Dear valued clients and supporters: This month's newsletter will focus on: (1) the current and upcoming obligations for employers under the Affordable Care Act; (2) the differences between employees and independent contractors; and (3) Non-Qualified Stock Options as a tool for entrepreneurs to attract expert advisors/consultants/employees.
Under the Affordable Care Act ("ACA"), employers with over 50 full-time employees are required to provide health insurance. The insurance must meet certain minimal standards and must be offered to the vast majority of employees in large businesses. Employers who fail to meet the ACA's requirements face penalties that could total in the tens or hundreds of thousands of dollars. While the ACA's rules for 2014 and 2015 have been more flexible, beginning in 2016, employer obligations and penalties will be in full effect. For smaller employers who are not required to provide insurance, the ACA offers tax incentives for doing so. All employers are encouraged to consult with counsel to make sure they are in compliance and can read more about this issue in our article available here.
Understanding what makes a worker an employee or an independent contractor under the law is one of the most important distinctions a business owner should be able to make. Depending on the classification, employers are required to make specific tax withholdings and carry workers compensation and unemployment insurance policies. Additionally, employees (as opposed to independent contractors) are protected by minimum wage, overtime, and other labor laws both under City, State and Federal Laws. Employers who misclassify workers and then fail to meet their obligations and/or violate the law can be held liable for penalties and damages that are as much as triple what they owe. Additionally, employers may be subject to investigation by government agencies. Recently, the U.S. Department of Labor issued an interpretation that clarified the standard used for determining a worker's status and the extent to which State and Federal agencies are auditing employee classification. For more information, including the test used for determining whether a worker is an independent contractor or an employee, see our article here.
For entrepreneurs and business owners who might not have substantial cash on hand, offering equity in exchange for services is a commonly utilized option. One way in which this can be done is through Non-Qualified Stock Options ("NQSOs"), which grants an individual the right to purchase shares in a company at a low, fixed rate, in exchange for providing expert advise or other services. If the price of the company's stock goes up, the option holder will be able to purchase the shares at the lower, fixed rate and enjoy the increased stock price as profit. NQSOs come with built-in limitations that are designed to protect the interests of the business and allow the parties to establish their relationship first. Most commonly, the option holder does not gain the right to purchase shares until he or she has provided services to the company for a certain period of time. Understanding how to use NSQOs can be a powerful tool for business owners and is something all entrepreneurs should have at their disposal. For more information and in-depth discussion on NQSOs, see our article here.
Disclaimer: Nothing on this website is or should be construed as legal advice. An attorney-client relationship does not exist with our firm unless a signed retainer agreement is executed, and we do not offer legal advice through this site or any of the content located on it. For legal advice for your particular circumstances, please contact us directly.