional employees. Sounds like a broad definition! But here’s the deal: employers aren’t required to pay overtime to these employees if they are paid on a salary basis and earn at least $455 a week, every week and perform certain job duties – generally managerial or supervisory. The Department of Labor offers more information about the basic requirements that determine whether an administrative, executive or professional employee is exempt from overtime.

Do I Have to Pay Overtime to Part-Time Employees

Yes. Part-time and full-time employees have equal rights when it comes to overtime, minimum wage and other requirements of the Fair Labor Standards Act.

Is Extra Pay Required for Weekend or Night Work?

Extra pay for working weekends or nights is a matter of agreement between the employer and the employee. The FLSA does not require extra pay for weekend or night work. However, if covered and nonexempt workers do work more than 40 hours in a work week, they are due time-and-a-half in overtime pay.

When is Double Time Due?

The Fair Labor Standards Act has no requirement for double-time pay. This is a matter of agreement between you and your employees.

Got Questions?

Still have questions about overtime law? You can contact the Department of Labor directly via phone, mail or email, or post your question on the SBA.gov Community Discussion Boards.

More Information

More Than Just a Seller – How to Start a Business on an Online Marketplace

Caron_Beesley — Wed, 28 Nov 2012 12:24:16 +0000

Starting a small business enterprise on eBay, Amazon Webstore, Etsy or even Craig’s List has become an increasingly popular option for entrepreneurs looking to get instant visibility and access to a massive online marketplace.

But how do you go about becoming a serious eBay seller and forming a business around your enterprise? At what point does your enterprise become more than just a hobby? Will you need to get a business license, incorporate, and pay sales tax?

Here are some answers to these and other common questions about moving beyond just selling online to becoming a serious online business owner.

Do I Need to Form a Business to Sell on eBay, Amazon, etc.?

Actually, no – as long as you aren’t making a profit, you can buy and sell on these sites without formalizing a business entity. To the IRS, you are a hobbyist.

It might even be a good idea to test the waters this way to give you an idea of what you’re getting into before diving in head-first. But remember, once you start making a profit, the IRS will consider you a for-profit business and you’ll need to report any income you earn. Since neither eBay nor PayPal reports transactions to the IRS, it’s up to you to report your profits.

For more information check out IRS guidance on when your online marketplace activities are a considered a hobby and at what point they become a business.

What Do I Have to Do to Make It Formal?

If you are serious about selling on eBay or Amazon, then you need to behave like a business: obtain a license and/or a permit, register with the local authorities, obtain a sales tax permit, and determine how you structure your business.

How? Follow SBA’s 10 Steps to Starting a Business for some great tips. Some things won’t apply to you. You may not have employees, for example, so skip the part about being an employer. Here are the steps to pay attention to:

- Write a business plan – A business model that relies 100 percent on another company for its revenues is risky. So plan your entry into the online marketplace carefully. When writing a plan for starting an eBay or Amazon business, think about what you’re selling. How will you position yourself? Will you concentrate on specific brands at a discount? How will you differentiate yourself from the competition? What kinds of margins are you shooting for and how will you achieve that with the inventory you have? Try to predict a profitability point where you’ll be able to extend your online marketplace business with your own online business.

- Finance your business – You may not need a business loan, but it’s useful to plan your options. Could you fund initial inventory with savings or credit? Could you borrow from friends or family? Would a microloan be a good fit?

- Register your business – Don’t overlook it; it’s not only the law, but it also affords several benefits. For instance, it will enable you to open a business bank account, write off business expenses, and help you leverage competitive pricing agreements with wholesalers. Registration involve several steps, not all of them necessary, but important to be aware of:

Register a “Doing Business As” Name - If you are operating an online store under a name other than your own, you may need to register a “Doing Business As” name, also known as a DBA, trade name or assumed name. You can do this directly with your local government. If you’re not sure whether you need to register a DBA, check with your local government office.
Choose a Business Structure – Many small businesses operate as sole proprietorships, meaning there is no legal difference between your business and you, as an individual. You’ll also file your business taxes on your personal income tax. No formal action is needed to form a sole proprietorship. Often, online marketplace business owners file for incorporation or become an LLC to help separate their business and personal finances and gain legal protection as a business entity. Consult a lawyer or legal expert to help you determine the pros and cons of incorporation and how to register.
Obtain Licenses and Permits – These are a necessary part of doing business and are required by your state and local government. Even online and home-based businesses cannot operate legally without them. Use SBA’s License and Permit tool to find out what’s required.
Get a Sales Tax ID or Permit – You’ll need a sales tax ID in order to collect and pay sales tax. The law about collecting sales tax online can be confusing and is explained here. Many online marketplaces offer tools to help you calculate sales tax, but as of now, it’s your responsibility to pay it. In order to collect sales tax, your state may require you to obtain a sales tax permit. You can find SBA’s links to state tax resources here.
Get a Federal Tax ID – If you have employees or are structured as a partnership, corporation or other types of organization, you’ll need to get an Employer Identification Number (EIN) from the IRS. It’s the business equivalent of a social security number. You can apply for an EIN from the IRS online.

