Regulation of Wages, Hours and Working Conditions (tire shops)

Last Updated on 06.08.2024 by hrushetskyy

REGULATION OF WAGES AND HOURS

The Fair Labor Standards Act requires minimum hourly wages for the employees of most firms. The minimum wage for employees covered by this act is set by Congress, it is $3.35 as this is written (in California the minimum wage is $4.25 effective July 1 1988). The act also requires employers to compensate employees at time and a half for hours worked in excess of 40 per week.

Not all firms engaged in interstate commerce and all employees of such firms are covered by the federal Fair Labor Standards Act. Those not covered include employees of retail stores and service establishments that have annual gross sales or receipts of less than $250 000, outside salesmen, and executive administrative and professional personnel.

Small businesses not covered by the federal act are most likely subject to similar minimum-wage requirements in their respective states. Currently a large majority of states plus Puerto Rico and the District of Columbia have minimum- wage laws. These laws come close to meeting federal standards. A smaller majority of states attempt to regulate the number of working hours by imposing overtime wage premiums.

Most state laws limit the number of working hours for children and for workers in hazardous occupations. Many states also now have time-off-for-voting laws usually providing paid time particularly if employees can’t vote before or after work.

REGULATION OF WORKING CONDITIONS

Various states also regulate working conditions especially in regard to industrial safety and health. At the federal level employee safety and health are regulated by provisions of the Occupational Safety and Health Act of 1970 (OSHA). Many states have taken over the administration of this act within their own jurisdictions.

Federal law requires employers to provide employees with a workplace that is free of hazardous conditions such as exposure to toxic materials or other physically harmful agents. In retail and service establishments according to OSHA the most often repeated violations are improperly marked or unmarked exits fire extinguishers not mounted and/or not easy to spot when needed and fall-hazard debris in storerooms.

Safety inspections of the business premises can be made at any time and without advance notice. Firms found in violation of OSHA’s safety and health standards may receive severe fines and other penalties.

THE HIDDEN COSTS OF EMPLOYING

When you’re hiring keep in mind that on the average employees will cost you between 15 and 30 percent above their wages or salaries depending on what benefits you offer. For example if you’re paying an employee $18 000 per year in salary your cost could be as much as $23 400. Figure that 15 percent above total wages will cover payroll taxes worker’s compensation and paid vacation. Figure 30 percent above total wages for all taxes and a full slate of benefits.

Mint tax rates can change from year to year. In some states the employer also pays a portion of the state disability insurance premiums.

Your failure or degree of success will often be relative to the quality of employees you choose. Develop professional and psychological techniques to use in an interview to ferret out the hard and smart workers. More information on finding top employees can be found in Entrepreneurs Instituted

Here is what happens. You must match every dollar of federal Social Security taxes that you deduct from your employees’ checks. This tax is currently over 7 percent. In addition you must pay state unemployment taxes (which vary from state to state, in California it’s currently 5.4 percent) and an additional 0.8 percent (currently) for federal unemployment taxes. Social Security and un-employ

ACCOUNTING/LEGAL

LEGAL FORM OF OPERATION

After deciding to start a business the first thing you have to consider is the legal form under which it will operate:

1) Sole proprietorship

2) Partnership

3) Limited partnership

4) Corporation.

Sole Proprietorship

“Sole” means only one owner not even silent partners are allowed. A sole proprietorship provides the easiest method of starting a business. No legal papers are required except a business license and a fictitious-name filing with the county clerk (D.B.A.). No separate income tax returns are necessary as with other forms of business. All of your income and expenses are reported on Schedule C of IRS Form 1040. FICA taxes for the owner are less than in other forms as well.

A sole proprietorship has one important disadvantage. Creditors of your business can go after you personally and attach your personal property bank account etc. You can be harassed for years after you abandon a business and your personal credit can be ruined.

General Partnership

A partnership of two or more people is even more dangerous than a sole proprietorship. The reason is that each partner is liable for the other’s actions. In any legal or creditor action each partner will be sued personally with the property and bank accounts etc. of each attached. If one partner skips town the other(s) is left holding the bag. Also when an individual contributes assets to a partnership he retains no claim to those specific properties but merely acquires equity in all assets of the firm. The partner with the most to lose personally usually gets hit the hardest.

A partnership is like a marriage without love. Very few survive without intense conflict which often causes the business to collapse.

A lawyer’s charge for forming a partnership contract is about the same as for a corporation. Anyone forming a partnership on a handshake and verbal agreement without a formal contract is very unwise. A partnership must secure a Federal Employee Identification number from the IRS using Form SS-4. Then it must file Form 1065 each year as its tax return. Generally IRS regulations require that a partnership use a calendar-year end.

Each partner reports his/her share of partnership profits or losses on his individual tax return and pays the tax on those profits. The partnership itself does not pay any taxes with its tax return.

