We’ve gotten such a great response to our series showcasing the Top 10 Legal Tips for Businesses that I’m thrilled to share the next in the series. I believe readers are responding because these tips apply no matter how big or small your business, and even whether it’s a brand-new startup or whether you’ve been running it for years already.

What most of these tips come down to is having a clear vision and recognizing that a few small steps that you take today can have a tremendous payoff further on down the line. With that in mind, here are two tips for this month that tie in with managing your employees and making sure that everything is completely above board.

4. Keep your payroll taxes paid. No matter how tempting it may be, you do not want to run afoul of the IRS when it comes to payroll taxes. When you withhold taxes from your employees, the money is considered a trust fund for which officers and others in a business organization may have personal responsibility.

Although you may have an occasional cash flow problem, borrow from a bank and not from your payroll tax funds. Obviously, at the time problems crop up – and it can happen in any business – they may seem like make-or-break issues. It may feel like there’s no choice. I’ve even heard of executives tapping into this money to pay employees. What harm could it do if you intend to repay the money later? This is always a mistake. The IRS can levy fines, charge interest, and has numerous other ways to make you regret not remitting the money directly.

One of my clients runs a successful business. Unfortunately, he also owes nearly half a million dollars to the IRS. A number of years ago, before I met him, he had another business and a partner. That partner absconded with the payroll taxes withheld from the company employees. That liability has come back to haunt my client many times over – and in this case, it wasn’t even the result of a deliberate action on his part. The chances of fines and interest ever being reassessed or waived based on your business’s extenuating circumstances are vanishingly low.

If you are an officer, and therefore potentially liable for the payroll taxes, make doubly sure that those that have access to the payroll taxes are in fact making the required payments on time, and that there are sufficient controls on the funds to keep them where they belong. Never use the payroll tax account for bridge loans or to keep the operational accounts solvent – not even for an instant.

5. Watch overtime carefully. Wage and hour violations frequently result from a common erroneous assumption regarding overtime liability. Many businesses think that by paying an employee an annual salary, they can avoid overtime pay. This is a serious mistake. Even salaried employees can be subject to the Fair Labor Standards Act requirements of overtime pay if those employees do not meet the requirements for an exempt employee.

Wondering if an employee could possibly be exempt? The short answer is_ probably not.

Exemptions are generally narrowly defined and great care must be taken to determine whether or not employees are exempt. In general, executive, administrative, and professional employees are exempt, along with outside sales persons and farm workers. Some highly paid commissioned employees of retail or service establishments are also exempt from overtime pay. Again, be very careful with these definitions, because exemptions from minimum wage requirements do not necessarily equal exemption from overtime pay requirements.

While some companies get away with occasional violations, don’t count on this, either. Employees of the U.S. Department of Labor are stationed throughout the country and investigate and gather data on employment conditions or practices to ensure compliance with the Fair Labor Standards Act. If they find violations, they may also recommend changes in employment practices to bring an employer into compliance. And if your company is found to have violated the law, they can recover back wages can in a civil suit and prosecute criminally if they believe the violation was willful. In addition, your company may not fire or discriminate against any employee for filing a complaint or participating in a legal proceeding under the Fair Labor Standards Act.

As with the tip above dealing with the IRS, there are no shortcuts when it comes to labor standards. Keep an eye on overtime and payroll issues extremely carefully, making sure to comply with all current employment regulations for the legal health of your company. If there’s a situation you’re not certain about, contact an attorney for guidance as soon as possible.

If you have any questions at any time, or to receive even more great legal tips to help your business avoid common pitfalls, contact us at (212) 661–7010 or (973) 365–2770 or email us directly at edsmith@edslaw.net.

To be continued…