Interns – Part II
After talking with some people who found out (belatedly) that they had been working as an “intern” (i.e. misclassified as an intern when they were actually doing full-time work), I am following up with my previous post about mis-classification of interns with some real-world examples, taken from the job postings on the Philadelphia Craigslist.
The first three are from area law firms. You would think that a law firm would know better, and not willfully violate federal and state law! If you see any type of “intern” job posting like the ones illustrated below, run, do not walk, away. Or, you could stick out in the “internship” and then turn around and sue your employer for violating the Fair Labor Standards Act and the PA Wage Payment Collection Law and collect punitive damages.
The above ad says that the “intern” will be doing “ filing, scanning, answering phones and interacting with clients”. Doesn’t this sound like what a full-time employee would be doing? How does the “intern” benefit from doing this type of work (as laid out in the EEOC criteria)? How can the law firm argue that it “derives no immediate advantage from the activities of the intern”? The fact is, this law firm is willfully violating the Fair Labor Standards Act which leads to a violation of the PA Wage Payment Collection Law not to mention audits from the IRS, PA Unemployment Compensation Board and the PA Workers’ Compensation Board.
The above ad comes from The Atlman Law Firm, LLC. As with the previous ad, this law firm seeks an “intern” do to the work of a full-time employee, with the law firm receiving the benefit of the person’s work. This is not an “intern”, but an hourly employee (who is working for free), in violation of the Fair Labor Standards Act and the Pennsylvania Wage Payment and Collection Law. As the law firm claims to have experience dealing with the IRS, they are going to need it if they get audited by the IRS for failing to withhold payroll taxes for this “intern”.
This last law firm ad comes from Joe Mitchell. As before, the job description is that of a full-time employee, acting as a secretary (all while unpaid). Hooray!
The last “intern” job posting comes from Ben Franklin SEP. It has all the hallmarks of a bogus “internship” – doing the work of a full-time employee for no pay. Yay!!!!
EEOC Holds View That Transgender Discrimination Is Illegal Under Title VII of the 1964 Civil Rights Act
Last week, the US Equal Employment Opportunity Commission issued a decision in a Title VII of the Civil Rights Act of 1964 employment discrimination case brought against the Bureau of Alcohol, Tobacco and Firearms, finding that Title VII prohibits discrimination based upon a person’s “gender identity, change of sex, and/or transgender status”.
While this decision is not binding upon any of the federal courts, it is now officially the EEOC’s position, and that will certainly influence the federal courts going forward. If you are a business, it would be helpful that all of your managers with hiring and firing decisions, as well as the human resources department, be informed of this decision, to ensure that the EEOC’s new guidelines are adhered to. Please contact me to schedule a no-cost consultation to discuss this decision or any other employment questions you might have.
Interns – Six Criteria For Determination
Are you an “intern” at a company or do you have “interns” working for you? Are you sure that you or the person working for you is really an “intern” and not an unpaid-employee? Quite a few businesses have mis-classified (either accidentally or on purpose) a worker as an “intern” which results in (1) the worker not getting paid or receiving overtime; (2) the employer not paying the employer’s share of medicare/social security taxes (FICA) for the worker; and (3) the employer not paying into the state’s unemployment compensation fund on behalf of the worker.
The US Department of Labor developed six criteria to determine if someone is really an intern (and exempt from the Fair Labor Standards Act, which governs the federal minimum wage and overtime, among other things), or is actually an employee:
- 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;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- 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;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
The help-wanted sections of Craigslist are filled with job listings for “interns”, yet based on the job descriptions, the employer is actually seeking an unpaid employee, which is illegal. Desperate job seeks will apply for these jobs, hoping to get some experience, only to wind up being exploited.
The penalties for a business caught mis-classifying someone as an “intern” when they really are an employee, can be steep: (1) civil penalties from the US Department of Labor for violating the Fair Labor Standards Act; (2) civil penalties from whatever state the “intern” is working in for violating that state’s wage payment law; (3) civil suit from the “intern” for violating the two previous-mentioned statutes; (4) civil suit (and possibly criminal charges) from the Internal Revenue Service for not paying the employer’s share of medicare/social security taxes (FICA); and (5) civil suit from the state’s unemployment compensation fund for not paying into it.
If you are currently working as an “intern” or you are an employer who has an “intern”, it is important to make sure that the “intern” classification is appropriate. Further information and assistance can be obtained by contacting me for a free consultation.
Crossfit South Philly Rumble
I am pleased to announce my sponsorship of Crossfit South Philly’s Rumble, taking place on Sunday April 15, 2012. Come out and watch your favorite elite exerciser.
Marketing Postcard
This is my new marketing mailer designed by KTYDesigns
Due Diligence for Purchasing a Business
A poster on the Crossfit Discussion Boards asked what he should do before purchasing an existing Crossfit gym. There was a lot of good advice given.
The most important thing that you need to do before purchasing any existing business is to do your due diligence, i.e., you need to investigate the operation of the business to make sure that what the existing owner/seller is telling you is true. The maxim “Trust, But Verify” (from the Russian proverb “doveryai, no proveryai”) could not be more true.
