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Small Business Essentials: Rules and regulations you need to know

Learning about and staying on top of all the local, state and federal business rules and regulations can feel like another full-time job. However, staying on the right side of the law can save you time and money and preserve the integrity of your business.

Below is a list of laws and regulations you should keep in mind whether you're in the process of starting a business or have been an entrepreneur for many years.

1. Business license

Depending on where you live and what kind of business you're operating, there's a chance you'll need a business license. For example, some locales have restrictions on home-based businesses. To find out if you need a business license, contact your city, county, and state licensing office before officially opening your doors. The Small Business Administration (SBA) also offers a list of some of the industries requiring a license.

2. Annual business filings.

Once you've established your business, several government agencies, such as the Department of Labor, the IRS, and the Census, want to be kept up to date regarding your growth and operations. Depending on whether you operate as a sole proprietorship, partnership, LLC, or corporation, you may have to file one of more of the following:

  • Annual report: Although small businesses operating as a partnership, LLC, or corporation generally need to draft a summary of major events and decisions made in the business during the prior year, most don't have to actually file them unless the IRS requests them as proof that you're running a business and not funding a hobby.
  • Articles of amendment: If your articles of incorporation are changed, you must file an amendment indicating what occurred, such as changing the company name.

3. Business taxes

All businesses are required to file federal and state tax returns annually to account for the revenue and profits generated within the company. How your business is legally structured will determine which IRS form you have to file. In addition to federal taxes, other required taxes include:

  • Quarterly estimated taxes: Companies are expected to file quarterly tax returns and make payments rather than wait until the annual filing. Waiting can result in penalties.
  • Income tax: Businesses must pay tax on the profits generated each year.
  • Payroll taxes: Businesses must contribute a portion of each employee's payment owed for social security, Medicare, and unemployment, which is on top of the employee's own contribution.
  • Self-employment: The company must pay the employer’s portion of taxes for owners who are employed by the business.
  • Sales tax: Most states (except Alaska, Delaware, Montana, New Hampshire, and Oregon) require that you collect a tax on each sale made in your state, which is then paid to the state. Some states require that you collect a tax on sales made out of state, too.

4. Labor laws

The government has enacted a number of laws to try to protect employees. Some of the existing laws regarding workers are:

  • Eligibility: The Social Security Administration and Department of Homeland Security require that you verify an employee is legally permitted to work in the U.S. and file paperwork (an I-9 form) to prove it.
  • Minimum wage: The current federal minimum wage is at least $7.25, although some states mandate a higher hourly rate.
  • Overtime: Employees who are paid hourly and work more than 40 hours a week must be paid 1.5 times their hourly wages for each hour worked beyond 40. However, salaried employees do not have this cap and don't qualify for overtime pay.
  • Independent contractors: The Department of Labor has introduced new legislation to further clarify who qualifies as an employee and who can be paid as a contractor or freelancer. This is important since misclassifying an employee as a contractor can earn you fines and penalties.
  • Safety: The Occupational Safety and Health Administration (OSHA) has strict rules for protecting employees from known health and safety hazards, such as exposure to chemicals or tripping hazards.
  • Anti-discrimination: Businesses are prohibited from considering race, age, and gender, among other things, as part of the hiring process. You must also discourage any type of harassment or hostile behavior in the workplace.
  • Family and Medical Leave Act (FMLA): Most workers are entitled to up to 12 weeks of leave a year for urgent medical issues that arise, including the birth of a child or caring for a family member.

5. Insurance

Depending on how large your company is, you may be required to have insurance in place, such as:

  • Workers’ compensation: Most states require companies with employees to pay for workers' compensation coverage in case they get hurt or sick on the job.
  • Health insurance: Under the Affordable Care Act, businesses with 50 or more full-time employees are required to provide health insurance coverage for all workers.

6. Marketing

There are a number of rules and regulations regarding how you promote and advertise your company or its products and services to prevent consumers from being taken advantage of. This legislation includes:

  • Email: If you market your company via email, you must adhere to the CAN-SPAM Act, which allows consumers to opt out of receiving unwanted email messages. You have to make it easy for them to unsubscribe.
  • Truth-in-advertising: The Federal Trade Commission requires that claims made in advertising must be “truthful, cannot be deceptive or unfair, and must be evidence-based.” Meaning, you can't say things unless you know they are true.
  • Price discrimination: Businesses are prohibited from charging different customers different prices for the same product, such as charging women more than men, for example.

     

With so many rules and regulations, and so many changes and regular updates, it can be hard to keep up with them to be sure you're a law-abiding business owner. An accountant and attorney are excellent resources and can help ensure you’re following all local, state, and federal requirements.

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