Note: SmallBusiness.com admires the work of the SBA but has no relationship with the government administration. You can find information from the SBA at their website: SBA.gov

Fraudsters have already begun targeting small business owners during these economically difficult times.  Be on the lookout for grant fraud, loan fraud, and phishing.

U.S. Small Business Administration
March 31, 2020

The Scams and Fraud Schemes include Grants, Loans and Phishing

Grants

• The SBA does not initiate contact on either 7a or Disaster loans or grants.  If you are proactively contacted by someone claiming to be from the SBA, suspect fraud.

Loans

• If you are contacted by someone promising to get approval of an SBA loan, but requires any payment up front or offers a high interest bridge loan in the interim, suspect fraud.
• SBA limits the fees a broker can charge a borrower to 3% for loans $50,000 or less and 2% for loans $50,000 to $1,000,000 with an additional ¼% on amounts over $1,000,000.  Any attempt to charge more than these fees is inappropriate.
• If you have a question about getting a SBA disaster loan, call 800-659-2955 or send an email to disastercustomerservice@sba.gov.
• If you have questions about other SBA lending products, call SBA’s Answer Desk at 800-827-5722 or send an email to answerdesk@sba.gov.

Phishing

• If you are in the process of applying for an SBA loan and receive email correspondence asking for PII, ensure that the referenced application number is consistent with the actual application number.
• Look out for phishing attacks/scams utilizing the SBA logo.  These may be attempts to obtain your personally identifiable information (PII),to obtain personal banking access, or to install ransomware/malware on your computer.
• Any email communication from SBA will come from accounts ending with sba.gov.
• The presence of an SBA logo on a webpage does not guaranty the information is accurate or endorsed by SBA.  Please cross-reference any information you receive with information available at www.sba.gov.

How to Report Fraud

Report any suspected fraud to the SBA Office of Inspector General Hotline at 800-767-0385 or online.

It sounds like a cliché, but every business is only as strong as the people in the office, behind the counter or on the sales or shop floor. That’s true for big businesses and small, alike, according to David Bloom, general manager of the Small Business Group at Sterling, an employment background screening company. The impact is even greater in a small company where relatively few people are responsible for so much. We asked Bloom why background screening searches are so important. This is what he explained.

Many small businesses already require pre-employment tests, resumes or examples of skills and experience that display the potential employee is proficient in a skill. These small business owners invest in people to make sure they’re putting the right skills in the right positions.

More and more, small business owners are also using background and screeing checks to determine the risks involved with a new hire, and give you data to confirm that your hiring decisions are good ones.

Screening varies widely by industry

In Healthcare, there are stringent regulations around screening and monitoring. Other industries have no guidance at all. Screening may sound complex, but a professional background screening provider will provide guidance on regulations and best practices in your industry.

The screener you choose should be

• Familiar with your industry
• Familiar with the position or role for which you’re hiring
• Familiar with your risk tolerance

What is the cost of a bad hire?

According to the Society for Human Resource Management (SHRM), each hire costs more than $4,120 and takes 42 days. Zappos CEO Tony Hsieh says that bad hires have cost his company “well over $100 million.”

A bad hire affects more than one position

Think about the team around a new hire. Think abou the decisions made (or not made) due to poor judgment, the impact to the customer, and most costly, the value of your brand.

Each member of a team has an impact that cascades throughout the business and the culture. Nothing is harder to build than trust. Most businesses don’t have room to risk that.

What are the factors to consider when it comes to choosing a screening provider?

Compliance

Above all else, a trusted screening provider is compliant with the law. The right provider will ensure compliance with the Fair Credit Reporting Act (FCRA) and be accredited by the National Association of Professional Background Screeners (NAPBS).

Background screening is highly regulated; laws vary from state to state and even city to city, and are constantly evolving — if your background check isn’t FCRA-compliant, you put your business at serious legal risk.

Thoroughness

“Background check” can refer to a quick search of a national online database, with substantial gaps in reporting and no double-checking of source data to confirm the initial pass is correct, or it can refer to a rigorous search that involves many steps and stringent processes.