While these are some of the main legal steps you’ll need to follow, there are other important considerations, including:

Pay estimated taxes
Maintain good records so you can maximize your tax deductions
Separate your personal and business finances – Open a business bank account (this will help you facilitate PayPal transactions) and apply for a business credit card
Engage the experts – Consult a tax specialist or accountant. They don’t have to be on retainer, but can provide great advice as you get started in business. Local resources including Small Business Development Centers, Women’s Business Centers, and SCORE offer free training and counseling to small business owners.

If Your Employees Drive for Your Business, be Aware of Rules about Cell Phone Use

Caron_Beesley — Wed, 14 Nov 2012 12:20:26 +0000

Do your employees drive commercial motor vehicles (CMVs) as part of your business operations? If they do, it’s important that you and they know about stringent regulations that went into effect nationwide in early 2012, restricting the use of handheld cellular phones while driving.

The U.S. Department of Transportation ruling restricts CMV drivers from the following:

Making a call while holding a cell phone
Dialing a cell phone using more than one button

It would have banned reaching for a cell phone in an unsafe manner, but after pushback from a variety of industry associations, the DOT amended the rule to permit drivers to reach for a compliant mobile telephone (i.e., a hands-free phone), provided the device is within the driver's reach while he or she is in the normal seated position, with the seat belt fastened.

The rule also bans employers from requiring or allowing a CMV driver to use a handheld cell phone while operating a vehicle. CMV drivers must also be prepared and equipped with hands-free cell phone options before they drive a vehicle. The fine is steep – up to $2,750 for drivers and up to $11,000 for employers.

The ruling is based on research conducted by the DOT that put the odds of being involved in a safety-critical event are three times greater when the driver is reaching for an object than when the driver is not reaching for an object. If the driver is dialing a cell phone, the odds of being involved in a safety-critical event rise to six times greater than when the driver is not dialing a cell phone.

Other potential liabilities employers may face

Clearly, employers who have commercial motor vehicle drivers in their workforce need to be more aware than ever of potential liabilities they face for the actions of their employees behind the wheel. To boost awareness, the National Federation of Independent Business (NFIB) has put together a useful list of rules employers need to remember if they have employees who drive any vehicle for work:

Business owners are generally responsible for injuries to third parties that are caused by employees acting within the scope of their employment – whether the employee is driving a company-owned vehicle or a personal vehicle (i.e. if an employer authorized the employee to do it or it was deemed necessary in order for the employee to carry out the job).
Employers may be held liable for allowing unlicensed, incompetent or unqualified employees to drive a company car. Incompetency can include driving under the influence of alcohol or reckless driving.

The NFIB goes on to suggest that employers should be aware of federal laws that govern CMV safety and should encourage safe driving habits, including:

Ban all employees from texting or talking on the phone while driving for work.
Encourage employees to pull over before using a cell phone in a car.
Limit or altogether end any work-related driving by employees with poor driving records.
Update your company’s policy and any employee handbooks to reflect the most recent regulations in your area regarding distracted driving.

Related Resources

U.S. Department of Transportation, Federal Motor Carrier Safety Administration Rules and Regulations

How Sweeping Changes to the U.S. Patent System Will Impact Your Small Business

Caron_Beesley — Wed, 07 Nov 2012 12:48:41 +0000

If you hold patents, have patents pending or are thinking of filing a patent, then it’s time for you to get to know the details of the most significant reform of the U.S. patent system in more than a century.

On September 16, 2012, the Leahy-Smith America Invents Act (AIA) of 2011 was signed into law, signaling an historic overhaul of the patent system. According to the U.S. Patent and Trademark Office (USPTO), the provisions of the AIA will “spur innovation and economic growth by streamlining the patent application process and introducing new procedures to ensure patent quality.”

So what does this mean for small business owners to whom patents are valuable assets? Here’s what you need to know:

You and Your Competitors Can Now Give Input on Pending Patent Applications

For the first time in the history of U.S. patent law, third parties can now come forward and challenge patent applications. For example, if you know of someone who is trying to file a patent on a product that would interfere with your business, you now have an opportunity to provide information to the patent examiner to help them determine whether the innovation in the application is patentable.

“By introducing third party input into the examination process for the first time since the inception of our nation’s intellectual property system, we’re able to expand the scope of access to prior art in key areas like software patents,” said Undersecretary of Commerce for Intellectual Property and Director of the USPTO David Kappos in this press release.

To support this change, in October 2012 the USPTO launched a crowdsourcing tool – AskPatents – to solicit input on patent applications. If you are concerned about a particular patent, you can post questions and challenge patent applications online. USPTO patent examiners will take these comments into consideration when reviewing applications. Inventors can also check the site to see if their idea is patentable.

