Statistically 33% of small and medium sized businesses get fined for not doing payroll the correct way?
Most start up business owners have very little knowledge let alone any expertise of the confusing web of state, federal & local regulations around compensation, insurance and tax compliance, or of how to manage employee benefits programs. And when it comes down to it, founders should focus their greatest energy on product development and customer acquisition efforts — not on compliance and administrative tasks.
Robert cited Y Combinator alum and Amicus CEO Seth Bannon, in advising founders not to cut corners on important infrastructure. Instead, he advises outsourcing non-core functions early. With time being a resource often just as scarce as money is, finding the right professionals to set up your infrastructure correctly will save you time and money in the long run.
Starting Up: Must-haves
- EIN (Employer Identification Number) — Also known as a Federal Tax Identification Number, think of this as a social security number for your business. They’re free to set up and you can apply for them via the IRS online.
- State unemployment Identification Number — The state, or states, you operate in will provide you with a number once you register for your state unemployment insurance account.
- Business bank account — Open an account and get a business credit card. Some good startup banks to consider are PNC, SVB, First Niagara, and Peoples United Bank.
- Workers’ Compensation Insurance — This protects employers from employee claims for injuries arising while on the job. It is a requirement in nearly every state. If that wasn’t enough to concentrate your attention, fines for non compliance are in the tens of thousands of dollars range.
- ACA — Once your business reaches more than 50 employees, you must provide health care coverage. Businesses that don’t meet this requirement could face fines of up to $2,000 per employee for non compliance.
Starting Up: No-nos
Even if you do everything else right, these huge, and sadly very common, mistakes can be make or break.
- Never, ever commingle business and personal assets or accounts — Not only does doing this make it hard for you and any accountant you eventually bring on to properly account for business transactions, it also could expose your personal assets to liability claims arising from lawsuits filed against your business.
- Don’t pay employees’ salaries from your personal bank account — In a worst case scenario, a disgruntled employee could go after your personal assets as part of a legal claim.
Starting Up: Insurance & Benefits
- Find out what your disability insurance obligations are — Requirements vary on a state by state basis.
- Get general liability (Directors & Officers) insurance — Though there are no legal requirements to carry liability insurance, here are a couple of reasons why it is worth your while: 1) it’s the smart thing to do and 2) investors will require it.
- Choose your health plan offerings — Whether for competitive reasons or to meet legal requirements, you’ll more than likely to need offer employee health insurance.Whether you select an individual or a small group plan is a question of preference.
- Decide on a PEO or open market purchases — When it comes to choosing a healthcare provider and coverage, you’ve got a couple of options. You could go with a Professional Employer Organization (PEO). These allow small businesses to pool their resources and benefit from a PEO’s stronger negotiating position for benefits and insurance to get access to better services and much lower rates on plans versus purchasing on their own. Choosing a PEO, will also save on administrative costs.
Option two is to buy your insurance and benefits coverage on the open market via insurance brokers.
Starting Up: Legal and Employment Law Considerations
- Be careful how you classify workers — Going with contractors can be cheaper for employers than hiring employees, but fines for improperly classifying someone as a contractor when he or she meets the legal definition of an employee are very high.If you have any questions as to the right classification for someone, do your research, including getting professional help. More often than not, if you have the question, you should probably classify that person as an employee.
- Get Your Structure Right — While this is a business decision that involves tax and ownership considerations, C Corps are the way to go if you plan on raising money from institutional investors and Delaware C Corps are the most common form.
- Register your trademarks — Protect your proprietary technology, licenses, and any inventions earlier rather than later. You can do this via the uspto or trademarkia.com. Safeguarding these should be part of your broader IP strategy, and it’s definitely something you can expect investors to ask about.
By focusing on your core competencies, bringing in outside professionals when you need to, and dodging rookie mistakes you’ll not only get your startup infrastructure set up as efficiently as possible. You’ll also be laying the groundwork for your business to grow and scale.
– See more at: http://www.thefundwell.com/2014/11/starting-tips-tricks-getting-set-right-way/#sthash.5yPtkZ2M.dpuf