Look for a thorough, multi-step search that includes access to primary sources for criminal records, Department of Justice Sex Offender search, and verification.

Customization

Background checks should not be one-size-fits-all. Different industries and different roles require different searches. When choosing a screening service, make sure you can tailor your search to the position, whether you need to look at driver’s records, verify education and employment, conduct drug testing, or do other types of screening.

Beware of “instant” online searches. They do not provide trustworthy or compliant information. Not all background checks are created equal. When you’re considering a provider that seems legitimate, ask questions and understand what you will (and won’t) get in your search.

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In a multi-part investigation, Bloomberg News is exploring how an obscure legal document turned “New York’s court system into a debt-collection machine that’s chewing up small businesses across America.” The small business loan practice enables a loan company to sue a small business and take its money whenever it wants, with no proof, warning or legal recourse. The tactics being used by aggressive lenders is called a “confession of judgment” and it is being used to terrorize — and often bankrupt — small businesses across the country, according to Bloomberg.

“Rather than breaking legs, these lenders have co-opted New York’s court system and turned it into a high-speed debt-collection machine.”

Bloomberg BusinessWeek

Bloomberg Quote

“Tens of thousands of contractors, florists, and other small-business owners nationwide (are) being chewed up by the same legal process. Behind it all was a group of financiers who lend money at interest rates higher than those once demanded by Mafia loan sharks. Rather than breaking legs, these lenders have co-opted New York’s court system and turned it into a high-speed debt-collection machine. Government officials enable the whole scheme. A few are even getting rich doing it. This form of predation has found a lucrative base in New York, where state law is uniquely amenable to confessions of judgment. In a matter of days, a lender can get a county clerk to sign a judgment and a New York City marshal to confiscate cash from any bank with an office in the city — all before the borrower has a clue what’s going on. In this way, cash-advance companies have extracted hundreds of millions of dollars from thousands of small businesses over the past several years, afflicting the likes of car washes, real-estate agencies and pizzerias nationwide. Even if documents are forged or defaults fabricated, fighting back can be useless: The judgments are extremely difficult to overturn, and businesses can be destroyed before their owners even get a chance to try.”

Bloomberg Editorial

In an editorial accompanying the report, Bloomberg’s editorial board issued a call for the end of the predatory small business loan practice:

“Most business owners would never sign such an agreement if they were aware of the potential consequences. All too often they aren’t: Small business lending remains largely unregulated in the U.S., with no consistent requirements for clear disclosure of terms and interest rates.

“The best solution would be for Congress to pass a truth-in-lending law for small business, along the lines of the rules that already exist for consumer loans. This should include federal constraints on confessions of judgment — outlawing their use for new loans, or at least requiring that the borrower get a written recommendation from a lawyer before entering any such agreement (as California already does). It should also designate a federal regulator to apply the law to all lenders, no matter what they call themselves.”

Read more | Bloomberg BusinessNews: “I Hearby Confess Judgement: How an obscure legal document turned New York’s court system into a debt-collection machine that’s chewing up small businesses across America.”

An employer credit for paid family and medical leave was created by the “Tax Cuts and Jobs Act”  passed in 2017. Employers may claim the credit based on wages paid to qualified employees while they are on family and medical leave. 

(Information via IRS.)

Facts about the paid family and leave credit

To claim the credit, employers must have a written policy that meets certain requirements:

• Employers must provide at least two weeks of paid family and medical leave annually to all qualifying employees who work full time. This can be prorated for employees who work part-time.
• The paid leave must be not less than 50 percent of the wages normally paid to the employee.

A qualifying employee is any employee who:

• Has been employed for one year or more.
• For the preceding year, had compensation that did not exceed a certain amount. For 2018, the employee must not have earned more than $72,000 in 2017.

For purposes of this credit, “family and medical leave” is leave for one or more of the following reasons:

• Birth of an employee’s child and to care for the newborn.
• Placement of a child with the employee for adoption or foster care.
• To care for the employee’s spouse, child, or parent who has a serious health condition.
• A serious health condition that makes the employee unable to perform the functions of his or her position.
• Any qualifying event due to an employee’s spouse, child, or parent being on covered active duty – or being called to duty – in the Armed Forces.
• To care for a service member who is the employee’s spouse, child, parent, or next of kin.

