As the founder and managing member of Altura Law, PLLC, Niloufar Park is passionate about her work with entrepreneurs and small business owners. She brings years of experience in business along with her legal acumen to help her clients. Through Avvo.com, an on-demand online legal marketplace that connects attorneys with business owners, she counsels small business clients.
(Photo courtesy of Niloufar Park)
What legal responsibilities do small businesses have from a personal liability standpoint? Could it have an impact on personal assets?
Most common questions surround personal liability of a potential small business client and whether or not it could impact their personal assets. Because many new small businesses rely on fundraising from family and friends, potential clients are concerned about consequences of default if the business is not successful and whether they have an obligation to pay back the original funds with their personal assets. Relationships are important, especially in business. There is certainly added pressure if the new business is being funded by family and friends, so I advise my clients to think about consequences before proceeding. There is too much at stake with potential damage to relationships if the business does not succeed.
What are the risks for small businesses that utilize independent contractors in its workforce?
Small business competition is fierce, so they must account for every dollar they spend to protect their bottom line to increase profits and lower costs. One way to achieve this goal is to reduce employment costs and hire independent contractors, also known as consultants, freelancers and self-employed professionals. A small business owner must carefully consider using independent contractors because classifying individuals that work for a company as an employee or as an independent contractor has significant consequences.
Additionally, complicated federal and state laws govern the classification of a workforce. For instance, independent contractors do not receive employee benefits and are not subject to various wage and labor laws including payroll taxes, unemployment insurance, workers’ compensation, overtime, minimum wage and sick leave. On the other hand, earnings of a person who is working as an independent contractor are subject to certain taxes including self-employed tax obligations, which are Social Security and Medicare taxes. The risk of incorrectly classifying an employee as an independent contractor may lead to scrutiny and regulatory penalties from state and federal agencies. To avoid issues due to misclassification of workers, it is a worthwhile practice for businesses to conduct a detailed audit and review of their employment and independent contractor agreements to ensure proper worker classification.
This article was written by Robin D. Everson for Small Business Pulse