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Regardless of the size of your business, it is very important to obey federal, state, and local laws when it comes to taxes, payroll, and other company expenses. Some business owners may unwittingly break the law when it comes to setting up or maintaining a business, so it’s important to seek the right advice to avoid litigation or fees down the line. Not only is it important to know where you stand when starting a business from scratch or taking ownership of an existing company, but it’s also equally necessary to monitor your region for any changes that might affect you. Ignorance of the law is no excuse, so a little research can go a long way.

Some mistakes are made regarding the different classifications of employees. A W2 employee is someone who is salaried. Companies withhold a certain dollar amount from their employees’ paychecks for Social Security and Medicare, and in return, the company pays payroll taxes to the government. Some businesses try to circumvent this by referring to some workers as independent contractors. The Department of Labor (DOL) is very picky when it comes to the use of contract workers, and harsh penalties can occur if any business abuses the system. 

Another way that businesses might be unfairly treating employees in order to save money is by excluding people from receiving overtime pay. It’s not a justified excuse to say anyone is exempt from overtime because they are salaried employees. The Fair Labor Standards Act (FLSA) provides detailed fact sheets about which employees are eligible to receive overtime pay.  The only way to be exempt is to meet every one of the qualifications, such as managing at least two people, having the ability to hire and fire employees, being in a managerial position, to name a few.

Workers’ compensation laws are different in each state, depending on the size of the business, the type of injury, and the industry affiliation. It’s important to do your due diligence when forming your company to make sure you abide by your state’s laws. 

Piece work is defined as any type of job that pays a worker a fixed rate for each unit of a product or service that is completed, regardless of how long it takes to finish. This means that a person’s hourly wage can fluctuate, depending on the volume of work completed. Some businesses have used this model to avoid having to pay their state’s minimum wage, which is unlawful.