The credit is a percentage of the wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year.

An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit.  Any wages taken into account in determining any other general business credit may not be used towards this credit.

The credit is generally effective for wages paid in taxable years of the employer beginning after December 31, 2017. It is not available for wages paid in taxable years beginning after December 31, 2019.

Questions & Answers | Employer Credit for Paid Family and Medical Leave

Q | What is the employer credit for paid family and medical leave?

A |  This is a general business credit employers may claim, based on wages paid to qualified employees while they are on family and medical leave, subject to certain conditions.

Q | Who may claim the employer credit for paid family and medical leave?

A | Employers must have a written policy in place that meets certain requirements, including providing:

• At least two weeks of paid family and medical leave (annually) to all qualifying employees who work full time (prorated for employees who work part-time), and
• The paid leave is not less than 50 percent of the wages normally paid to the employee.

Q | Who is a qualifying employee?

A | A qualifying employee is an employee under the Fair Labor Standards Act who has been employed by the employer for one year or more and who, for the preceding year, were compensated more than a certain amount. For an employer claiming a credit for wages paid to an employee in 2018, the employee must not have earned more than $72,000 in 2017.

Q | What is “family and medical leave” for purposes of the paid family and medical leave credit?

A | This is a leave for one or more of the following reasons:

• Birth of an employee’s child and to care for the child.
• Placement of a child with the employee for adoption or foster care.
• To care for the employee’s spouse, child, or parent who has a serious health condition.
• A serious health condition that makes the employee unable to perform the functions of his or her position.
• Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces.
• To care for a service member who is the employee’s spouse, child, parent, or next of kin.

If an employer provides paid vacation leave, personal leave, or medical or sick leave (other than leave specifically for one or more of the purposes stated above), that paid leave is not considered family and medical leave.  In addition, any leave paid by a State or local government or required by State or local law will not be taken into account in determining the amount of employer-provided paid family and medical leave.

The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year.

Q | How is the paid family and medical leave credit calculated?

A | The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year.  The minimum percentage is 12.5% and is increased by 0.25% for each percentage point by which the amount paid to a qualifying employee exceeds 50% of the employee’s wages, with a maximum of 25%.  In certain cases, an additional limit may apply.

Q | How does the credit impact an employer’s deduction for the wages paid to an employee while on family and medical leave or claim for any other general business credits?

A | An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit.  Also, any wages taken into account in determining any other general business credit may not be used in determining this credit.

Q | What is the effective date of the paid family and medical leave credit?

A | The credit is generally effective for wages paid in taxable years of the employer beginning after December 31, 2017, and it is not available for wages paid in taxable years beginning after December 31, 2019.

Q | Will the IRS provide additional information on the credit?

A | The IRS expects that additional information will be provided that will address, for example, when the written policy must be in place, how paid “family and medical leave” relates to an employer’s other paid leave, how to determine whether an employee has been employed for “one year or more,” the impact of State and local leave requirements, and whether members of a controlled group of corporations and businesses under common control are treated as a single taxpayer in determining the credit.

(Information via IRS.)

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As we’ve shared before, the escalating costs — and legal hassles — of leasing a small shop or restaurant in New York City is threatening the existence of such businesses in certain areas of the city. Recognizing the growing number of unaffordable legal battles the smallest of some small businesses are facing over lease-related issues, the New York City Department of Small Business Services has started a new Commercial Lease Assistance Program.

The new program will provide up to 40 hours of legal services to a qualifying small business owner involved in a lease-related legal issue, including:

• Signing a new commercial lease
• Amending, renewing, or terminating an existing commercial lease
• Addressing a commercial lease-related issue

The program “will give small-business owners the help they need to resolve legal issues without driving them out of business,” said New York Mayor Bill de Blasio in a statement.

The program’s aim is to prevent small business owners and building owners from ending up in court. The city will not offer legal representation in court, according to Curbed.com.

