Seven "Must Dos" For Today's Business Owners
By Avrohom Gefen, Esq.
Although there have been recent indications that the recession is coming to an end, most businesses are still feeling the pinch of the severe economic downturn. Many business owners are understandably looking for cost-saving measures in an attempt to remain profitable or simply to stay afloat. Using a risk/reward or cost/benefit analysis, however, there are certain areas in which it is simply not worth cutting corners. Now is the right time for owners of large, medium and small businesses to realistically self-assess and resolve to undertake efforts that will both improve their bottom line and prevent potentially catastrophic losses.
Here, in no particular order, is a list of "must-dos" for business owners:
1) Incorporate. If you are not currently operating as a corporation, an LLC or another limited liability entity, you must take steps to do so immediately. You will not have any protection from personal liability if you continue to operate in your own name, a DBA or a partnership. For the same reason, even small business owners who are incorporated must carefully separate their personal and corporate existences or potentially be faced with liability for the corporation's actions.
2) Properly classify your employees. The federal and state governments are cracking down on employers who misclassify employees as independent contractors seeking to lessen the burdens of payroll tax, Worker's Compensation and Unemployment Insurance. The risk of misclassification is not worth the reward since an audit may result in substantial fines and penalties and the chance of an audit has increased greatly. Some employers also mistakenly think that certain employees are "management" and therefore exempt from minimum wage requirements. A great number of assistant and middle managers are non-exempt employees as defined by law and are entitled to 1 ½ times their normal hourly rate for every hour of work over forty each week. Remember, even if an employee's weekly compensation far exceeds the minimum wage for the hours worked, you still may be violating wage and hour laws. If you are unsure of your employees' status, speak with a labor and employment attorney.
3) Do not pay employees in cash. Although many business owners are tempted to pay workers in cash, for obvious reasons, here too the risks are great. Wage and hour lawsuits by employees, including class actions, have become a cottage industry. By law, if an employer cannot produce records that show compliance with wage and hour laws, then the employees' claims and estimations are presumed accurate. Aside from the legal obligations to withhold taxes and various other deductions, properly paying and reporting employee's compensation will create a "paper trail" that may be used to prevent employee lawsuits. If you do pay your employees in cash, have your employees sign an acknowledgment of cash received.
4) Keep adequate employee records. Again, if you do not keep proper records, then the employee's records and/or claims are deemed correct and may be used against you in court. The most basic records that must be retained are records of hours worked and compensation paid. In addition, all employers in New York State must give written notice to each newly-hired employee of the rate of pay, rate of overtime pay and the regular pay day and get written acknowledgment of receipt of the notice from each employee.
5) Post all required notices. Conspicuously post notices related to wage and hour law in your place of business. These posters, which should be in a language understood by your employees, may be obtained from the NYS Department of Labor. The minimum wage increased in 2009 so many employer's posters are now outdated. Failure to post the appropriate notices will work to your detriment in any legal proceeding.
6) Don't interfere with your employees' tips. Management and ownership should avoid becoming involved in the collection or distribution of tips. If you take advantage of the minimum wage "tip credit" be sure that this is explained to each employee. If you have not yet explained the tip credit to your employees, do so now, in writing. Each new hire should also receive a written explanation of the tip credit. You can impose a service charge in lieu of tipping, but if any part of the service charge is kept by the management or owners, this must be clearly explained in writing to the customers. If ownership or management keeps any part of the service charge, you may not take advantage of the "tip credit."
7) Perform an insurance checkup. This includes your general liability, Worker's Compensation, errors and omissions and directors and officers policies. Business owners and partners should also consider life insurance and long-term and short-term disability insurance, as well as "key man" policies. Any time you or your business is named an "additional insured," ask for a copy of the actual policy. A certificate of insurance does not guarantee coverage and is worthless if you are not properly named in the policy or if it is the wrong type of policy. If you do not understand the policy, have an attorney review it. Finally, you must notify your insurance carrier at the first possibility of any claim or your insurer may disclaim coverage for late notice.
This list is not meant to be exhaustive but is intended to make business owners aware of some of the protections that are needed to protect their investment and personal assets. Our attorneys possess the knowledge and skills necessary to address the needs of today's business owner. Having a knowledgeable attorney perform a "legal audit" of your business is an investment that will certainly pay off in the long term.
Avrohom Gefen, Esq. is an Associate in Vishnick McGovern Milizio's Litigation Department. He practices in the areas of commercial litigation and employment law. Avrohom can be reached at 516-437-4385, ext. 119 or via e-mail at Agefen@vmmlegal.com.