Immigration isn’t just a hot topic in the news—it has real impact on employers. All employers, including small businesses, are required to complete and retain a Form I-9 Employment Eligibility Verification for every person they hire to work inside the U.S. for pay or any other type of compensation. Failure to comply could result in severe penalties.

What Is the Form I-9?

Federal immigration law prohibits employers from hiring and employing, or continuing to employ, anyone the employer knows is not authorized for employment in the U.S.  Employers must complete the Form I-9 to verify the identity and employment authorization of all individuals they hire, including U.S. citizens.

Filling Out Form I-9

The Form I-9 has three sections: The employee must complete Section 1, and the employer must fill out Section 2, and when applicable, Section 3.

Section 1. In Section 1, the employee must provide his or her name, address, and date of birth. In addition, the employee must attest to his or her status as a U.S. citizen, a noncitizen national of the U.S., a lawful permanent resident, or an alien authorized to work for a specified period of time. This part of the form must be completed no later than the first day of work for pay.

Section 2. To comply with Section 2, the employer must physically review documents supplied by the employee to verify both the employee’s identity and work eligibility. The Form I-9 contains three lists of acceptable documents. List A includes documents such as a U.S. passport or permanent resident card that can be used to verify both identity and work eligibility. List B contains documents for verifying identity, such as a driver’s license or state issued ID card, and List C identifies documents can be used to verify work eligibility, such as a social security card or state issued birth certificate. If the employee doesn’t provide a document from List A, one document from List B and one from List C must be supplied.

Only valid, original documents that reasonably appear on their face to be genuine and related to the employee presenting them may be used for complying with Section 2. The employer should verify that the information on the documents matches the status attested to by the employee. If the documents do not appear to be genuine or related to the person presenting them, the employer must not accept them. In that case, the employer must ask if the employee can provide other documents that would satisfy Form I-9.

Upon receiving satisfactory documentation, the employer must enter the employee’s name, the document’s title, the issuing authority, the document number and expiration date, the date the employee will begin to work for pay, the name of the person completing Section 2, and the employer’s business name and address.

Warning: Form I-9 contains an anti-discrimination notice prohibiting discrimination based on citizenship or national origin. It does not allow employers to specify which documents they will accept from any employee. If an employee asks which documents are needed, the employer should provide the Form I-9, which includes Lists A, B and C.

Warning: The employee must provide the required documents within three business days of the date of hire or be terminated. Otherwise, the employer may be subject to penalties.

Section 3. If the employee has supplied work authorization documents that have an expiration date, the employer is required to fill out Section 3 to update the information on or before their expiration to include a new document expiration date. The U.S. Immigration and Customs Enforcement (ICE) suggests that employers remind employees of the expiration date and the need to provide a new document from either List A or List C at least 90 days prior to the expiration date. Once the employee provides an unexpired document, the employer must examine it to ensure that the document appears to be genuine and relates to the employee.

Be Careful to Ensure Accuracy and Completeness

ICE imposes heavy penalties for non-compliance with Form I-9 paperwork ranging from hundreds to thousands of dollars per Form I-9. The fines vary depending upon the nature of the offense, with lower, though still harsh, penalties for oversights such as the employee failing to fill in information like date of birth or date of hire. Substantive violations such as an employer’s failure to check an employee’s personal identification documents can result in more onerous fines, particularly if the employer knowingly hired or continued to employ an unauthorized alien.

We Can Help

As part of our services for small business owners, we can provide you with guidance about how to meet your obligations under Form I-9 as well as other questions about the daily operations of your business. Please call us today to schedule a meeting.

Whether you are just starting up a new company or have a business that has been in operation for a while, good record keeping is an essential part of running your business. You are responsible for establishing an effective system to store and maintain your business records whether your small business is a sole proprietorship, partnership, LLC, or corporation. Some types of records will help you to keep track of business details and plan for your business’s future, but others are required by law. Here are some of the records your business may be legally required to keep.

Employee Records. If you hire employees for your business, local, state, and federal laws require you to maintain extensive and accurate payroll and personnel records.

• Under the Fair Labor Standards Act, certain basic payroll records must be kept for three years for non-exempt (hourly) workers:
• Employee identification data such as full name, Social Security number, address (including zip code), birthdate for employees younger than 19, gender, and occupation
• Time and day an employee’s work-week begins
• Hours worked per day and total hours worked for each workweek
• Basis on which employees’ wages are paid (e.g., $9 per hour, $440 a week)
• Regular hourly rate of pay
• Total daily or weekly straight-time (non-overtime) earnings
• Total weekly overtime earnings
• Total wages paid per pay period
• Date of payment and the pay period covered by the payment

Certain records upon which wage computations are based—time cards, piece work tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages—must be kept for two years. Employers are also required to maintain payroll records under the Age Discrimination in Employment Act (for businesses with 15 or more employees), the Americans with Disabilities Act (for businesses with 20 or more employees), and the Family and Medical Leave Act (for businesses with 50 or more employees).