The legal services will be offered in partnerships with:

• Brooklyn Legal Services Corporation A
• Volunteers of Legal Services
• Urban Justice Center

Businesses can learn more about the program on the Commercial Lease Assistance Program’s website.

To be eligible to participate, a business must:

• Meet the Small Business Administration (SBA) size standard (PDF)
• Be located in New York City
• Not be a franchise establishment
• Meet the income eligibility requirements of the legal service provider

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Update (4.17.2018) | The Supreme Court heard arguments in the case today. For an indepth overview, visit SCOTUSblog.com. We will update this post when the Court hands down its decision.

On Friday (1.12.2018), the U.S. Supreme Court announced it will take up a case that could require online retailers to collect state sales tax on purchases made online. In a previous 1992 case (Quill v. North Dakota), the court ruled that a direct marketing company cannot be forced to collect sales tax in states where it has no physical presence. While the Quill decision was made prior to the explosion in online e-commerce, the court has used it as the reason to avoid taking up a case specific to internet “e-commerce.”

By deciding to consider the current case (South Dakota v. Wayfair), the court is heeding calls from traditional retailers and dozens of states that contend that the 1992 ruling is obsolete in the e-commerce era. As part of the 1992 decision, the court indicated that Congress should take up the matter. The full Congress has not addressed it, however.

Main Street merchants vs. online e-commerce

Traditional Main Street small and local retailers have long argued that it’s unfair to not require online retailers to collect state sales tax. However, many major online retailers like Wayfair Inc., Overstock.com Inc. and Newegg Inc. are opposing South Dakota in the court fight. Each collects sales taxes from customers in only some states. (Amazon.com is not involved in this case, as explained below.)

“If Quill is overruled, the burdens will fall primarily on small and medium-sized companies whose access to a national market will be stifled,” the companies have argued in court documents. “Sales tax laws across the country are too complicated for retailers to know how much tax to collect unless they were physically present in the customer’s state.”

While this may have been true in the past, the National Retail Federation (NRF), a supporter of overturning Quill, now says that computer software has made that concern obsolete. The NRF says that Congress “…should not sit on the sidelines as the Supreme Court considers this case. It’s time to pass legislation to settle this critical issue once and for all. Even if the court rules in favor of a modern sales tax policy, legislation will still be needed to spell out how that would work.”

Why state and local governments support overturning Quill

State lawmakers may be ready to take up the legislation because 45 states with income taxes are seeking ways to make up the revenue they have lost due to provisions in the recently-passed tax reform act.

According to a report by the non-partisan congressional Government Accountability Office, state and local governments could have collected up to $13 billion more in 2017 if they’d been allowed to require sales tax payments from online merchants and other remote sellers. Other estimates are even higher. All but five states impose sales taxes, according to Bloomberg.

What about Amazon.com?

While Amazon.com is by far the largest online retailer in the U.S., it isn’t directly involved in the current court review.

In the past, Amazon used Quill to avoid collecting sales tax at all. The company has gradually changed its position as it has built warehouses — and thus, created a greater physical presence — all over the country. The company now says it backs a nationwide approach that would relieve retailers from dealing with a patchwork of state laws.

When selling its own inventory, Amazon charges sales tax in every state that imposes one, but about half of its sales involve goods owned by third-party merchants. For those items, the company says it’s up to the sellers to collect any taxes, and many don’t.

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Had Benjamin Franklin been around for the last 20 years, he might have reworded his infamous maxim to say, “Nothing is certain except death and taxes … and lawsuits.” Because that’s how it feels: No matter how careful you are, how carefully you’ve observed the law, someone will always find a way to sue you. Unfortunately, one major source of lawsuits for small business owners is from current and former employees. (It doesn’t help that there are lawyers who run TV commercials aimed at recruiting clients who they can represent in lawsuits against employers.)

As we know you didn’t start a small business so that you could be sued by employees, we encourage you to seek advice from your attorney on things you might do to lessen your chances of an employee lawsuit. Advice from your local attorney is especially important as laws and regulations can vary from jurisdiction to jurisdiction and state to state.

In addition to the specific advice you should seek from your lawyer, here are a few guidelines:

Treat employees (and customers, suppliers, etc.) with decency and respect.

