We are firm believers over here at LVL Academy to always work with a legal professional when it comes to your business. We know this can be an added expense but when it comes to your business and personal liability, you have to make sure you are covering your ass (CYA as we call it around here). So today, we are thrilled to have lawyer for entrepreneurs, Annette Stepanian, answering some fundamental questions to make sure that your business booty is covered!
How much should one budget in legal startup costs?
It’s no mystery that working one-on-one with a lawyer isn’t cheap. In fact, you'll find that most lawyers charge a minimum of $250-350 AN HOUR for their time. So, if you were to go through all of the necessary business-building steps with a lawyer, budget a $2500-$500 in legal and filing fees.
If you can afford it, you’ll want to consult with a lawyer who can offer you individualized advice for your unique business. That’s always the best way. But, you can also do some of the initial legwork yourself, like drafting your own contracts and educating yourself on legal topics, so that you’re using the time with your lawyer more effectively. That’s why I’ve created a number of resources for the DIY entrepreneur. For example, I offer done-for-you contract templates for wedding and event professionals as well as legal trainings on core legal topics to help prepare and educate business owners on the legal side of running a business.
What are the first legal steps a new business owner should do before they take on their first wedding?
When first starting out, a new business owner should go through the steps to establish their business as required in the county and state where they’ll be operating their business. This includes things like determining what type of legal entity the business should be and obtaining the proper permits or licenses. A good place to start your research is with your county’s office, state’s Secretary of State office, taxing authority, and department of labor. Once the business is set up from a legal perspective, the next biggest step is getting your contracts in order! For answers to frequently asked questions about the law and starting a business, check out these free Office Talk podcast episodes.
What are the biggest legal mistakes you see wedding planners or designers make?
By far the biggest legal mistake I see among wedding planners/designers is operating their business without a solid contract or if they do have one, it’s one they’ve pieced together from copies they found on the internet or borrowed from other event planner friends. In my book, running a business without a solid written contract is a big no-no. Not only do written contracts help clarify expectations between you and a client, they help cover your booty in the event there’s ever a misunderstanding or disagreement with your client, and they may also support your case in court. An often overlooked, but equally important reason for having written contracts is that they communicate to your clients that you’re a professional and that you take your business seriously.
Another big mistake I see wedding and event professionals make is not properly classifying workers they hire to assist with their business. It’s important to understand the distinction between what makes a worker an independent contractor versus an employee, because improperly classifying a worker as an independent contractor can be quite costly for a business owner.
Speaking of employees, can you shed some light on the difference between a contractor and employee?
Generally, an independent contractor is a person or business - non-employees -who is self-employed and is in the business of offering its services to the general public. An independent contractor runs a separate business and is treated as such. One way to view whether a worker is an independent contractor is to ascertain the degree of control possessed by the worker. Generally, an independent contractor has the right to control or direct the way they do the work contracted for, including when, where and how. For example, let’s say Premier Events LLC wants to build a new website for their business. Because they don’t have the resources or skills to have this project completed in house, they decide to contract with Sally who is a website developer. Sally works as a website developer and serves a variety of clients including Premier Events LLC. Sally has her own tools, sets her own works schedule and decides how to go about working on this web development project. In this example, Sally is most likely an independent contractor.
In contrast, a worker who performs services for you is your employee if you, as the business owner, can control what will be done and how it will be done.
So, how do you determine the whether a worker is an in independent contractor or an employee?
Imagine a spectrum of workers where on one end, you have independent contractors and on the other end you have employees. In some circumstances, it’s clear that a worker falls within one of these two categories. But more often than not, your worker falls somewhere in the middle.
There are a few factors to consider in determining the proper classification of a worker.
It’s important to note that there is no one “magic” formula that applies across the board. Each agency weighs different factors to determine whether a worker has been properly classified as an independent contractor and no one factor makes the worker an employee or an independent contractor.
Here are a few factors that will support an independent contractor classification:
· Worker earns a profit or suffers a result as a result of the services they provide
· Worker has clients/customers other than the hiring business owner
· Worker provides its own tools and materials
· Worker can only be terminated according to the terms of an agreement
· Worker is paid a flat rate for the services rendered versus by a unit of time
· Worker pays its own business expenses
· Worker works on one project at a time for the business owner versus having a continuing relationship with the business owner
· Worker has discretion over how, when and where it performs its services
· Worker receives no training from the business owner
· Worker has the discretion to hire others to perform the contracted for services.
· Worker receives no employee benefits
· Worker is not required to submit regular reports to the business owner; it’s only required to deliver the end result
· Worker’s services are not part of the business owner’s day-to-day operations.
A business owner’s decision whether someone is an independent contractor is subject to review by numerous federal and state agencies, including the IRS, the Labor Department, state tax departments, and unemployment and worker’s compensation agencies. Again, there is no one set test. According to the IRS “[t]he keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.”
What should a business owner consider when they are hiring their first employee?
When you are ready to hire for your employee, you’ll want to consult a lawyer who specializes in labor and employment law as the laws on this topic can vary widely from state-to-state.
A Final Thought
As a lawyer, I always say: “Expect the best, but plan for the worst.” I know firsthand that being an entrepreneur is one heck of a roller-coaster ride. The highs can be high, and the lows, oh-so low. You’ll be pushed past your comfort zones and stretched to your limits. The ride is a whole lot easier if you surround yourself with people who can help you along the way. So, get informed and start building your support team of trusted lawyers, accountants, and other professionals now – before you need them. Your future self will thank you!
I can’t wait to see how your success story unfolds.
Annette Stepanian is an attorney who helps creative professionals and entrepreneurs lay a legal foundation for their business. Through her Office Talk podcast, done-for-you contract templates, online trainings and one-on-one services, Annette seeks to make the law practical, approachable, and dare we say it – even a little fun. To learn more, visit www.annettestepanian.com.
This information is for educational and informational purposes only; it is not intended as and does not constitute legal advice and does not create an attorney-client relationship between you and the author. You should not act, or refrain from acting, on the basis of information provided here without first consulting legal counsel in your jurisdiction.