As part of your due diligence, you need to obtain the following information/documents from the seller:
Corporate Records
- Articles of Incorporation
- Company by-laws
- Annual reports
- Membership/Partnership/Operating Agreements
The purpose of having this information is to make sure that (1) the corporation actually exists, i.e. the incorporation documents were filed; (2) the corporation still exists, i.e., it is still in good standing with the state’s department of corporation; and (3) that any fictitious names that the business operates under were registered with the department of corporation. Also, if there is more than one owner of the business, to see exactly who all the owners are and what agreements are in place among the owners.
Financial Records (for at least the past five years, if available)
- Tax Returns
- Bank accounts
- Financial statements (not just profit and loss statement, but the raw financial data)
By looking at the business’ financial data, you can determine the health of the business (is the business in debt and barely covering its overhead each month; are the owner(s) taking out large amounts of cash each month in “salary” or bogus “expenses” (treating the business like their own private piggy bank), leaving the business with little ability to survive).
With the financial data in hand, you can use that to arrive at a price for the business. There are many different valuation models to use. An accountant or financial professional can help you choose the best model to use, so that you can accurately gauge the value of the business you are interested in purchasing.
Business Records
- Building lease
- Building permits/zoning variances/certificate of occupancy
- All contracts that the company has entered into
- A list of all employees, their job title, salaries, etc.
- All employment contracts
- All membership/service contracts (if a gym or other business that provides on-going services)
- Inventory of all equipment and who owns the equipment (was it purchased or leased, if leased, what are the lease terms, etc.)
If you are considering buying a service business, such as a gym, you need to figure out how you are going to retain the business’ customers after the sale. Is the previous owner going to stay on and help run the business? If so, what is their role? Are the business’ employees going to stay or are they going to take a job with your competitor and take the customers with them? Have all of the employees signed Non-Disclosure Agreements (NDA) and non-compete agreements with the business before the sale? If not, why? I would also ask why the owner(s) are selling? Are they not making any money; going to retire; open a competing business; burned out; etc.?
These are just some of the issues that need to be thoroughly analyzed as you do your due diligence. One of the most important steps you can take is to retain the services of a knowledgeable attorney who has experience in representing buyers of businesses and knows how to guide you through the due diligence process as well as draft and negotiate a purchase agreement for the business. Each state possibly has different laws that govern the sale of a business. For example, in Pennsylvania and New Jersey, the state’s Bulk Sales Act must be complied with, or the purchaser can be responsible for any unpaid taxes of the business prior to the sale.
Frequently Asked Questions: Starting My Own Business
These are some questions that I frequently get from clients about starting their own business:
Q: Why do I need to incorporate my business?
A: The most important reason is that you will be shielded from personal liability for any debts or claims made against the business. If you don’t incorporate, and operate the business only as a d/b/a/, all of your personal assets are at risk, including your credit rating, bank accounts, home, car, etc. if there are any claims made against the business, such as a liability claim or for any unpaid debt.
Q: What form of business should I use?
A: 99% of the time, either a Sub-Chapter S or a Limited Liability Company (LLC) are the best, as they both allow for multiple owners and flexibility in changing the owenrship structure (in the event of a sale or new investors). They are both easy to setup quickly and are treated similarly for tax purposes (please consult with a licensed tax professional for any tax-related questions).
Q: Before I incorporate my business, do I need to do anything?
A: Pick a name and once you have a name, get a Employer Identification Number (EIN) from the IRS.
Q: Why do I need a EIN?
A: This is the taxpayer # that is associated with your business, and you need it to open a bank account in your company’s name, file your business’ tax returns. Also, some other business and/or customers might require the EIN before they will do business with you.
Q: After I get the EIN, are there any other tax issues I should be aware of?
A: Yes. Depending on what city your business is operating in, you might need to get some form of “business privilege” license. For example, Philadelphia requires that all businesses operating in Philadelphia, even sole proprietors and even for one day, to obtain a Business Privilege License for a one-time “fee” (i.e. tax) of $300.
Q: After my business is incorporated, can I continue to use my personal checks and bank account? If I’m operating the business out of my home, can I use my home address and phone/fax numbers?
A: NO! In order to maintain the corporate structure, you must not mix your personal and business assets. You must operate your business from a separate bank account, otherwise you risk being personally liable for any debts/claims of the business. Also, it is highly recommended that if you are not operating your business out of a commercial space, but rather out of your home, that you get a PO Box (either from the post office or a place that rents mail boxes) as the “official” contact point for your business, along with separate phone and fax numbers. Google Voice is free and allows you to obtain a phone # and have all calls directed to any other phone # (such as your cell phone). eFax offers web/email based receive and fax services for about $16/month and allows you to have incoming faxes sent to any email address.
Q: Can I operate my business out of my home, or do I need to lease an office/space?
A: Yes, but make sure that your zoning code allows for the operation of a business out of residential space.
Q: What if I want to lease a raw space and build it out to my specs?
A: Go for it. Just make sure that the space is zoned for the business you intend. For example, Philadelphia has nine separate commercial zoning types. Also, depending on what type of zone you are in, you might be required to provide some form of parking and there may be restrictions on what kind of signs you can use. If the building you are interested in is not zoned for the type of business you want to operate, you can get a variance. Consult with a land-use/zoning attorney if you have specific questions about the zoning code in your area.