If we weren’t reading daily reports about people with power taking advantage of those with whom they come in contact, we would assume all business owners and managers would understand this advice intuitively. But that’s obviously not the case. If you don’t follow this advice, chances are you’ll skip the others, also. And frankly, you deserve to be sued, or worse.

Follow labor laws as closely as possible.

If you don’t know what decency and respect are, at least follow labor laws. You can find them explained by the U.S. Department of Labor’s eLaw resource.

Clearly define work expectations.

No matter what their position, employees should always have clear definitions of success regarding their job, and routine reviews to let them know how they’re doing. This way, if they are later terminated, it can be showed how they didn’t meet expectations—and that there’s good reason for letting them go.

Terminate carefully and with respect.

Even if you have a good reason for termination, it’s important not to do it brashly. Depending on how you treat the employee, they may either feel furious or fairly treated. So take time to communicate and listen. A decent severance package can also go a long way in calming the waters. Have a document ready with all the information the employee will need. Let the employee know that you or a designated person will be available to assist with any administrative needs that may come up.

Have an employee handbook.

An employee handbook is perhaps one of the most important resources you can create for your small business—especially in terms of lawsuit protection. Within it you should include all vital employment issues: termination, maternity leaves, sick leaves, compensation and benefits, sexual harassment, etc. Make sure, though, that you write it with the help of legal counsel or a reliable human resources consultant. This will help ensure everything is as sound as it possibly can be.

Set up personnel records and keep them current.

Refer to the SmallBusiness.com checklist of items to keep (and not to keep) in an employee’s file. Such files should include any records that may be related to an employee’s performance and record. If you are ever sued, you’ll regret not having such files, if you choose not to.

And when all else fails …

Talk with your insurance provider to make sure you are covered appropriately. No, it’s not cheap, but neither are lawsuits. Keep in mind you’re going to want three guarantees in a policy: the right to select a lawyer, the right to consent before settling, and a per-claim, not per-claimant, deductible.

Bookmark Worthy:

• Department of Labor eLaws: Employment laws assistance for workers and small businesses
• EEOC Small Business Resource Center

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Avoid These 5 Things When You Must Lay Off an Employee

You’ve probably heard the joke about the scariest words in the English language, “I’m from the IRS and I’m here to help you.” In some cases, it’s true, they can help. (And yes, we know: it’s not the IRS who pass the tax laws, it’s lawmakers.) While we suggest that trusted financial, legal or tax advisors be the resources you turn to whenever making important decisions about money and taxes, if you want to do some quick preliminary research about small business taxes, the IRS continues to add more and more resources that, yes, may help you. Here are seven resources to help small businesses owners with common tax-related topics that the IRS would like you to know about.

A Federal Tax Hub for Small Business owners and Self-Employed

The Small Business and Self-Employed Tax Center brings information on IRS.gov to one common place. Includes resources for taxpayers who file Form 1040, Schedules C, E, F or Form 2106, as well as small businesses with assets under $10 million.

Resources for Organizing Tax-related Information

The IRS Tax Calendar for Businesses and Self-Employed helps owners stay organized. It includes tax due dates and actions for each month. Users can subscribe to calendar reminders or import the calendar to their desktop or calendar on their mobile device.

Search for Tax-Related Information by Topic

The A-to-Z Index for Business helps people easily find small business topics on IRS.gov.

Watch Videos

The IRS Video Portal  offers learning events and informational videos on many business topics.

Find Forms

The Small Business Forms and Publications page (there’s a version on SmallBusiness.com, also) helps business owners find the documents they need for the type of business they own. It lists tax forms, instructions, desk guides and more. (These can also be found on SmallBusiness.com.

Meet Someone from the IRS in Person or Online

Small business workshops, seminars, and meetings are held throughout the country. They’re sponsored by IRS partners that specialize in federal tax topics. Topics vary from overviews to more specific topics such as retirement plans and recordkeeping.

Also on SmallBusiness.com

Small Business IRS Tax Forms and Guide | 2017

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Note: When it comes to issues related to taxes and the law, you should always consult your company’s legal and financial advisors before making a decision.

