When it comes to online businesses, the laws may seem very confusing at first. And that’s because, well, they are. What if you are in Texas, but your employee lives in California? What about working with contractors, but they are more like employees, and you weren’t aware of that? So many online business owners walk around in that fog of ignorance (or denial!) until something big comes up, and then they end up paying hefty fines because they were not on the right side of the law.


We don’t want that to happen to you!


That’s why we interviewed Emily Baker, an excellent lawyer for online businesses and former deputy district attorney. She’s the host of the popular Get Legit Law and Sh!t podcast. If you aren’t sure if the way your business is structured is on the right side of the law or even if you think you are, keep reading!


When it comes to hiring, people don’t always consider the laws behind it until something goes wrong. In the current COVID-19 environment, Emily is getting a lot of calls from businesses because their contractors are misclassified, and they are filing for unemployment.


One of the biggest mistakes Emily sees that business owners make today and before the crisis, is a lack of awareness. Many people don’t realize that online businesses have to run the same way any other business runs. Whether it’s a big or a small business, if you are hiring people, you need to look into the legal guidelines behind employment arrangements.


The thing about employment law is that it applies to you where you sit as a business owner, and a different set of regulations may apply to your contractors depending on where their location. Attempting to be versed in the laws of every state would be difficult. Because of this, we highly recommend every business owner works with three main people from the very start of their business a CPA, a bookkeeper, and a LAWYER.


Let’s look at an example: 

If you hire a web designer as a contractor, you provide some details. You might give them with your brand colors, the pages you want, etc. They are going to send a proposal and tell you how long it will take and their rate to complete the work. You can’t tell them how to do the project or what you’re going to pay them.


On the other hand, if you hire a VA and give them a list of things they need to do, and you say you’re paying them $15 an hour, and they need to be available during those hours, then you are hiring an employee. And the laws change a lot depending on which kind of relationship you have.


There’s a perception that having employees is more work. But if you’re building a business to sustain and to thrive, then paying an employee shouldn’t be terrifying. But if you don’t want to grow that big, then maybe you should be looking at contractor tasks; for example, social media management, blog writing, small jobs like that.


We asked Emily what are the options for business owners when they don’t have a consistent income or work for employees. The first step is rather simple: look at what things you can outsource to free up your time. Websites like Fiverr are fantastic if you have a task that you only need to get done once and never have to do it again.


If you are looking to hire an employee, know that you hire them for a couple of hours a week. It doesn’t need to be 40 hours per week. Just be aware that for both hiring and firing, you need to do the proper paperwork for your state.


ABC Test and what it implies

Let’s look at the ABC test. In California, Massachusetts, New Jersey, and Connecticut, the three-part test asks:


a) Is the worker free from the control and direction of the hiring entity in the performance of the work both under the contract? What about if you have a team meeting with your contractor, and you need them to be there. Does it mean they’re employees now?

In that situation, the performance of the work isn’t generally dictated by a meeting. A check-in is fine as long as you aren’t doing five hours of meetings a week.


b) Does the worker perform work that is outside the usual course of the hiring entity’s business?

In the context of gig workers, that’s the slice that’s killing Uber and Instacart and all of that. Uber’s arguing that they’re a platform, not a ride-sharing service.


c) Is the worker customarily engaged in an independently established trade occupation or business out of the same nature as the work performed for the hiring entities?

This means if you are hiring someone to do social media management and they are also booking your travel, they’re more like an employee because they are doing things outside of their scope.


Under the more extensive test, when we’re talking about time, there are questions in that test. For example: does the company require reports and accounting for time? So are you requiring time tracking of your people? Does the company determine which order the services performed?

Does the company pay the individual by the hour, the week, or the month? And so many others.


What about training?

What happens if you have to train a contractor to work inside the business? For example, if your company uses a specific software or a project management tool.


Emily used the example of contracting a web developer. With a web developer, you say, “I have a WordPress site, and I need to get this done.” You tell them which platform you’re using, but you don’t dictate how to do it. But it becomes harder with project management because you are saying, “I need you to do these things within this software and framework.”


Still, Standard Operating Procedures (SOPs) are very valuable to a business. So if a contractor uses SOPs for proper guidance, it’s more for providing them guidelines so that they can work with the brand and company.


To make it clearer: giving them the tools and telling them what they have to do, means they’re an employee. If it’s just guidance on your brand and your business, they’re a contractor.


Every contractor’s contract should have a jurisdiction clause. So look at your contractor agreements and figure out what state law applies to that relationship because they vary from state to state. You don’t have to know every requirement; this is why you go to an expert.


How COVID-19 is affecting businesses

If you have W-2 employees, the paycheck protection program is a great option. It will pay your payroll for two months.


If that program is not the right fit for your business, you can furlough your employees. That means you’re furloughing your employees until further notice, and that allows them to file for unemployment.


You can furlough people in ordinary settings, not just during a worldwide crisis if your business is slow or isn’t doing as good as expected. But also, depending on the way your employment contract is written, you might be able to terminate people if the business can’t sustain it.


There is so much you can do with your business when you set up the foundation right. Entrepreneurs are helping other businesses and creating solutions during coronavirus, and it’s thanks to having their business in place with an adequate foundation.


We want to thank Emily for such an informative session, and we hope you learned a lot as we did.


To get her Independent Contractor Guide click here.


Disclaimer: We, Systematic Excellence Consulting LLC, are not lawyers, and we highly recommend consulting with one when making decisions for your business. The opinions expressed in the blog and on the podcast are our own.


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To listen to the full interview go here >>>