Resolving Patent Disputes Just Got a Whole Lot Easier

In the past, if you were to contest a patent or a competitor filed a patent dispute against your business, you could expect the process to involve costly legal fees and drawn-out litigation in district courts. Under the provisions of the AIA, however, the USPTO offers a “timely, cost-effective alternative to district court litigation for challenging the patentability of a claimed invention in an issued patent.” Under this provision, the USPTO handles post-grant reviews (for a fee), resolving disputes more quickly and saving small business owners the hassles of dragging a patent dispute through the courts.

In a nutshell, these provisions “…establish a more efficient and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs,” said USPTO’s David Kappos.

More to Come

Look for additional provisions to come from the AIA in March 2013, when the U.S. patent system moves from a first-to-invent to a first-inventor-to-file system. This will bring the U.S. in line with other nations and make it more important than ever for small businesses to consider filing a provisional patent application and engage a patent lawyer as soon as possible.

Read more about the new and upcoming changes on the USPTO website: Historic Patent Reform Implemented by U.S. Patent and Trademark Office.

Related Resources

New SBA.gov Guide Makes It Easier To Understand Laws and Regulations That Apply To Your Small Business

Caron_Beesley — Wed, 31 Oct 2012 11:46:06 +0000

It doesn’t matter whether you’re a freelancer, an online business or operate a growing bricks and mortar company with multiple employees. In all cases, two things are certain: 1) You must pay business taxes (of course), and 2) you need to know a little bit about business law.

The problem is there are so many laws and regulations that impact small businesses, from ensuring the emails you send to your customers fall within marketing and advertising laws to trademarking your name to making sure you comply with labor laws.

So how do you find out which laws affect you and what you need to do to comply? Strapped for time and looking for quick answers, many of us simply turn to Google. But how do you know the information you are getting is up-to-date, accurate and specific to your situation?

These are all issues for small business owners and the U.S. Small Business Administration has made it a priority to help small business owners get through them. Besides offering a range of tools to help small business owners navigate business laws (such as this online tool that lets you find which licenses and permits your business needs), the SBA has recently re-launched many of its small business guides to provide quick access to essential information.

New Business Law and Regulations Guides from SBA

One area that has undergone a re-boot is the Business Law and Regulations section of the website.

The guide is particularly useful because it pulls together information from a variety of different government websites such as the Department of Labor, Federal Trade Commission, Environmental Protection Agency, Securities and Exchange Commission and others that may apply specifically to small businesses.

This saves you a lot of legwork and ensures the information is accurate and reliable!

Browse the new guides by topics such as employment and labor law (includes useful links to help you determine which labor laws apply to your business), workplace safety and health law, intellectual property law (covers everything you need to know about how to protect your business with trademarks, copyright and patents), environmental law, finance law (something to note if you engage in competitive bidding practices).

Hiring foreign workers and determining their eligibility to work gets a step-by-step overview of what you need to do to ensure you comply with the law. If you gather and retain customer and employee data, take a look at the consumer privacy law guide.

Manufacturers and marketers should take a look at the advertising and marketing law guide, which explains product labeling requirements and offers information for marketers on laws that impact email marketing, such as the CAN SPAM Act, and telemarketing laws such as the Do-Not-Call Registry.

Other Useful Resources

Give these guides a bookmark, and if you have more questions about business laws and regulations, you can post them on the SBA.gov Community Discussion Boards or drop into your local Small Business Development Center or other small business counseling resource. Don’t forget to add the Business Law Advisor blog to your RSS feeds too.

Related Blogs

Planning and Managing a Business Retirement Plan – Government eTools That Can Help

Caron_Beesley — Wed, 17 Oct 2012 11:40:08 +0000

Are you self-employed and trying to understand your retirement savings plan options? Are you perhaps an employer who wants to offer your employees a retirement savings plan program?

There are many ways to fund a retirement plan. In some cases, employers contribute. In others, employees or both (employer and employee) contribute. If you have no employees, your options are different again. The program you choose may dictate which options are available.

Even after you’ve chosen a plan, it will take more work and diligence to maintain it. Plan requirements change and it’s your responsibility to know when they do. That’s why reviewing your retirement plan each year helps ensure it’s compliant with current tax laws. Like routine physicals, retirement plan check-ups can help you prevent problems or detect them early.

The good news for employers and the self-employed is that the government offers very useful online tools to help you choose a retirement savings plan, maintain it and even make corrections to your plan to protect participants’ benefits and keep plans in compliance with the law.

Determine the Right Retirement Savings Plan for Your Business

If you are interested in offering your employees an employer-sponsored plan, then you need to understand your options. The Department of Labor’s online Small Business Retirement Savings Advisor is a useful first stop to finding the right plan for you.

The Advisor is part of the DOL’s wider elaws Advisors program that gives both employers and employees easy-to-understand information about a number of federal employment laws.

