There are several functions that simply cannot be managed properly in-house due to a combined lack of bandwidth, technologies, processes, and requisite knowledge. You should be focused on getting your product or service to market as quickly as possible – and generating revenue doing what you do best.
If you’re running an early-stage startup, chances are there are some knowledge gaps in your core team. You may be strong on the technical side or a product whiz, but what about financial strategy, administration, HR? Are you prepared to manage the day-to-day of your startup, from recruiting new talent to bookkeeping to financial planning?
If you have a knowledge gap within the ecosystem of your organization, you need to fill it. But your in-house startup team needs to focus on developing your products and service, creating partnerships, and earning revenue. Your internal resources should be focused on your core competencies, not on these side tasks.
So, what should you do? Outsource—to professional consultants or groups.
The best plan is to outsource whatever services you can so as to save on the highest business costs of all—staffing costs—while getting the support you need and the assurance that these functions are being taken care of by professionals.
Specifically, you can outsource the following 3 functions:
- CFO. If your company has closed a seed round of funding or is earning more than $250K per year, you need a CFO to handle your financial strategy and run your accounting team. Even if you’re not yet funded or earning significant revenue, you may still be in need of CFO services. For example, if you’re in high-growth mode or have a lot of activity or expenses, you definitely need a financial professional to oversee your financials. Depending on your needs, a consulting CFO may be able to help with financial projections, cash forecasts, operating budgets, financial plans, pricing, reporting, debt management, M&A, equity and debt negotiations and liquidations. Overall, CFOs help you with business planning, providing your business plan with essential rigor. Your business is creating a product or service; finance is not your business. Look for a professional CFO who has experience working with startups.
- Accountant. If your financial status doesn’t warrant hiring a CFO, you still need financial support; at the very least, you’ll need help with your day-to-day accounting and regulatory compliance. Outsourcing your bookkeeping to the right firm will give you the support you need for cash management, AP/AR, financial close and taxes. You can also hire a consulting group to provide accounting support on a project basis. So, whether you need help with audit preparation or generally accepted accounting principles (GAAP), your accounting partner can give your accounting issues the attention they need—so you can focus on other things.
- Human Resources. Any entrepreneur can attest to the fact that HR can be a total time suck. From recruiting to managing personnel issues, from compensation to benefits, from payroll to employee policies and procedures, human resources management can take over your entire schedule. And HR costs include much more than wages—all HR functions, while non-revenue driving, have an associated cost. Outsourcing your HR functions is definitely a cost as well, but when you calculate it out per employee (and figure on the invaluable savings of staying in compliance) it becomes clear that this is a necessary business cost.
While your company is in its early stages, it’s essential to get support, but only as you need it. To outsource doesn’t mean you just hand over a function and forget about it. You’ll still want to be apprised of all aspects of your startup; hiring the right consulting groups will insure that you stay informed.
Remember, you don’t outsource to make a service disappear; you outsource to reduce your cost structure and keep your internal resources focused on your business. When you outsource necessary functions on an as-needed basis, you can concentrate your internal team efforts where they are most needed: growth. And the companies you hire will help you stay on track as your company grows to the next level.
Although there are some exceptions, almost all hourly (non-exempt) employees in California must be paid the minimum wage as required by state law. Effective January 1, 2016, the minimum wage in California is $10.00 per hour.
Most employers in California are subject to both the federal and state minimum wage laws. Also, local entities (cities and counties) are allowed to enact minimum wage rates and several cities have recently adopted ordinances which establish a higher minimum wage rates for employees working within their local jurisdiction. The effect of this multiple coverage by different government sources is that when there are conflicting requirements in the laws, the employer must follow the stricter standard; that is, the one that is the most beneficial to the employee.
Thus, since California’s current law requires a higher minimum wage rate than does the federal law, all employers in California who are subject to both laws must pay the state minimum wage rate unless their employees are exempt under California law. Similarly, if a local entity (city or county) has adopted a higher minimum wage, employees must be paid the local wage where it is higher than the state or federal minimum wage rates.
Exempt Minimum Wage Update
Exempt employees in the administrative, executive or professional fields must be paid at least double the minimum hourly wage. Exempt employees must now earn an annual salary of at least $41,600 beginning January 1, 2016. It is up to employers to determine whether to classify an employee as exempt or non-exempt under the Fair Labor Standards Act (FLSA).
