Starting and maintaining a small business can be difficult, but even worse is trying to keep up with all the legal information surrounding the running of that business. Unfortunately, ignorance is an excuse that almost never works, so learning everything you can about your legal responsibilities is an imperative step in the self-employment process. Fees and penalties can wreak havoc on your bottom line, and the longer these offenses go unchecked, the more you can expect to pay for them. Below are a few of the things that can land you in hot water if not properly handled.
Lack of, Or Improperly Filled Out, I-9 Forms
I-9 forms are a big deal, and the fines attached to them can be just as big. These forms confirm that your employees are authorized to work in the United States, and must be kept on file for every single employee. You can create your own forms, but be sure they conform to the official Form I-9 requirements – even the first time fine for failing to do so can be up to $1,100 per offense.
Not Sending Out Employee W-2s
Speaking of forms, employers are required to deliver W-2 forms to their employees by January 31st so that they can file the previous year's taxes. The term “deliver” really means “mail out” – that is, they don't have to arrive by the 31st, but they have to be in the mail. Failure to get your W-2s out in time can result in hefty fines, although small businesses are limited to $500 in fines per year. In addition, Also note that 1099 forms can only be sent to independent contractors, and cannot be used for employees.
Abusing Unpaid Internships
Unpaid internships are sometimes seen as a small business' workaround for free labor, but the rules in place regarding these positions make it clear that this is simply not the case. Unpaid internships are intended to benefit one person – the intern. The experience they get is supposed to better qualify them for the reality of working in their chosen profession. Consider a few of the requirements for unpaid internships:
- Interns aren't replacements for regular staff, and should be monitored by regular employees.
- When done right, an internship should not benefit the employer, and in fact may make things run LESS smoothly because of the intern's presence.
- An internship cannot be a stepping stone to guaranteed employment.
As you can see, unpaid internships are designed to be an excellent opportunity for learning, not a cheap way to avoid hiring actual employees.
Failing To Provide A Safe Work Environment
The Occupational Safety and Health Act (OSHA) demands that employers provide a safe working environment that is free from obvious hazards. Small business owners can request on-site training and advice without incurring fines or penalties, and those are things you'll likely want to avoid. Serious OSHA violations can carry fines of up to $7,000, and willful or repeated violations can incur penalties up to ten times that amount. In addition, things like falsifying records or preventable deadly accidents can carry exorbitant fines as well as jail time.
Inaccurate Tax Reporting
Taxes are a burden for everyone, and the only thing worse than paying taxes is paying penalties related to taxes. One of the most common penalties small business owners can incur is for inaccuracy. This includes underestimating the amount you owe, forgetting to report parts of your income, and even the inability to prove a deduction if you get audited. The IRS can penalize you up to 20% of what you paid in taxes for this, so make sure you take the necessary steps to file accurately, and be able to back up your deductions with proof.