Simply answer a series of Yes/No questions and the Advisor will suggest retirement plans appropriate to the number of employees you have, whether you want to have a plan funded by employer, employees or both. It also offers links to the required IRS reporting forms for each plan.

Navigate Your Retirement Plan and Stay Compliant with IRS Laws

Another useful online resource for employers is the IRS Retirement Plans Navigator. This glossy tool not only helps you understand more about plan options, it also helps you manage a well-run plan – both for the benefit of your employees and in line with current federal tax law.

Giving your business retirement plan a check-up, whether it’s a 401(k), IRA, SEP, or 403(k), can also help you save time, money and paperwork, and increase tax return accuracy. Some of the common mistakes the IRS looks out for in retirement plan examinations include:

Not covering the proper employees
Not giving employees required information
Not depositing employee deferrals in a timely fashion
Not following the terms of the plan document
Not limiting employee deferrals and employer contributions to the proper maximum limits

These errors can have an impact on the tax benefits accrued from operating a business retirement plan and expose you to audits and penalties, so it's a good idea to continuously monitor and review your plan. The IRS Retirement Plans Navigator is an essential tool for keeping your plan compliant and includes useful plan check-ups that can help you prevent problems or detect them early. You can even make appropriate plan changes without having to notify the IRS.

Related Resources

Which Employment Laws Apply to Your Business? There’s an E-Tool for That!

Caron_Beesley — Wed, 10 Oct 2012 11:22:40 +0000

Hiring your first employee or building your business team opens whole new areas for compliance in employment and labor law. Laws are broad and far reaching and cover a broad range: preventing discrimination and harassment in the workplace, workplace poster requirements, wage and hour laws, workers compensation regulations, and more.

For small business owners short on time and resources, getting their arms around these laws can be tricky. The good news is that there are many online tools from both the SBA and the U.S. Department of Labor (DOL) to help you understand which laws apply to you and what you need to do to comply.

For example, SBA’s 10 Steps to Hiring your First Employee explains the tax, legal and regulatory steps you need to follow when you hire your first and even subsequent employees. SBA’s Business Law Advisor blog is also a useful reference point for all manner of small business law related topics.

Interact with an Online Employment Law Advisor

If you need to dig deeper into specific employment and labor laws, be sure to bookmark DOL’s elaws Advisors. These interactive e-tools give you easy-to-understand information about a number of federal employment laws such as wage laws, hiring foreign workers, workplace safety and health, as well as laws that apply to specific groups such as young employees, veterans and businesses that sell to the federal government.

Each Advisor simulates the interaction you might have with an employment law expert (based on typical questions you and your employees might have). Your employees can also refer to the tool for information about their rights.

Find Out Which Employment Laws Apply to Your Business

Which aspects of employment law apply to you? Do you know which workplace posters you must display or which health and safety regulations you need to comply with? Avoid navigating countless employment law guides by zoning in on exactly what applies to your business with DOL’s FirstStep Employment Law Advisor. The Advisor will ask you a series of questions about your business and then provide simple information about employment laws that impact you. You can print out the results or refer back to the elaws Advisors tools for a deeper dive.

Additional Resources

Follow the Department of Labor on Twitter and Facebook
SBA’s Business Law and Regulations Guide – Going beyond just employment law, this guide covers need-to-know information about environmental laws, privacy laws, online and marketing laws, and more.
Find Employment Law Information by Topic – Get shortcut access to the commonly asked search terms and topics from the Department of Labor.
State Labor Laws – Each state has its own laws you must also comply with. Find a link to your State Labor Office.

Related Blogs

10 Ways Your Small Business May Be Breaking Employment Laws

Laid Off and Want to Start a Business? Self-Employment Assistance Programs May Help

Caron_Beesley — Wed, 03 Oct 2012 11:40:02 +0000

Despite signs of economic recovery, countless Americans are still dealing with layoffs and unemployment. As often happens when the economy slows, many Americans respond by using unemployment as a springboard to business ownership.

But unemployed workers face a fundamental challenge when it comes to starting a business – how do you start a business if you risk losing your unemployment benefits simply because you aren’t actively looking for a career-job?

In an effort to address this issue, the Middle Class Tax Relief and Job Act signed into law by the President in February 2012, made available $35 million to encourage states to enhance and promote Self-Employment Assistance (SEA) programs. SEA entitles unemployed individuals to claim jobless benefits while getting access to small business development assistance.

What is Self-Employment Assistance?

According to The White House Blog (May 24, 2012) the idea of SEA is simple:

“Some laid-off workers have the skills, experience, and entrepreneurial ambition to launch a successful business, but they are locked into an inflexible system. If they stop looking for traditional work full-time, they will lose their unemployment benefits. Instead, SEA allows an entrepreneur with a viable business plan to receive those same unemployment benefits, as long as they are working full-time to get a new company off the ground.”

SEA isn’t a new concept. Five states – Delaware, Maine, New Jersey, New York, and Oregon – already have SEA programs in place.