- It is imperative to understand that paying an employee the exempt minimum salary of $41,600 by itself will not qualify a position for exempt status. There are also duties and time-spent tests that must be met in order to qualify an employee for exempt status.
- If a position meets the testing standard for exempt status but is not compensated at the required exempt minimum salary, the position will revert to non-exempt status and overtime eligible.
Please contact your Centricity Solutions Account Manager if you are interested in an exempt/non-exempt analysis.
ACA Reporting Deadlines Have Been Extended
Good news from the federal government – the IRS announced on December 28 that Applicable Large Employers (ALEs) subject to the Affordable Care Act (ACA) reporting requirements have extended deadlines to file their required forms with the IRS. Even better, as a Centricity client, we will determine if your business is considered an ALE for ACA-reporting purposes – and will assume responsibility for all applicable filings on your behalf.
In order to properly complete the required filings, employees must update their family demographic information within the Centricity HR system. A brief memo provides details the simple steps required to update the (required) family demographic information within the Centricity HR system.
Here is a breakdown of forms ALEs are required to file and their new deadlines:
- ALEs have an additional two months to furnish Form 1095-C to full-time employees and covered individuals, extending the deadline to March 31, 2016.
- ALEs that file more than 250 of the 1095-C forms should also plan to file Form 1094-C and data electronically. The due date for filing this form electronically has been extended to June 30, 2016.
- For non-electronic filers, the deadline to file Form 1094-C with the IRS is now May 31, 2016.
Taxpayers generally will not be impacted by the extensions, even if they do not receive their forms prior to filing their individual tax returns. Most taxpayers will simply check a box on their tax returns to indicate they had coverage for the year and are not required to include Form 1095-C or Form 1095-B when filing their returns.
Centricity provides resources to help our ALE clients comply with the new reporting requirements. Contact Centricity for more information on our HR solutions for ACA compliance.
Centricity will be sending out Form W-2’s for the 2015 tax year during the last two weeks of January. Please remind your employees to update any address changes in Centricity’s HR system, as Form W-2’s will not be forwarded by the Post Office.
Tax notices for 2016 tax rates are now being sent out by many of the state taxing authorities. Please forward any & all employment tax notices you receive to Centricity as soon as possible to make certain payrolls are processed using the correct tax rate.
Health Savings Accounts (HSA)
If you offered a Health Savings Account (HSA) to your employees in 2015, the HSA vendor is responsible for providing year-end information for tax reporting. The HSA vendors are responsible for sending important account information directly to account holders for their tax planning and preparation. If you or your employees have not received this information, please contact your HSA vendor to find out how they are handling the tax reporting of HSA contributions.
HSA contribution limits have remained the same for employee-only coverage and have increased slightly for those with dependents. The 2016 limits are $3,350 for an individual and $6,750 for a family.
If you provided an Employer HSA contribution to your employees during 2015, this information will be reported on the employee Form W-2. However, employees should use the forms provided by the H S A vendor when filing their taxes.
2016 Holiday Schedule
It’s time to plan and publish your corporate holiday schedule for 2016. Please complete the Holiday Schedule Template and return to your Centricity Account Manager as soon as possible.
Please contact your Centricity Account Manager if you have any questions about any of these new year items. We look forward to being your resource throughout 2016 for any HR, Payroll, and Benefit needs.
Thank You and Happy New Year!
There are so many important legal issues that hinge on the distinction between the independent contractor verses the employer/employee relationship. It is essential that employers realize these issues before embarking on the hiring of an independent contractor, an agent or employees.
A number of workers these days prefer to trade in the corporate hierarchy for the freedom to be their own boss. Child care, elder care, commuting, and work life balance are all reasons why employees are choosing to contract rather than seek employment with one employer as a fulltime employee. These independent contractors can be found in nearly every profession, from lawyers and business consultants to writers and Human Resource consultants. They set their own schedule and enjoy a wide variety of work experiences.
The independent contractor arrangement can benefit both workers and businesses. However, a company that misclassifies its workforce as independent to avoid paying payroll tax or providing benefits, could be liable for the uncollected payroll taxes, interest and penalties. Regular status employees are entitled to certain legal protections and benefits that independent contractors are not — and the IRS and state governments are actively looking for clues that a company might be misclassifying the workers.