Limited Partnership

In many ways a limited partnership is like a corporation. The investors become limited partners and are personally liable only for the amount of their investment. However that’s all they can lose. The general partner usually the operator of the business can be either a sole proprietor or a corporation. There is also the classic “silent partner” situation where one or more partners (limited) put up money and the other partner(s) (general) run the business. A limited partnership in this case serves to protect the assets of wealthier silent partners and acts as a conduit to pass through current operating profits or losses to them as well as to preserve the special tax character of certain items.

Limited partnerships are commonly used for real-estate syndications. Legal costs of forming one can be even higher than a corporation because in some states they are governed by securities laws. Another aspect of limited partnerships is that in some lines of business the limited partner (also called the passive investor) may be subject to special tax liabilities that can in certain cases offset tax-shelter ad-vantages. The IRS tends to look at these facts on a case-by-case basis.

The 1986 Tax Reform Act now limits the amount of losses a limited partner can deduct on his personal tax return. If the partnership business is expected to generate tax losses in its early years you should consult your accountant to determine how and when those losses will benefit you.

Corporation

The most realistic way to start a business is under a corporate structure because the corporation exists as a separate entity apart from you. It alone is legally responsible for its actions and debts. You are personally protected in most situations since you will be just an employee of the corporation even though you may own all or most of the stock. You must operate your corporation in a correct legal and financial manner or you may lose this protection from its liabilities.

Shareholders forming a corporation can divide ownership into shares responsibilities can be defined in the corporate minutes and a shareholder who wants to leave can be accommodated without much legal hassle or dissolution of the business. Stock can be used as collateral, death of one shareholder doesn’t stop the business (whereas in a partnership it sometimes does). And you can enjoy many executive privileges that are difficult to justify in a sole proprietorship or partnership.

Until your corporation has operated successfully for many years you will most likely still have to sign as personally liable for any corporate loans made by banks or other financial institutions.

It is advisable to use a shareholders’ agreement that provides for the purchase of a deceased shareholder’s shares by the supervising shareholders. That agreement will usually provide for a method to determine the price of a selling shareholder’s shares if the remaining shareholders wish to purchase them or it might grant the other shareholders the right of first refusal.

The only disadvantage is possible double taxation because the corporation must pay taxes on its net income and you must also pay taxes on any dividends you may receive from the corporation. For fiscal years beginning after July 1 1987 corporate tax rates are as follows:

•         15 percent on the first $50 000 of income

•         25 percent on the next $25 000

•         34 percent on all taxable income over $75 000

If a corporation has taxable income over $100 000 after July 1 1987 then the tax as determined under the above rates is increased by 5 percent of the excess over $100 000 or $11 750 whichever is less.

Business owners often increase their own salaries in order to reduce or wipe out corporate profits and thereby lower the possibility of having those profits taxed twice (once to the corporation and again to the shareholders upon receipt of dividends from the corporation).

Subchapter S Corporations

The disadvantage of possible double federal taxation is completely negated by filing a Subchapter S election with the IRS. (Many states do not recognize a Sub- chapter S election for state tax purposes and will tax the corporation as a regular corporation). Qualifications for electing Subchapter S were changed in 1982. The Subchapter S Revisions Act of 1982 liberalized many of the old rules and the new flexibility of these corporations makes them popular with small and medium-sized businesses. Subchapter S allows profits or losses to travel directly through the corporation to you and other shareholders. If you earn other income during the first year and the corporation has a loss you can deduct against the other income possibly wiping out your tax liability completely subject to the limitations of the 1986 Tax Reform Act.

Sub- chapter S corporations elect not to be taxed as corporations, instead the shareholders of a Subchapter S corporation include their proportionate shares of the corporate ™ profits and losses in their individual gross incomes. Subchapter S corporations are excellent devices to allow small businesses to avoid double taxation. If your company does produce a substantial profit forming a Subchapter S corporation would be wise because the profits will be added to your personal income and taxed at an individual rate which after 1987 may be lower than the regular corporate rate on that income.

To qualify under Subchapter S the corporation must be a domestic corporation must not be a member of an affiliated group must not have more than 35 shareholders all of whom are either individuals or estates you must not have a nonresident alien as a shareholder you can only have one class of outstanding stock and under the new rules an unlimited amount of passive income from rents royalties and interest is now allowed.

Under the 1986 Tax Reform Act losses and credits from a “passive” business activity will be deductible only against passive income. Passive losses and credits will not be usable against non-passive income which includes a compensation and portfolio income, however rental losses and credits can be used against up to $25 000 of non-passive income.

A passive activity is one in which a taxpayer does not materially participate. Material participation requires involvement in operations on a regular continuous substantial basis.