How Self-Employment Assistance Works

Under this program unemployed entrepreneurs get financial aid equal to their Unemployment Insurance benefits for a maximum of 26 weeks, while they receive entrepreneurial training and other resources to help them launch a business. SEA benefits (taken from Oregon’s SEA program as an example), include:

Weekly unemployment benefits while engaging in self-employment activities
Waiver of the actively seeking work requirement while participating in the program
Counseling and technical assistance on developing a market feasibility study and a business plan

The Department of Labor is driving efforts to help states become aware of the funding available to help them implement SEA programs, and has issued guidelines on how states can deploy this provision. Through its local offices, the SBA as well as SCORE and Small Business Development Centers across the country are also getting involved to connect entrepreneurs with the business development and mentoring services that they provide.

Does Self-Employment Assistance Help Spur Business Creation?

According to the White House, this model works. In multiple studies, SEA has been shown to increase the success of entrepreneurs and their earnings from self-employment. The White House cites several examples of SEA at work, including:

“…Adam Lowry and Michael Richardson, two software developers in Portland, Oregon whose employer went out of business in 2009. Self-employment assistance allowed them to pursue their entrepreneurial ambitions and launch Urban Airship, an innovative mobile advertising company that now employs 75 workers, and promises to keep on growing.”

Who is Eligible for SEA support?

If your state has an existing SEA program, you have to meet several requirements to qualify for the program, including but not limited to the following:

You must be eligible for and be receiving unemployment benefits.
You are unlikely to return to your previous employment.
You must have a viable business idea, be willing to work full time in developing your business, and have the finances you need to start and sustain your business until it becomes self-supporting.

Entrepreneurs can take advantage of business development via seminars at community colleges, educational institutions or individual counseling sessions at a Small Business Development Center. You may also be required to complete a market feasibility study and write a business plan.

How to Apply for SEA

If you live in a state with an existing SEA program, check your state’s website for more specifics on how to apply. All U.S. states have until June 30, 2013, to apply for grant funds to implement SEA programs. Contact your local SBA office or state employment or labor office for more information about what your state is doing to establish a program.

Related Resources

‘Self-Employment Assistance’: How We’re Helping Americans Help Themselves (By U.S. Senator, Ron Wyden, writing in Time Magazine)
10 Steps to Starting a Business
Laid Off and Looking to Start Your Own Business? Understand Your Unemployment Benefits First

6 Things You Need to Know About Starting a Business as a Minor

Caron_Beesley — Wed, 26 Sep 2012 11:07:48 +0000

Are you, or do you know someone, under the age of 18 who is interested in starting a business? Whether you are building the latest web app or buying and selling on eBay, young entrepreneurs face the same opportunities and challenges as their adult counterparts.

But as you might expect, there are also some tax and legal considerations to bear in mind.

Here are answers to some FAQs about starting a business as a minor (the definition of which varies by state).

1. Can a Minor Form an LLC or Corporation?

Forming an corporation or LLC is something many businesses consider as a way to separate their personal assets from their business assets. Can a minor incorporate a business? Corporate laws vary by state, but all states require the principals of a company that incorporates to be 18 years or older.

One option is to have a parent to act as an authorized signer – but remember, the parent becomes liable if their dependent is negligent in performing the duties of the business. Another option, permissible in some states, is to have the minor become a shareholder in the business or serve on an advisory board. Shareholders can be of any age and in the case of minors, their share may be held in trust.

The bottom line: Be sure to consult a local attorney about incorporating a business as a minor.

2. Can a Minor Sign a Contract?

Contracts are an essential fact of life as a business owner, whether you are signing an agreement with customers, partners or suppliers. A minor can sign a contract, but in most states they are not considered legally competent to enter into a binding agreement, meaning they can disaffirm the contract – rendering it void.

3. Can a Minor Get a Business Loan?

The “disaffirm” condition mentioned above keeps many lenders from entering into a loan agreement with a minor. Likewise, insufficient or poor credit history may also make it difficult to find traditional financing.

Credit cards are also limited to individuals who are 18 or older, although minors can apply for a credit card under their parent or guardian’s account. Again, the responsible adult party is liable.

There are other options for financing a start-up that don’t involve formal business loans; borrowing money from family or friends, for example, is a common option for minors. However, it’s important to structure these agreements to prevent conflict. This blog explains some key factors to consider: 6 Tips for Borrowing Startup Funds from Friends or Family.

4. What About Paying Taxes as a Young Entrepreneur?

If you have started a business and made a profit, then you may need to pay income tax and self-employment tax to the Internal Revenue Service (IRS), although some teen businesses such as lawn mowing and babysitting are exempt from self-employment taxes. If you have earned income from your business, you should file you own tax return instead of adding your income to your parent’s return.

The IRS offers tax guidance for young entrepreneurs, including resources to help you determine what taxes you need to pay. If you are selling products that qualify for sales tax, you should also consult your state revenue office to understand your obligations and obtain a sales tax permit.