• The Equal Employment Opportunity Commission requires companies to keep personnel records for one year. The records that private employers must keep include:
• Application forms submitted by applicants
• Records dealing with hiring, promotion, transfer, lay-off, or termination
• Rates of pay and compensation
• Tenure
• Selection for training or apprenticeship

Additional records regarding vacation and sick time, as well as other attendance information, must be retained for three years. Also, benefit plan (retirement, health and wellness programs) documents must be kept for six years under the Employee Retirement Income Security Act.

Tax Records. Although the business you are in affects the type of records you are required to keep for federal tax purposes, your books must show your gross income, as well as your deductions and credits. In addition, supporting documents for purchases, sales, payroll, and other business transactions must be kept. Specifically, documentation showing your gross receipts, inventory, expenses, and assets must be retained. These records must be kept for as long as they may be needed for the administration of any provision of the Internal Revenue Code, i.e., until the period of limitations for that return runs out. Generally, the period is three years unless you fail to report income that should be reported, don’t file a return, or file a fraudulent return—in those cases, longer limitation periods apply. Also, employment tax records should be kept for at least four years after the date the tax becomes due or is paid.

Injury Reports. For many businesses with ten or more employees, the Occupational Safety and Health Administration requires records showing serious work-related illnesses and injuries to be retained for at least five years. Also, employers must complete and post a summary annually, even if no serious illnesses or injuries occurred during the year. Certain low-hazard industries are partially exempt from these requirements.

The following illnesses or injuries are considered serious:

• Work-related fatalities
• Work-related injuries or illnesses that cause loss of consciousness, missed work days, work restrictions, or transfer to another job
• Work-related injuries requiring treatment beyond first aid
• Work-related cases of cancer, chronic irreversible diseases, fractured or cracked bones or teeth, and punctured eardrums

Special recording criteria are in place for work-related needle-sticks and sharp injuries, medical removal, hearing loss, tuberculosis, and musculoskeletal disorder cases.

Note: Although the information above regarding employee, tax, and injury records spell out what may be required under federal law, don’t forget to also comply with any state and local record-keeping requirements for these areas.

State Record-keeping Requirements for Business Entities. State laws governing various forms of businesses, such as partnerships, limited liability companies, and corporations, require that each of these types of businesses maintain certain records. For example, a partnership must usually keep a current list of the names and addresses of each of the partners, the partnership agreement, income tax returns, financial statements, and other documents dealing with the business. Similar requirements are typically in place for limited liability companies. Corporations generally must maintain more extensive and complex records to comply with state law.

Licenses and Permits. Most businesses need to obtain some form of license or permit to operate legally under local, state, or federal law. For example, hairdressers and doctors require professional licenses, businesses that sell goods or services must obtain a sales tax license or permit, and some federally regulated industries such as aviation, alcohol, or agriculture must obtain federal licenses or permits. Once you have obtained all the licenses and permits required for your type of business, you should retain them in your records, as you may have to show them on occasion.

We Are Here to Help

If you need help navigating the maze of record-keeping requirements under federal, state, and local law or have other questions about managing or operating your business, please give us a call. As business attorneys, we can provide guidance to help you comply with your obligations and avoid fines and penalties.

Every business with at least one employee should have an employee handbook, sometimes also called an employee manual or code of conduct, setting out the company’s policies and rules and the laws applicable to the employment relationship. It establishes the expectations in the relationship and enables employers to deal with similar situations consistently. Typically, employers do not intend for the handbook to create any obligations that could be enforced by their employees. However, a poorly drafted employee handbook could open the door to contractual liability.

Inadvertent Alteration of At-Will Employment Relationship

The problem that arises most frequently from an imprudently written employee handbook is the unintentional creation of limitations on the at-will employment relationship. In the absence of an employment contract to the contrary, employees are generally employed “at will”. This means that they can be terminated for any reason (including no reason or even a bad reason—unless it’s illegal) at any time without any warning. The at-will employee may also quit at any time and for any reason.

