Baby boomers working from home have numerous issues to consider over the course of launching their businesses. We will discuss the following issues in Part 1 of this article:
- Entity formation
- Protecting confidential information
- Employees compared to independent contractors
- Contracts with third parties.
Other equally important concerns are going to be covered in Part 2 of this article. Right now, many baby boomers are leaving the corporate world to become self-employed. The U.S. boasts a surplus of highly skilled workers that, combined with trends in downsizing and outsourcing, is creating a plethora of boomers that have no choice but to be self-employed.
Many boomers become consultants who can function anywhere, and, therefore, work out of their homes to save on expenses and enjoy convenience.
Here are some key points that baby boomers should consider before working from home:
Mario runs a successful landscaping home-based business, storing equipment in his shed and employing three younger people. In the process of removing a tree, a massive branch fell on his customer’s house damaging the roof and the master bedroom. Compensating the customer could cost tens of thousands of dollars.
Although it is legal being engaged in your business as a sole proprietorship or “dba”, it is always better to operate your business as a corporation or limited liability business (“LLC”). In addition to the professionalism of having an entity, the entity affords some safety by shielding you from liabilities caused by others during the course of routine business activities.
Therefore, as the business itself will be liable for acts or omissions by workers, agents, contractors, etc., the small business owner would not have his own assets at risk (like his house or savings) unless the claim arises from something that the business owner himself did. A good attorney and tax advisor can help you choose the best entity.
Protecting Confidential Information: Gloria was thrilled when a national charitable foundation hired her to help with a major campaign. Gloria quickly signed a contract, not realizing that the terms on the contract required that she divulge a summary of former donors she had amassed over her years as a professional fundraiser.
Your value as a consultant or salesperson comes from years of experience, know-how and contacts. Therefore, you must protect your “special sauce” — your proprietary information and sales base. This is facilitated with adequate confidentiality and non-disclosure agreements, which will include provisions that prohibit solicitation of each other’s customers, clients and workers.
Frequently, consultants are all too eager to sign such documents provided from the companies for whom they would like to work. The problem with blindly signing them is that these documents frequently contain unfair provisions or are non-mutual, such that they protect the other party but not you. With legal review, you might find yourself having given the other party access to your contacts and know-how without even knowing it.
Employees Compared To Independent Contractors:
“Grandma’s Kitchen” was such a great success that grandma Esther had to hire an assistant to meet the demand for her home baked desserts. Should her assistant receive benefits at her new job? If your business merits hiring associates you need to determine whether they should be employees (W-2) or independent contractors (1099). Many small business owners consider everyone as a contractor so as not to put them on the payroll, to have more flexibility and to save money on payroll services. However, the rules about whether someone is an employee or independent contractor have become complex and are based upon the particular facts and circumstances of every unique relationship. The penalties for treating someone as an independent contractor when they are an employee are considerable. You can avoid major headaches by discussing each situation with your legal counsel.
In addition, your attorney can provide independent contracting agreements that will protect you from a contractor later trying to gain the benefits of being an employee and also protect you in the case you receive an inquiry from the IRS.
Whether you are hiring an employee or appealing a 1099 contractor, you will also want to protect your customer base, proprietary information and, if applicable, contractor and vendor relationships with non-disclosure and non-solicitation agreements.
Contracts with Third Parties:
Making the move from the high-pressure international publishing house to freelance editing from his home was easy for Arthur, but his contract as a consultant to his former employer was harder. Most businesses also need some sort of basic contract that obligates the customer to make payment, evidence the amount of your compensation and protect you from delinquent customers by imposing late charges, interest and the legal costs.
Additionally, most consultants would benefit by a contract that defines the scope of the project, pays the consultant for other expenses, further protects confidential details, and limits your liability if the other party later alleges dissatisfaction with your work or has experienced other problems. More complicated contracts will involve such issues as fixing substandard work, warranties, indemnification, and dispute resolution.
Some self-employed people make the mistake of using only purchase orders, which usually are not binding, or of blindly signing contracts provided by their client or customer. These are typically one-sided, often prepared by in-house attorneys who have added provisions buried within the “boiler plate, ” which can go unnoticed by a layman and create trouble later.
For these reasons, having an attorney review such contracts is critical, and typically, an experienced contract lawyer is not going to need to charge much to review contracts on small projects.
These are just some on the issues boomers must consider when launching a home-based business. Other equally important concerns are going to be covered in Part 2 of this article.
Written by Michael Goldman
Article contributed by BabyBoomer-Magazine.com