It’s also extremely important to maintain good records of income and outgoings, as well as receipts. This will help you accurately track your finances and claim the right tax deductions against your expenses.

Check out SBA’s Guide to Small Business Taxes for information on all aspects of managing and paying your taxes.

5. Can a Minor Claim Copyright?

According to Copyright.gov, "minors may claim copyright, and the Copyright Office issues registrations to minors, but state laws may regulate the business dealings involving copyrights owned by minors." Copyright.gov advises that you consult a local attorney for specific guidance.

6. Can a Minor Register a Trademark?

It depends on your state’s law. According to the U.S. Patent and Trademark Office, if you can validly enter into binding legal obligations as a minor in your state, and may sue or be sued, then the application may be filed in your name as a minor. Otherwise, applications must be filed in the name of a parent or legal guardian, clearly stating his or her status as parent or legal guardian.

Where to Find More Information

For more information about essential steps involved in starting a business, such as registering a business name and getting the right licenses or permits (even home-based businesses require permits), read these 10 Steps to Starting a Business. In addition, check out SBA’s Young Entrepreneur Guide for links, online training and other useful resources.

There are also organizations in the community dedicated to helping small businesses and entrepreneurs start up and succeed, such as local Small Business Development Centers and other community resources.

Related Resources

How to Handle When Employees Are Called to Active Military Duty

Caron_Beesley — Wed, 19 Sep 2012 13:05:21 +0000

Do you have a military veteran, reservist or National Guard service member on your books? If so, it’s a good idea to be aware of what the law requires when it comes to handling employees who may be called to active duty – whether to a war or disaster zone.

Here’s what you need to know:

Know How the Law Protects Employee Rights

The Uniformed Services Employment and Reemployment Rights Act (USERRA) protects the reemployment rights of service members when they return from active duty and prohibits any form of discrimination by employers based on military service or obligation. It also protects employee’ benefit rights when they are required to perform military service.

Understand Your Obligations as an Employer

If you or your human resources team don’t know the requirements of USERRA, you should familiarize yourself with its key details. The U.S. Department of Labor (DOL) Veterans’ Employment and Training Service (VETS) website includes a variety of tools, FAQs, posters and fact sheets for both employers and employees.

Another useful resource is the USERRA Advisor, which is part of a useful collection of “elaws Advisors” from the DOL that provide advice on all aspects of employment law). The advisor lets you easily navigate by Employer Issues or Employee Issues.

OK, so here’s a breakdown of your key obligations as an employer to active duty military service members:

You must provide employees information about their rights under USERRA. How you do this is up to you, however the DOL website does provide posters and fact sheets to help you share information easily.
You must provide reemployment to uniformed employees for up to five years after they are called for active duty.
You must continue to provide serving employees and their dependents with health coverage benefits for up to 24 months while they are serving. If the employee chooses not to continue coverage, USERRA gives them the right to be reinstated in your plan when they are reemployed.
Returning service members must be reemployed in the job that they would have attained had they not been absent, with the same seniority, status, benefits and pay.
Service members who are convalescing from service or training injuries have two years from the date their service was complete to return to employment.

While it’s important to be aware of your obligations, employees also have theirs and that includes providing you with adequate verbal and written notice of their impending active duty – unless this is “…impossible, unreasonable or precluded by military necessity.” According to the USERRA, adequate notice should be given “as far in advance as is reasonable under the circumstances.”

Read more here or contact your local VETS office if you have any questions about your obligations.

For more information about small business laws and regulations, check out this SBA guide: Understand Business Law and Regulations.

Related Blogs

Selling Your Business? You May Need to Negotiate a Non-Compete Agreement

Caron_Beesley — Wed, 12 Sep 2012 08:15:09 +0000

Non-compete agreements are commonplace in the workplace, particularly in specialist industries. However, their enforceability varies from state-to-state. California, for example, prohibits them entirely.

But non-competes can also come into play when you sell your business, particularly if you have plans to stay in the same industry. These agreements protect the new business owner against you opening a similar business for a certain amount of time, usually in the same geographic area.

So what’s a serial entrepreneur to do? If you have a passion for your business and plan to stay in the same industry but your buyer insists on a non-compete, what are your options?

Earlier this year, Entrepreneur magazine offered the following tips to business owners who want to move laterally within their own industry, without being constrained or even sued because of a rigid non-compete agreement.

As with the sale of any business, it comes down to negotiation and being clear about what you want while respecting the needs of your buyer:

1. Start by Consulting an Attorney

As mentioned above, each state has its own laws when it comes to non-competes. Even where they are permitted, enforceability of the terms of a non-compete by courts can vary. So, talk to a lawyer to understand how your state’s courts have ruled in past non-compete cases. A lawyer can also help you understand how your industry or situation may impact any agreement, as well as negotiations.