The potential for litigation emerges when employee handbooks contain language that can change an at-will relationship into one in which the employee can only be terminated “for cause”.  This can happen when the handbook includes provisions that an employee could reasonably believe provide job security. For example, the following types of provisions could limit an employee’s at-will status:

• Lists setting forth reasons justifying termination
• Procedures requiring warnings or suspensions prior to firing
• Appeals available to employees to challenge disciplinary action

Even if an employer only intended for these types of provisions to be flexible policies, not promises, they could end up creating a contractual obligation enforceable by their employees. Whether they do depends on whether the language used in the handbook could create an expectation in an employee that the policies must be followed before they can be fired. In that case, the employer’s failure to follow the policy may be considered a breach of contract.

Unintentional Creation of Promise to Adhere to Handbook Provisions During Employment

Employee handbooks typically contain provisions addressing a wide variety of issues, and they sometimes spell out policies providing employees protections and benefits beyond what is required by law. For example, a handbook may include a strict anti-harassment policy or generous wage or leave provisions. As with the “job security” provisions, if the employee reasonably expects that the employer has promised to abide by those policies, and the employer fails to do so, the employee could assert a claim for breach of contract against the employer.

How to Protect Your Business from Breach of Contract Claims

Employers can avoid potentially costly lawsuits for breach of contract by including a carefully worded disclaimer in their employee handbooks. Here are some tips to ensure your disclaimer is effective:

• Place the disclaimer in a prominent place in your handbook. It should attract the attention of the employee—for example, place it on the first page and highlight, capitalize, or underscore it so that it will stand out.
• The disclaimer should clearly state that the handbook contains no promise of any kind by the employer.
• It should state that regardless of any language in the handbook, the employer is free to change any provision at any time without notice and without consulting anyone or obtaining anyone’s agreement to the change.
• It should make clear that the employer retains the unfettered right to terminate any employee at any time with or without cause.
• It should restrict the people at the business who are authorized to alter the at-will employment relationship to certain expressly named individuals and require any changes to be in writing and signed by those individuals.
• The disclaimer should be written in plain language—no “legalese”.
• Require employees to sign an acknowledgement that they have read, understood and agreed to the handbook’s provisions and the disclaimer.

Conclusion

A well-drafted employee handbook is essential not only to set out your company’s policies and establish expectations but also to protect your business from potentially costly litigation. We would be happy to review your existing employee handbook or draft a new one. Please give us a call to set up a meeting.

If your business made or received payments to independent contractors and entities (other than compensation to your employees) during the calendar year, it’s likely you must file an information return called a Form 1099 with the IRS. You may also need to send a copy of the form directly to the recipient of the payments. Being aware of and meeting your 1099 reporting obligations is essential to avoid potentially hefty penalties.

Payments Made “in the Course of Trade or Business”

Form 1099 is only required for payments made as part of your trade or business—not payments made, for example, to a landscaper or painter you hired to improve your own home. The catch-all form, Form 1099-MISC for Miscellaneous Income, is one of the most frequently required forms. Some common payment purposes covered by Form 1099-MISC are:

• Services rendered by independent contractors or others (not employees)
• Rent
• Royalties
• Broker payments
• Attorneys’ fees
• Medical and healthcare payments

There are also other types of 1099s that you may need to file. For example, a Form 1099-DIV should be used if your business is a corporation that has issued stock or paid dividends.

Payments Received “in the Course of Trade or Business”

You may also be required to report payments your business received for specific circumstances.  For example, you must use Form 1099-MISC to report direct sales of at least $5000 in consumer products to a buyer for resale anywhere other than a permanent retail establishment. Similarly, the proceeds from most real estate transactions (not primary residences) should be reported using Form 1099-S.

When the 1099 Is Not Required

• Generally, if your business made payments of less than $600 to any one person or unincorporated business, you do not need to file a Form 1099.
• You usually do not need to report payments made to corporations, including LLCs that have elected to be taxed as a corporation. There are some exceptions where a 1099 must be filed even if the payee is a corporation, for example, payments of legal fees and medical and healthcare payments.
• You don’t need to file a Form 1099 for payments made by credit card, debit card or qualified third-party payment networks (like Paypal).

Also note, although Form 1099 is one of the most commonly used, there are other information returns that you may also need to file.

Missed Deadlines Can Be Costly

The penalties for missing the IRS’s deadlines can be steep. Depending on how late a business is in submitting its Form 1099s to payees or filing with the IRS, the fine can range from $50 to $260 per form up to a maximum of $1,072,500 for small businesses. The fine jumps to $530 per form with no maximum if the failure to file or furnish the form is due to intentional disregard. The penalties for failing to file a 1099 and for failing to provide a copy to payees are separate. Also, even if you file a 1099 before the mandated deadline, if it is the incorrect form or contains incorrect information, or if you submit a non-scannable form, you may still have to pay a penalty.

