5 ms·

Hi Dan, thanks for the reply!. Back in 2006 I ended up starting an LLC (nieve young man that I was), but didn't end up getting my business taxes done by an acc

by orware 13y ago

Hi Dan, thanks for the reply!. Back in 2006 I ended up starting an LLC (nieve young man that I was), but didn't end up getting my business taxes done by an accountant until 2008, and I ended up shuttering the LLC aspect of the business shortly thereafter because of the automatic $800/yr that California charges in taxes for that privilege. In mid-2010 I started the software business (first time I had gone that route, prior to this with the LLC it was mainly work creating websites for other local businesses which never amounted to much since our area just isn't very tech savvy and I didn't market myself online). This I can say was my first real success (in that I was able to create a mini-business that actually resulted in some profit at the end of the year) and I've been maintaining that ever since, but it hasn't really grown much over the past few years (though updates have been put out, I haven't developed as many of the new products I had ideas for, primarily because the day job eats up so much of my energy and pays the bills). My goal though is to eventually build up that mini-business enough where I could provide a few local development jobs and maybe start building up that sort of industry locally, since our location doesn't really matter when we can market to the world at large :-). (Our county has the highest unemployment in California at about 25%). As far as the lawyer/labor laws stuff, I do believe you're right there, though I was hoping a new service like Zen Payroll would allow me to not have to worry about those sorts of things and just worry about getting money to/from the employees. You're also right that $200-$300/mo doesn't really justify paid help, to a degree, but since I have my day job and can't put a lot of energy into the software business, getting some help to build out those ideas for new products wouldn't be a bad idea. Right now he's volunteering to gain experience, but as I've decided to do a few small contracting development jobs recently (mainly to earn some extra money for the business so I can give him something) I'm giving him some of that extra money and paying for the lunches we're having together as an additional thank you. So far I haven't given him enough to justify making him an independent contractor and doing any W-9 stuff, but I'd definitely like to do more for him if I can, I'm just looking to see what the best options might be.

gamblor956 13y ago
You need to talk to a lawyer, despite the expense. Your "volunteer" sounds like an employee, and the situation sounds a lot like one of the abusive internship situations. In a nutshell, your volunteer is entitled to compensation for his work, and even if you never paid or don't actually pay him, the various federal governments will simply treat that as a timing difference. They'll want their taxes and FICA on the compensation, and failure to pay those amounts can lead to fines and penalties that easily exceed the amount of money you bring in from the business on an annual basis.
- orware 13y ago
  He is a volunteer and not an employee. And I wouldn't consider this an abusive internship situation. What he's officially doing is getting some real-world experience which he actually needs and we've gone through the volunteer process here at my day job (a community college) to provide him with that volunteer coverage and he's coming 3 days a week and helping me out with little projects that I've been backlogged on and he's been having a good time doing that. That is a volunteer situation and not an abusive internship at all. However, we cannot hire him here at my day job (since we're a public institution, there's a lengthy hiring process even if we had a position available, which has it's own length budgeting and creation process). If he were taking 6 units or more, we could potentially hire him as a student worker, but since he finished his degree he's not looking to take any additional classes right now. And having unpaid volunteers is not unprecedented. The money I paid to him as a thank you before was out of my own pocket for the volunteer work he had been doing for us here at the college since he wasn't getting paid for that work and I appreciate the assistance he's able to provide. As I mentioned previously though, I'd like to do more for him so I'm exploring this option of possibly doing some sort of hiring if it's possible in my software business, and have him help out with those separate projects (outside of his normal volunteer role), since I cannot do anything more for him except have him volunteer at the moment. Primarily because I do want him to be paid and start building a career for himself. However, I feel like you may think I'm taking advantage of a situation in a negative way and that's not how it is at all, in fact quite the opposite.
  - dangrossman 13y ago
    You don't get to decide that, which is why gamblor956 said you need to talk to a lawyer. That lawyer will tell you if the relationship you've set up is an employment relationship as defined by labor law and the tax code, regardless of what you're currently calling it, and regardless of the student's intentions. Believe it or not, even if someone volunteers to do work for free, you may not be permitted to accept their labor for free. Minimum wage is legally mandated minimum compensation for work, and unpaid internships that involve doing any work for the benefit of the employer are illegal even if the student is willing to be unpaid. The scope of work someone can do at an internship (or "volunteer opportunity") without being paid is very, very narrow. Based on what you've said so far, having him work on projects you are backlogged on and on your side business, this is not a legal unpaid volunteer situation. The relationship you two have has to meet _all_ of the following requirements to be exempt from paying him minimum wage, as established by the Supreme Court in Walling v. Portland Terminal Co. They continue to be the basic test used by the Department of Labor in deciding when unpaid student intern programs are legal or not: 1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment. 2. The internship experience is for the benefit of the intern. 3. The intern does not displace regular employees, but works under close supervision of existing staff. 4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded. 5. The intern is not necessarily entitled to a job at the conclusion of the internship. 6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
mountainair 13y ago
As others have said, it would be a good idea to speak to a lawyer. I know that the taxes and fees associated with becoming an LLC or corporation can seem steep, but if you plan to hire employees, it is an absolutely vital step. You said your business is a sole proprietorship, and that opens you, personally, up to all of the liability that your business incurs. In other words, if something goes awry and your business is sued, your home is on the line. And your risk for being sued increases as you take on employees/volunteers/interns/etc. Look for a business law clinic at a local law school - they might charge a small fee but there's a good chance they will work for free. Your issues likely have a simple solution, and there's no reason to pay a lot in legal fees for that. Good luck!
- orware 13y ago
  Thanks mountainair! The LLC step (when I had done it before) was pretty straightforward over at http://www.legalzoom.com/ http://www.legalzoom.com/ but it was a few hundred bucks and I did it for exactly the reasons you described...to get out of that open liability that the business could incur (I was younger, and thinking bigger about the growth my little company would have so I did a whole bunch of research to try and do the best thing I could do at the start). But I ended up shutting down the LLC because of the expense/benefit ratio wasn't working for me at the time and then stopped doing business really until I started up again in 2010 with the software business on a tiny scale. If I did decide to take on a more employees/volunteers it would definitely be a route I'd want to take again. We don't have any local law schools within a few hundred miles, but I think we do have one business law instructor here at the college who might allow me to pick his brain if I asked. Thanks again for the feedback! (Sorry for the delay in my reply...HN started giving me the "You're submitting too fast. Please slow down. Thanks" error when I tried to submit this reply and another one).