2. Be Specific About What You Want

As with any negotiation, find out what the other party wants so you know what you are dealing with. Respect their position (this can help lead to synergies), but use the negotiation process to outline the exceptions that you have to the terms they propose. For example, try to limit the non-compete to very specific types of business, work or industries that will not limit your future business plans. Try to come to an agreement and form contractual language around the very specific things that you should not be doing in any new venture. Also consider limiting the time period (usually to no more than five years) and geography as much as you can so your options are wider.

Keeping the language specific will help you understand your parameters, as well as protect the buyer, because courts tend to view broad contractual language as invalid.

3. Consider a Non-Solicitation Agreement Instead

Depending on state law and how non-competes fare in your state, it might be more beneficial to both parties to put in place a non-solicitation agreement. This prevents you from hiring former employees or approaching the current customers of your business once you sell. Alternatively, you might want to limit the non-solicitation to specific products. For example, if you sold IT security software to an enterprise customer, you would be restricted from going back in and selling that product to that customer. However, there would be nothing to stop you from branching out and selling IT storage solutions to that customer instead.

4. Explore an Earn-Out

Instead of signing a non-compete, consider an earn-out. This is a provision that states that the seller will receive additional future compensation from the buyer based on the business achieving certain financial goals. This gives the buyer an insurance policy that the seller won’t compete directly against them or undercut the business they’ve left behind.

The Bottom Line

Start with your lawyer. All the options described above should only be pursued based on a solid understanding of state law, court rulings and the risks you are willing to take as a business owner.

Related SBA Resources

Getting Out – Tips for being smart about how you exit your business.

Related Blogs

Is your Business Idea Patentable? A Guide to What Entrepreneurs Can Patent

Caron_Beesley — Wed, 05 Sep 2012 11:39:48 +0000

Got a great idea for a business? Wondering if you can patent it before someone else comes up with something similar?

Technically, you can’t patent an idea for a business – for example, if you have a unique idea for an online store or a new chain of themed restaurants. However, you may be able to protect and patent a method of doing business – if it meets very specific criteria and requirements.

Here’s what you need to know about what patent protection can do for your business, and about other intellectual property issues that should also come into play.

What You Can Patent

There are three types of patents you can apply for based on the nature of your invention: utility patents, design patents, or plant (of the green variety) patents.

If you have a business idea that is somewhat abstract, then you may be eligible to apply for a utility patent. A utility patent may be granted to anyone who invents or discovers any new and useful:

Process
Machine
Article of manufacture
Composition of matter
Any new and useful improvement of these.

That’s a pretty broad bucket of innovation. But the U.S Patent and Trademark Office (USPTO) is also very specific about the requirements for these patents. Your idea or invention must be:

Novel
Non-obvious – meaning anyone else with the same skills in this area could not have come up with the same idea
Clearly explained and documented so that someone equally skilled could make and use the invention

The Patenting Process

If you are confident your idea falls within the definitions and requirements above, check out the next steps, which will include checking for previously filed patents, and are described here by the USPTO. If you’re not clear whether your idea falls within these boundaries, read USPTO’s “How do I Know whether my Invention is Patentable?”.

Either way, it’s worth taking time to consult with a patent lawyer. If you choose to proceed, be prepared. This can take time and using the services of a patent attorney to help you meet the precise documentation and filing requirements is going to cost you. If you are seeking outside investment and have established that your business idea or invention is patentable, it may be worth rolling the cost of getting legal help into your business plan and seeing if your investors will cover the costs.

Other Ways of Protecting Your Business Idea

Even if your idea isn’t patentable, there are still important assets of your business you can protect. For example, web content can be copyrighted. You can also trademark, and should do so if you want to claim and protect your product or business name. Here’s a quick overview of these two forms of protection and how to register for them:

Copyright – If your business involves creating original written works, music, or videos, these can be covered by copyright laws. Copyright can be claimed through the U.S. Copyright Office for a small fee. Note that copyright does not protect ideas, concepts, systems, or methods of doing something. While you can express your ideas in writing or drawings and claim copyright in your description, copyright will not protect the idea itself.

Trademark – A trademark is different from a patent because it only protects words, names, symbols, sounds, or colors that distinguish goods and services. Trademarks, unlike patents, can be renewed forever as long as they are being used in commerce. Trademark infringement can carry a high cost for your business. Before you pick a name, use the U.S. Patent and Trademark Office’s trademark search tool to see if a similar name, or variations of it, is trademarked. If your chosen name is unclaimed you can then register for the trademark online (for a fee).

Related Resources

Honoring your Shipping Claims – What the “30-Day Rule” Means to your Online Business

Caron_Beesley — Wed, 29 Aug 2012 10:49:38 +0000

Do you sell products online or over the phone? Did you know the law requires you to honor any claims you make about your shipping policies and proactively notify customers about delays?

