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In partnership with HRdirect Smart Apps

Why You Need to Keep Separate Records for Your Business

By Rieva Lesonsky

records

Like many entrepreneurs, you probably started your business as a side hustle to make some extra money or to test the idea before launching it full-time. You probably also used your personal assets for startup capital and folded the business into your everyday life. However, as the business grows it’s crucial to create a clear boundary between your personal and business life and that includes finances, workspace and recordkeeping. Here’s what you need to know:

Setting Up Your Business Entity

Choosing a business structure for your new business has legal, financial, and administrative implications, so it’s important to do your research on each entity type. No matter which you choose, keeping business records separate from personal records could save you headaches and money (from penalties) come tax season. If you decide to incorporate, your business finances must be kept separate because the business is considered a separate legal entity. On the other end of the spectrum, a sole proprietorship is considered an unincorporated business with no legal distinction between you and the business. But because all profits, losses and liabilities are passed through to you personally, it’s even more essential for a sole proprietor to keep business and personal finances separate.

In the event of an IRS audit, the burden of proof falls on the business owner to document business income and expenses. Keeping good records and finances separate will help you defend your case.

Getting Audited

The IRS is not the only agency that can audit your business. You need to keep meticulous records in case of audits by:

  • State agencies: for sales tax, business registration and employment issues
  • Federal agencies: including OSHA (Occupational Health and Safety Agency) for workplace safety claims, the ADA (Americans with Disabilities Act) for discrimination claims, OFCCP (Office of Federal Contract Compliance Programs) for hiring, promotion, compensation and discrimination violations, the EEOC (Equal Employment Opportunities Commission) for discrimination and harassment claims, the Wage and Hour section of the Department of Labor for wage and hour law compliance and Immigration/customs (ICE) for I-9 compliance.

Setting Up a Business Bank Account

Having a business bank account not only allows you to keep your business and personal finances separate, it also makes for better organization and is the more professional option. Although it may make things such as fund transfers easier, you don’t need to choose the same bank as your personal accounts. Do some research and figure out what services you need such as merchant account services, payroll, wire transfers, etc. Banks offer a myriad of services, but their fees vary, so the total cost should be one of the deciding factors in selecting a bank for your business.

To open a business bank account, you’ll need several documents depending on what kind of business you own:

  • Social Security Number, Employer Identification Number (EIN) or Federal ID Number
  • Business license (local and state)
  • DBA documents (documentation showing Fictitious Business Name or Doing Business As)
  • Partnership Agreement
  • Incorporation papers

There will be many times while running your business operations that you’ll need advice and help from your bank so be sure to ask about customer service availability and what other support the bank offers its business clients.

How Long You Need to Keep Records

Check with your accountant to know what specific records you need to keep for your business but here are some guidelines to help:

Business records should be retained for:

  • 3 years: Business records should be kept for three years from the date you filed your original return or two years from the date the tax was paid If you are due a refund or credit.
  • 7 years: For loss claims due to worthless securities, bad debt or a loss deduction.
  • Indefinitely for years you did not file a return.
  • 4 years: Employment tax records.

Keep the following documents indefinitely:

  • Annual financial statements
  • Corporate documents (incorporation, charter, constitution, bylaws, minutes)
  • Stock records
  • Licenses, patents, trademarks and registration applications
  • Fixed asset additions documents
  • Employment records, especially any related to medical issues.

You also need to keep any documents that may pertain to the Sarbanes-Oxley Act (SOX), which protects whistleblowers.

When it comes specifically to HR documents and records, federal law requires you to keep resumes (1 year), time and salary records (3 or 4 years, depending on specifics), medical and benefits records (1 year), I-9 Employment Verification Records (3 years from the date of hire or 1 year after termination—whichever is later), and performance reviews (2 years) and disciplinary reports.

Recordkeeping Made Easy

If you’re considering making the switch from paper to digital recordkeeping, a good place to start is HRdirect’s free Employee Records Smart App. You can create your business account within minutes and invite employees to manage and update their information so you don’t have to.

In partnership with HRdirect SmartApps

Business records stock photo by Jat306/Shutterstock

Helping Employees Get to Work on Time

By Rieva Lesonsky

employees

Are chronically late employees affecting your business? A CareerBuilder study reveals 16 percent of employees say they’re late for work at least once a week. For a small business, tardiness can have a significant impact on the bottom line leaving customers waiting, tasks overlooked, responsibilities forgotten and lost sales.

Before you start handing out pink slips, try these five ways to get your employees to work on time.

1. Document tardiness

You want to make sure you have documented proof of lateness before you take any action. Keep detailed records of days missed and late arrivals. Always ask your employees why they were tardy. Even make note of the times they let you know ahead of time they were going to be late. Having everything documented enables you to see patterns of time and attendance and helps you decide if you need to adjust schedules.