There is a continued need for companies to reduce costs – inevitably, payroll jumps to the top of the list of areas to reduce expenditures because it is often one of the largest costs an organization has, which usually results in the layoff of staff. However, employers are still faced with the need to have work or projects completed. Many companies choose to use laid off employees as independent consultants to do work on an as needed basis. There are risks involved with converting staff to consultant status verses changing the employee status to part-time.
There is always risk when an employee is changed to independent contractor status especially if it is within the same tax year. If the employee receives both a W2 and a 1099 for the same year from the same employer then it throws up a red flag to the government agencies and could possibly trigger an audit.
If the agent is doing the same job they did as an employee and they are then reclassified as independent contractor it may invoke state and federal agencies to get involved to determine the agents true status.
As an alternative, the employer may change the employees status to part-time rather than independent. The advantages of converting a former employee to part-time rather than an independent contractor include:
- Reduce or eliminate the red flag to multiple agencies that could trigger an audit, fines, and penalties.
- Less administrative work – when an employee is converted to an independent contractor they must be issued a W2 and 1099 at the end of the year.
- Employee can still apply for unemployment insurance as a part-time employee.
- Employees may still be eligible for company benefits or COBRA.
- No risk of an uninsured independent contract for liability or workers compensation.
An independent contractor qualifies as an agent – or employee – when the following standards are met:
- The degree the principal directs the work of the independent contractor. The more direction, the more likely it is an employee. This is by far the most important factor in determining the relationship as either independent or employer/employee.
- The condition which the independent contractor may be terminated. An independent contractor should not be fired unless contractual obligations are not met.
- The legal obligations of the worker. An employee may not legally be obligated nor experience undue repercussions for doing incorrect work or violating policy. Whereas an independent contractor may incur civil liabilities for such.
- The assistants are subject to control of the employer. If the independent contract has assistants or subagents helping him perform the duties of the contract, they should be employees of the independent contractor and not under the control of the employer.
- How the independent contractor is paid. Independent contractors should be paid on a per job basis and not on a salary or hourly basis.
- Training provided by the employer. Independent contractors are considered highly skilled in their trade and should possess the expertise needed to complete the project without the need for training by the employer.
- An independent contractor is distinguished from the employer’s regular employees. An independent contractor should not be doing normal everyday operational duties.
- Independent contractors should schedule their own work. If the employer dictates that the worker arrive at a certain time, take lunch at a certain time, and conclude their day by a certain time, there is more than likely an employer-employee relationship.
- The independent contractor should furnish their own tools. Independent contractor’s should not have a company email address, company business cards, company cell phone, or other tools and equipment that belong to the employer,
- The independent contractor provides services to more than one employer or organization. If the contract restricts the worker from offering services to other parties or the independent contractor works exclusively for one employer, it may be found they are employer-employee relationship.
A service provider can legitimately be an independent contractor if he has real autonomy and the opportunity to make a profit by exercising his own business judgment and discretion.
There are employees who want the independence of being their own boss and setting their own schedule and then there is the independent contractor who wants the benefits of an employee – paid leave, benefits, retirement, overtime, etc… Both the worker and the employer need to follow the control test to determine the correct classification.
Often an individual will accept the contract relationship because they have been unable to secure regular status employment. Since these individuals are not truly independent contracts they are often ignorant of their legal duties to pay employment tax or the inability to collect unemployment insurance. There can be legal and tax consequences for the independent contractor who hasn’t paid their taxes including Social Security and Medicare taxes, or carry the proper insurance which now includes health care. When the independent contract faces tax penalties or wants the benefits provided by an employment relationship, they often will file suit to claim their right to the employer’s benefits which may include health care coverage, retirement plans, disability insurance and workers compensation.
You can learn more about the determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee. These publications are available on the IRS Web site or by calling the IRS at 800-829-3676 (800-TAX-FORM).
Barbara Trumbly, SPHR, SHRM-SCP
Director, HR & Client Services
Centricity Solutions, Inc.
We will be sharing HR-related ideas and information intended to make your life a bit easier.
We will be interpreting HR headlines and trying to determine what it means for you at the front-line of a growing business.
We will be reviewing the latest HR legislation and sharing our knowledge of how to best deal with the practicalities of implementation on the ground.
Most importantly, we don’t want this to be a one-sided affair. We hope you’ll respond to our surveys and polls and provide additional feedback to help us shape future topics and conversations.
In the meantime, feel free to avail yourself of our FREE HR resources – including payroll check calculators, forms and policies by clicking here. Stay tuned!