Enforced by the Federal Trade Commission (FTC), the Mail or Telephone Order Merchandise Rule (also known as the “30-Day Rule” by direct marketers) was prompted by the massive increase in online shopping over the past decade and spells out the ground rules for making promises about shipments, notifying consumers about unexpected delays, and refunding consumers' money.

If you are an online merchant or thinking of becoming one, here’s what you need to know:

What Does the 30-Day Delivery Rule Require?

Complying with the “Mail or Telephone Order Merchandise Rule” will ensure you don’t have the FTC on your case, but it also makes good business sense. Being open and proactive about your delivery policies and problems that arise from depleted inventory and other issues will make for happier customers – which means a greater chance of repeat business.

Here’s what the rule requires of online merchants, as well as any merchants who take orders via the phone or fax:

If you commit to a specific shipping timeframe after an order is placed on your website or through marketing materials, then you must have a reasonable basis for making this claim. A “reasonable basis” means that you can show evidence you have anticipated demand and have the inventory, and that you have a fulfillment processes and order records necessary to ensure items are shipped in accordance with your claims (read more about this from the FTC).
If you make no shipment statement, you must have a reasonable basis for believing that you can ship within 30 days of receipt of an order. That’s why direct marketers sometimes call this the "30-day Rule."
If you can't ship within the promised time (or within 30 days if you made no promise), say for example, if demand was unexpectedly high or your suppliers have let your down, you must notify the customer of the delay, provide a revised shipment date and explain their right to cancel and get a full and prompt refund.
If within the 30-day window you have notified the customer of a “definite delay” (i.e. you can state when the item is expected to ship) but have not heard back from that customer with a refund or cancellation request, then you can treat the customer’s silence as consenting to the delay.
For “indefinite delays” and any subsequent delays after the 30-day period you must get the customer’s written, electronic or verbal consent to the delay. If that isn’t given then you must issue a refund, even if the customer didn’t ask for one.
You also have the right to cancel an order you can’t fulfill in a timely manner. However, you must notify the customer of this decision and make a prompt refund.

Dealing with Unexpected Demand?

If demand for a product is greater than anticipated and it’s impacting your shipping claims, the Rule does offer some leeway:

If you are proactive and see that demand is creating a problem, you can change your shipment promises up to the point that a consumer places an order – if you are confident you can honor that new shipping date/claim. This will override any previous promises and reduce your need to send delay notices – although you must alert customers of the new shipment date(s) before you take their orders.
As stated above, if you can’t ship within the originally promised timeframe you must let your customers know with a delay option notice – this can be sent via email, phone or fax.

More Information

The FTC website provides more information about the “30-Day Rule” including FAQs, advice about good record keeping, and where to go for help if you have additional questions.

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Can You Use or Reproduce the Work of Others on Your Website or Blog?

Caron_Beesley — Wed, 22 Aug 2012 11:19:53 +0000

Ever wondered if you can legally re-use or reproduce copy or content created by someone else? Whether you’re writing a blog, creating copy for your website, or using an image in your marketing materials – here are some tips to help understand what the law allows:

The Lowdown on Copyright

Intellectual property law is an interesting area. For example, did you know that copyright is granted the moment a piece of work is written, recorded or created? Copyright, unlike trademarks or patents, does not typically need to be formally applied for and is a general right provided by U.S. law to authors of "original works of authorship." More facts on copyright are available from StopFakes.gov and Copyright.gov.

Does that mean you can reuse or copy the work of others without consequences? Well, no.

Once someone has posted their work on the Internet – whether it’s on their website, YouTube, Flickr, or even original social media content – you generally need to request permission if you want to reproduce it. Why? Copyright law expressly prohibits you from reusing that content without permission from the author. It’s not enough to simply attribute or credit the work to an author, photographer, or videographer. Without permission, you are vulnerable to infringement lawsuits, especially if you are using the copyrighted content to drive traffic to your website or for other commercial purposes.

What About Creative Commons and Other Clearinghouses?

Many people want their content to be re-used by others, which is where the concept of Creative Commons comes into play. Creative Commons, a non-profit organization, allows content creators to give permission to the public to share and use their creative works, based on conditions of their choice – otherwise known as a Creative Commons license.

As a member of the public, you can search the Creative Commons site by keyword and find blog content, images, videos and more that you can use legally, as long as you abide by the specifics of each license.

In addition to sites like Creative Commons, you can also source images and works from licensed clearinghouses such as iCopyright, Copyright.com, Corbis, iStockPhoto, and GettyImages – for a fee.

If You’re Not Sure – Always Ask for Permission

As mentioned above, if you are looking to use or reproduce content for commercial purposes (on a business website, blog, or marketing collateral) it’s always a good idea to ask the author first. Not only is it the courteous thing to do, it will ensure your use of that content falls under the proper and legal terms and conditions. Some authors, for example, restrict commercial use; others may not wish you to embed videos or have specific permission requirements when it comes to linking to content. It’s always better to ask.

Related Resources

SBA Small Business Guide to Trademarks, Copyright and Patents

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