Therefore if a shareholder of a Sub- chapter S corporation does not actively participate in the operation of the business it is considered a passive activity. That means if the Subchapter S corporation produces a loss during the year that shareholder’s deduction for his portion of the loss will be cut back dramatically. However, if income is accrued from the Subchapter S corporation it can be offset by losses and credits from other passive activities.

For more information on the rules that apply to a Subchapter S corporation call your local IRS office.

Forming a Corporation

Many of you have heard of a book called How to Form Your Own Corporation Without a Lawyer for Under $50. The author suggests there are advantages to incorporating in the state of Delaware.

At one time Delaware corporations did have tax advantages, however that is no longer true. Nor is there any advantage to incorporating in Nevada Wyoming Alabama the Bahamas or any other place in the United States or Canada unless that’s where you plan to do business.

If you locate in any state other than the one in which you incorporate that state also requires you to file corporate papers as a foreign corporation. The fees are even higher than for a domestic corporation. The Delaware loophole was plugged many years ago because other states didn’t have control over corporations operating within their borders and were losing filing fees and taxes.

Lawyers charge from $350 to $2 000 to file corporate papers $700 being the average, unless you have more than 10 stockholders or a very complicated partner arrangement you don’t need a lawyer. Incorporation fees are the easiest money an attorney makes. The forms required are no harder to complete than those required for the average credit application.

Our research department at Entrepreneur has prepared do-it-yourself incorporation kits for most states and the District of Columbia. Completed samples show you how to fill in the blanks and where and how to apply. We’ll supply you with everything you need to get your corporation certified quickly and without costly legal fees. (Except in South Carolina the law doesn’t require you to file through an attorney.) For more information contact Entrepreneur.

FICTITIOUS NAME (D.B.A)

Sole proprietorships and partnerships have the option of choosing distinctive names for their businesses; if you want to operate your business under a name different from your personal name (e.g. Mary Worth doing business as “The Tire Center”) you may be required by the county city or state to register your fictitious name.

Procedures vary. In many states you need only go to the county offices and pay a registration fee to the county clerk. Other states require placing a fictitious-name ad in a local newspaper. Generally the newspaper that prints the legal notice for your business name will file the necessary papers with the county for a small fee.

The cost of filing a fictitious-name notice ranges from $10 to $100. The easiest way to determine the procedure for your area is to call your bank and ask if it requires a fictitious-name registry or certificate in order to open a business account. If so inquire where you should go to obtain one.

Fictitious name filings do not apply to corporations in most states unless the corporation is doing business under a name other than its own. Documents of incorporation have the same effect for the corporate business as fictitious-name filings have for sole proprietorships and partnerships.

BANKS

You need a business bank account. Do not merely seek the most convenient bank. Different businesses have different needs. Determine what your needs will be then interview the bank managers in your area by phone to find the best bank for your business.

This professional approach gives you a psychological advantage with the bank manager and provides an opportunity to establish a relationship with him. Ordinarily when you just walk in to open an account you are handled by the new-ac- counts clerk and never come in contact with the bank executives. The closer the relationship you develop with the bank manager the better are your chances of obtaining loans and special favors in marginal situations.

Bankers handle money problems the same way doctors handle medical problems. Don’t be afraid to discuss your difficulties with your banker. No matter how small the problem he may know just how to handle it.

Don’t attempt to be a “sharpie” or pretend you know everything in an effort to impress your banker. You may be an expert in your field; he is definitely an expert in his. Learn to talk to your banker in his language. It will help your present situation and improve your position the next time you approach him.

In a branch-banking state you will probably be doing business with a large bank that has many branches. Managers change frequently. Watch for changes and introduce .yourself to each new manager to maintain that all-important relationship.

Independent banks without any branches or the small chains capable of meeting your needs will provide the most personalized service. Remember in a small bank your account may be important, in a large bank you may never be a noticed.

Take time to find the most suitable bank then avoid moving your account if at all possible. If you move your account constantly it will be hard to establish a good bank reference to obtain credit from your suppliers.

Don’t be aloof with bank employees. Try to become acquainted with as many as possible. In the various odd situations that will arise in the course of conducting business clerks and tellers who know you will be most helpful.

When You Open the Account When opening your business account the bank will need your Social Security number or your federal employer identification number your driver’s license and (for partnerships and sole proprietorships) a fictitious-name certificate. If you have formed a corporation brings your corporate seal as evidence of your status. You will need a financial statement when requesting a VISA or Master Card franchise.

Ask for Money before You Need It Practically every growing business experiences some rough financial periods a few growing pains and requires financing of some type sooner or later. Watch for signs of upcoming problems so you and your banker can deal with them in advance not after the problem has grown serious.

Plan your growth program and pre-sell your banker. Foresight demonstrates that you are an astute professional manager on top of every situation. Your chances of obtaining a loan under marginal conditions will be improved 50 percent by anticipating your needs.

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