We Can Help

The IRS deadlines are quickly approaching–you must send payees a copy of Form 1099 by January 31, and certain Form 1099s must also be filed by that date. If you have questions about your reporting obligations, we’ll be happy to help. Please contact us today to schedule a consultation.

Even though tax season is over, you may be concerned how the Tax Cuts and Jobs Act, enacted in December 2017, will impact your small business. The reforms represent the most sweeping tax overhaul in 30 years and could have a positive impact on your business’s bottom line—but they may have left you feeling a little confused. Here are some of the most important changes.

Qualified Business Income Deduction

Under the new tax law, many owners of pass-through businesses, such as sole proprietorships, partnerships, and S corporations, may deduct up to 20% of their qualified business income. This new deduction—known as the qualified business income deduction or Section 199A deduction—can be claimed by eligible taxpayers on their 2018 federal income tax returns, lowering their taxable income. One notable exception is that married owners of service-based businesses like accounting firms or doctors’ offices, can only claim the deduction if they have an annual income below $315,000 ($157,500 for single business owners). This deduction replaces the domestic production activities deduction, which allowed business owners to write off 9% of income derived from qualified domestic manufacturing and production.

Lower Corporate Tax Rate

The centerpiece of the new tax law is the reduction of the corporate tax rate from a top rate of 35% to a flat rate of 21%, a substantial cut for many businesses structured as C corporations. However, because the reforms eliminated the 15% rate on the first $50,000 of taxable income, some small C corporations could end up with a bigger tax bill. For example, a C corporation with $50,000 of taxable income that would have owed $7500 under the prior law will owe $10,500 when it files its 2018 federal tax return.

100 Percent Expensing for Qualifying Business Assets

Businesses can now write off the entire cost of most depreciable business assets in the year the business places them in service, resulting in reduced current income tax liability. This break generally applies to depreciable assets with lives of 20 years or less–items such as, machinery, computers, and furniture. This part of the tax reform law is temporary, lasting until 2022 and then phasing out over several years.

Increased Depreciation Allowances for Vehicles

Businesses that purchased new or used vehicles after September 27, 2017 and placed them into service in 2018 can claim an increased maximum allowance of $10,000 for Year 1 or $18,000 if first-year bonus depreciation is claimed.  For year two, the cap is $16,000 and for year three, $9600. For year 4 and all subsequent years until the vehicle is fully depreciated, the cap is $5760. For 2019 and beyond, the allowances will be indexed for inflation. In addition, for qualified new and used heavy SUVs, pickup trucks and vans purchased for the business, 100% of the cost can be written off, a significant improvement over the prior law.

Family Paid-Leave Credit

Under the new law, certain eligible employers who provide paid family and medical leave to their employees during the 2018 and 2019 tax years may qualify for a new business tax credit. To be eligible, employers must comply with a laundry-list of conditions, including having a written policy, providing at least two weeks of leave, and paying at least 50% of the wages normally paid to the employee. The credit is equal to 12.5% of the amount of wages paid during the employee’s time of leave. However, a larger credit is available for employers that pay over half the employee’s normal wages while they are on leave.

Some Deductions Eliminated or Reduced

Although many of the reforms result in tax savings for small businesses, some, like the elimination or reduction of certain deductions, could have a negative impact on their tax bills. Although there are many changes, here are some of the most impactful.

• The tax write-off for business-related entertainment expenses was eliminated in the new tax law. However, business owners can continue to deduct 50% of the cost of business meals if certain conditions are met, and the cost of holiday parties can still be fully deducted.
• Qualified transportation. Under the new tax law, a business owner generally can no longer deduct the expenses of providing tax-free transportation fringe benefits (like the cost of parking or transit passes) or expenses incurred providing employees with transportation for commuting.
• Net Operating Losses (NOLs). The new law does not eliminate but does lower the deduction for net operating losses, which are losses taken in a period where a business’s allowable tax deductions are greater than its taxable income. NOLs can now offset only 80% of taxable income in the future, and carry-backs are generally no longer permitted. However, NOLs can be carried forward indefinitely under the new tax law, which is an improvement over the 20-year limitation under the prior law.

Estimated Taxes

The owners of pass-through entities such as sole proprietorships, partnerships, and S corporations may be required to pay estimated federal taxes each quarter unless they had no tax liability the prior year or owe less than $1000 when they file their tax return. Because of the changes in the income tax rates, changes to deductions, credits and exemptions, the amount of estimated taxes that should be paid is a trickier question than in previous years.

What to Do Next

The new tax reform legislation is complex and sweeping. We’ll be happy to help you understand its impact on your business and provide guidance about how to maximize your tax savings. Please contact us to schedule a meeting.