Depending on your type of business, you may want to stagger arrival times. If all your employees arrive at the same time, you might have a crowding situation. Or if employees like to chat before actually starting work, consider shifting arrival times to a bit earlier to accommodate “ease in” time. If your employees are mobile or virtual, there are plenty of time clock apps to help you keep track of when employees actually start work.

2. Talk to chronically late employees

Once you’ve identified patterns in employee punctuality, it may be time to change workplace policy. For example, if employees consistently come back late from lunch find out if the issue is just unaccountability or something else, like lack of food options close by. Do you have one microwave for your whole company and people have to wait to cook their food? Find out if chronically late employees in the morning have child-care issues or perhaps lack transportation. Talking to employees about lateness shows employees you care about their personal struggles, but also lets them know you’re aware of their lateness.

3. Review attendance guidelines

After you’ve made adjustments to your tardiness and attendance guidelines, go over them with your staff. Most employees are aware of their tardiness and won’t be surprised to get called out on the issue. Some, of course, will likely get defensive. What’s important is to review policies with the group as a whole and stress how important it is to be on time. If you don’t speak up, they think you don’t care.

Review who to contact if they know they will be late and what communication method you prefer, whether it is a phone call, text or email.

4. Follow up

Once you’ve gone over attendance policies, it’s important to stay on top of them. If you don’t follow up, employees will assume you are lax on the rules and take advantage of that. If certain employees continue to be late, tell them you are documenting their attendance and repercussions are inevitable unless the behavior changes.

5. Acknowledge improvements

Don’t make a huge deal out of employees arriving to work on time (after all, that should be the norm), but let them know you appreciate their efforts. Positive reinforcement helps keep your team on track.

The Right Tools Make All the Difference

If you need help monitoring employee attendance and time off requests, consider HRdirect’s web-based Attendance Calendar Smart App  which keeps track of who’s on the job, who’s called in sick and can spot troubling attendance patterns, and the Time Off Request Smart App that provides automated monitoring and documentation, so you’ll never forget or lose track of another request.

Late stock photo by VdZ/Shutterstock

Do You Understand the Difference Between an I-9 and W-4?

By Jaime Lizotte

forms

After weeks of hard work recruiting, screening and interviewing applicants, you have a bright, new hire in your midst. You’d love to let them hit the ground running, but, first, you must complete some critical paperwork. Be certain you understand the difference between two mandatory forms: the I-9 for work authorization and the W-4 to establish tax withholding. They’re very different forms that serve very different functions.

What It Is:

I-9: Under the Immigration and Reform Control Act, all employers must use Form I-9, Employment Eligibility Verification, to confirm an employee’s eligibility to work in the United States. This includes reviewing certain legal documents, such as driver’s license, Social Security card, birth certificate or green card, to establish identity and eligibility.

W-4: At the same time, the Internal Revenue Service (IRS) requires every employee to complete Form W-4, Employee’s Withholding Certificate., the amount of withholdings the employer needs to apply to the employee’s earnings. The form, which affects how much federal income tax you withhold from an employee’s paycheck, includes information on marital status, number of dependents and additional withholding amounts.

When to Complete:

I-9: With this three-part document, the employee fills out Section 1 on the first day of work, and you must complete Section 2 within three days of this date. You’ll also need to check the documents the employee provides from the “List of Acceptable Documents.” (Section 3 is completed, as necessary, to update or reverify an employee’s work authorization.)

W-4: The new hire should fill out a W-4 on or before the first day of work. Be certain the employee signs the form, because it’s considered invalid without a signature. You must process the W-4 by the start of the first payroll period ending on or after the 30th day from the date received.

Recordkeeping Considerations:

I-9: once you’ve completed an I-9 for U.S. citizens and lawful permanent residents, you’re done. For foreign workers with temporary authorization, however, the employee must indicate the expiration date under Section 1—and you must reverify eligibility on or before this date. You can do this by completing Section 3 or filling out a new I-9 altogether.

You must keep the I-9 on file for three years after the employee’s first day of work or one year after termination—whichever is later. After that, shred and discard the new hire paperwork because you could still be fined for improperly completed forms, even when they’re kept past the retention timeframe.

W-4: You need to maintain up-to-date W-4s that include recent changes to an employee’s personal or financial situation (such as moving, marriage, children or divorce), so it’s a good idea to have employees resubmit a W-4 each year.

The IRS requires you to maintain employment tax records for at least four years after taxes were paid. In addition to W-4 forms, this includes records of employee wages and tips (if applicable).

Streamline the Onboarding Process and Avoid Costly Mistakes

dedicated I-9 and W-4 app can help you complete mandatory forms for new hires with less hassle. The software guides you through the process, step by step, for a completely automated, paperless and accurate process.

Jaime Lizotte is the HR & Tax Compliance Solutions Manager at HRdirect Smart Apps. Jaime joined the product development team at ComplyRight in 2007. Since then, she has managed and developed numerous HR solutions, from training tools and safety products to HR and tax reporting software.

In partnership with HRdirect Smart Apps

Employee stock photo by Syda Productions/Shutterstock