by orware 13y ago

gamblor956 13y ago

You need to talk to a lawyer, despite the expense. Your "volunteer" sounds like an employee, and the situation sounds a lot like one of the abusive internship situations. In a nutshell, your volunteer is entitled to compensation for his work, and even if you never paid or don't actually pay him, the various federal governments will simply treat that as a timing difference. They'll want their taxes and FICA on the compensation, and failure to pay those amounts can lead to fines and penalties that easily exceed the amount of money you bring in from the business on an annual basis.

orware 13y ago
He is a volunteer and not an employee. And I wouldn't consider this an abusive internship situation. What he's officially doing is getting some real-world experience which he actually needs and we've gone through the volunteer process here at my day job (a community college) to provide him with that volunteer coverage and he's coming 3 days a week and helping me out with little projects that I've been backlogged on and he's been having a good time doing that. That is a volunteer situation and not an abusive internship at all. However, we cannot hire him here at my day job (since we're a public institution, there's a lengthy hiring process even if we had a position available, which has it's own length budgeting and creation process). If he were taking 6 units or more, we could potentially hire him as a student worker, but since he finished his degree he's not looking to take any additional classes right now. And having unpaid volunteers is not unprecedented. The money I paid to him as a thank you before was out of my own pocket for the volunteer work he had been doing for us here at the college since he wasn't getting paid for that work and I appreciate the assistance he's able to provide. As I mentioned previously though, I'd like to do more for him so I'm exploring this option of possibly doing some sort of hiring if it's possible in my software business, and have him help out with those separate projects (outside of his normal volunteer role), since I cannot do anything more for him except have him volunteer at the moment. Primarily because I do want him to be paid and start building a career for himself. However, I feel like you may think I'm taking advantage of a situation in a negative way and that's not how it is at all, in fact quite the opposite.
- dangrossman 13y ago
  You don't get to decide that, which is why gamblor956 said you need to talk to a lawyer. That lawyer will tell you if the relationship you've set up is an employment relationship as defined by labor law and the tax code, regardless of what you're currently calling it, and regardless of the student's intentions. Believe it or not, even if someone volunteers to do work for free, you may not be permitted to accept their labor for free. Minimum wage is legally mandated minimum compensation for work, and unpaid internships that involve doing any work for the benefit of the employer are illegal even if the student is willing to be unpaid. The scope of work someone can do at an internship (or "volunteer opportunity") without being paid is very, very narrow. Based on what you've said so far, having him work on projects you are backlogged on and on your side business, this is not a legal unpaid volunteer situation. The relationship you two have has to meet _all_ of the following requirements to be exempt from paying him minimum wage, as established by the Supreme Court in Walling v. Portland Terminal Co. They continue to be the basic test used by the Department of Labor in deciding when unpaid student intern programs are legal or not: 1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment. 2. The internship experience is for the benefit of the intern. 3. The intern does not displace regular employees, but works under close supervision of existing staff. 4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded. 5. The intern is not necessarily entitled to a job at the conclusion of the internship. 6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

mountainair 13y ago

As others have said, it would be a good idea to speak to a lawyer. I know that the taxes and fees associated with becoming an LLC or corporation can seem steep, but if you plan to hire employees, it is an absolutely vital step. You said your business is a sole proprietorship, and that opens you, personally, up to all of the liability that your business incurs. In other words, if something goes awry and your business is sued, your home is on the line. And your risk for being sued increases as you take on employees/volunteers/interns/etc. Look for a business law clinic at a local law school - they might charge a small fee but there's a good chance they will work for free. Your issues likely have a simple solution, and there's no reason to pay a lot in legal fees for that. Good luck!

orware 13y ago
Thanks mountainair! The LLC step (when I had done it before) was pretty straightforward over at http://www.legalzoom.com/ http://www.legalzoom.com/ but it was a few hundred bucks and I did it for exactly the reasons you described...to get out of that open liability that the business could incur (I was younger, and thinking bigger about the growth my little company would have so I did a whole bunch of research to try and do the best thing I could do at the start). But I ended up shutting down the LLC because of the expense/benefit ratio wasn't working for me at the time and then stopped doing business really until I started up again in 2010 with the software business on a tiny scale. If I did decide to take on a more employees/volunteers it would definitely be a route I'd want to take again. We don't have any local law schools within a few hundred miles, but I think we do have one business law instructor here at the college who might allow me to pick his brain if I asked. Thanks again for the feedback! (Sorry for the delay in my reply...HN started giving me the "You're submitting too fast. Please slow down. Thanks" error when I tried to submit this reply and another one).