In many cases, it’s easy to know that a service provider is an independent contractor: You hire a freelancer to write copy for a brochure, you pay a bookkeeper to spend a few hours each month to assist on an accounting need, you hire a painter to repaint a room in your building. In those examples, it is easy to classify the service providers as independent contractors.

However, there are many situations in which determining the difference in employee and independent contractor status can become more confusing, and in some cases, contentious.

Why it’s critical to correctly determine whether a service provider is an employee or an independent contractor

Whether or not someone is an employee can have an impact on a wide array of federal, state and local regulations and taxes. Everything from tax withholding to employee benefits to wage and hour guidelines (minimum wage and overtime issues) are determined by the status of the relationship between the company and service provider. State and federal agencies have joined together to, in the words of the Department of Labor, “combat (the) pervasive issue” of employees misidentifying employees as independent contractors. Use of the word “combat” indicates that the Department of Labor views finding businesses misidentifying employees as a war. In such a war, it is important for a company to clearly determine its relationship to all those providing it services that may fall into a gray-zone.

Common law rules for determining the difference in an employee or an independent contractor

In general, there are three areas (or, “common law” rules) that determine if someone providing your company a service is an employee. All are related to how much control the business has over the provider.:

Behavioral factors: These factors relate to how much control the company has over what the worker does and how the worker does his or her job. For example, if the business hires a free lancer to provide a certain number of articles for a newsletter, that would be an independent contractor. If, on the other hand, the company required the freelancer to write those articles between 8 a.m. to 5 p.m. at a specific office using the company’s computer, the designation of independent contractor would be harder to defend.

Financial factors: Are the business aspects of the worker’s job controlled by the payer? These include things like how worker is paid, whether and how expenses are reimbursed, who provides tools/supplies, etc.

Relationship factors: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work being performed a key aspect of the business? If it is, the relationship will more likely be judged a business-employee one.

According to the IRS, there is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors relevant in one situation may not be relevant in another. The keys are looking at the entire relationship, considering the degree or extent of the right to direct and control, and finally, documenting each of the factors used in coming up with the determination.

When in doubt, you can request a determination from the IRS

As noted above, you should never make decisions related to taxes or regulations without consultation with your legal and financial advisors. However, the IRS does provide the option to businesses to seek a ruling on an employee’s status by filing a Form SS-8 (PDF), “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.” The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status.

Be aware that it can take at least six months to get a determination. And once a determination is made (whether by the business or by the IRS), the next step is filing the appropriate forms and paying any associated taxes the ruling may require.

Did we mention that you should seek guidance from your legal and financial advisors when doing this? Even if we did, it’s worth repeating.

Resources related to this topic:

• IRS.gov: “Independent Contractor (Self-Employed) or Employee?”
• Department of Labor (DOL.gov): Employee Misclassification as Independent Contractors

“Find out how to manage your rights on YouTube and learn more about respecting the rights of others.”

Supplementary Copyright Registration

On July 17, 2017, the U.S. Copyright Office (a part of the Library of Congress) implemented an online application requirement for supplementary registration. This adds more protection to copyright holders by allowing them the ability to update or clarify copyright information related to a specific creative work. The supplementary registration application may be accessed through the office’s online registration system.

Links to additional resources and information regarding copyright

Copyright.gov | Frequently asked questions about copyright

The U.S. Copyright Office is responsible for administering a complex and dynamic set of laws, which include registration, the recordation of title and licenses, a number of statutory licensing provisions, and other aspects of the 1976 Copyright Act and the 1998 Digital Millennium Copyright Act.

Electronic Frontier Foundation |Legal Guide for Bloggers

The Bloggers Guide to Intellectual Property is a list of frequently asked questions regarding issues that arise when you publish material created by others on your blog.

Berkman Klein Center | Lumen 

Lumen is an independent 3rd party research project studying cease and desist letters concerning online content. Its goals are to educate the public, to facilitate research about the different kinds of complaints and requests for removal–both legitimate and questionable–that are being sent to internet publishers and service providers, and to provide as much transparency as possible about the “ecology” of such notices, in terms of who is sending them and why, and to what effect.