Small Business Legal Academy Small Business Legal Essentials

Small Business Legal Academy: Small Business Legal Essentials November 19, 2014

OVERVIEW • Expected legal issues: • corporate form/entity selection • tax implications for entity • Non-Profit Formation • commercial lease • employment 2

Entity Selection / Tax Consequences presented by Simpson Thacher & Bartlett LLP

Entity Selection: Initial Questions 1) Do you plan on forming your business alone? 2) If you do not plan on forming your business alone: a) How many partners will you have? b) Will any of those parties be legal entities? c) Will all of the partners be U. S. citizens or permanent residents? d) How will management responsibilities be shared? Equally or not? e) Will each partner’s voting power be based on his/her percentage ownership of the business? 3) Do you plan on hiring employees? 4) What are your plans for expansion, including any plans to seek additional funding? 5) Will the business operate outside of NYS? 4

Entity Selection: Key Considerations § Liability ◦ to clients and customers ◦ to employees ◦ to the government § Taxes ◦ entity-level tax or “pass-through” treatment ◦ need to check tax at federal, state and local levels § Governance ◦ decision making ◦ representing the business to the outside world ◦ internal controls and compliance 5

Entity Selection: Key Considerations § Ownership § Ongoing Administrative Requirements § Initial Formation ◦ voting and economic control ◦ raising capital ◦ Transferability ◦ minutes and meetings ◦ reporting ◦ Recordkeeping ◦ cost ◦ efficiency 6

Entity Selection: Types of Entities to be Discussed § Sole Proprietorship § Partnership § C-Corporation § S-Corporation § Limited Liability Company 7

Entity Selection: Sole Proprietorship ➤ ➤ ➤ Liability ◦ Weakest liability protections Ownership ◦ Single owner ◦ Can do business under owner’s given name or a trade name (“dba”) ◦ Ability to raise capital limited Governance ◦ Single owner ◦ not appropriate for bringing in additional parties ➤ ➤ Business Taxes o Pass through taxation o Single owner reports business income on individual return (1040 Schedule C) o Self-employment tax on all profit o NYC “Unincorporated Business Tax Initial Formation ◦ Inexpensive ◦ Additional fees for registering “dba” Ongoing Administrative Requirements ◦ Minimal “Life” ◦ limited to owner’s life (no separate entity existence) 8

Entity Selection: Partnerships ➤ ➤ ➤ Liability ◦ Weaker liability protections ➤ Governance ◦ Flexible, set forth in partnership agreement Ownership ◦ Two or more partners ◦ Can do business under partners’ names or a trade name (“dba”) ◦ Less flexible than an LLC or corporation ◦ Limited partnerships permit investment without control of the business ➤ ➤ ➤ Business Taxes o Pass through taxation o Report business income on individual return (IRS 1040 Schedule 1065) o Self-employment tax on all profit o NYC “Unincorporated Business Tax” Initial Formation ◦ Cheap, although limited partnerships also have a publication requirement Ongoing Administrative Requirements ◦ Minimal “Life” ◦ Limited independent existence ― when any partner exits, partnership dissolves (creates difficulties with buying/selling interest) 9

Entity Selection: C-Corporations ➤ ➤ Liability ◦ Strong liability protections Ø Ownership ◦ Shareholders ◦ Multiple classes of stock allowed ◦ Transferable, subject to securities laws Governance ◦ Board of directors and officers ◦ Appropriate for complex organizations Business Taxes o Corporate level tax (i. e. , double taxation) o Shareholders report and pay tax on dividends they receive o NYS Corporation franchise tax ➤ ➤ Initial Formation ◦ Fairly inexpensive ◦ Certificate of Incorporation ($135) ◦ Bylaws ◦ Hold organizational meeting to approve bylaws and elect initial directors ◦ Issue stock Ongoing Administrative Requirements ◦ More onerous ◦ Important to avoid “piercing the corporate veil” “Life” ◦ Entity exists until it is formally dissolved. 10

Entity Selection: S-Corporations ➤ ➤ ➤ Liability ◦ Same as C-Corp Ownership ◦ Shareholders ◦ Limitation on number and type of shareholders ◦ One class of stock allowed ◦ Transferable, subject to securities laws Governance ◦ Same as C-Corp ◦ BUT - Managers (owner/employees) must be paid a reasonable wage. Otherwise, could be subject to selfemployment tax ➤ Business Taxes o Pass through taxation for IRS and NYS o Pro-rata allocation of income or loss o NYC general corporation tax Initial Formation ◦ Fairly inexpensive ◦ Certificate of Incorporation ($135) ◦ Bylaws ◦ Hold organizational meeting to approve bylaws and elect initial directors ◦ Issue stock ◦ Make “S” election Ø ➤ ➤ Ongoing Administrative Requirements ◦ More onerous ◦ Important to avoid “piercing the corporate veil” “Life” ◦ Entity exists until it is formally dissolved ◦ BUT – may loose special tax status 11

Entity Selection: Limited Liability Companies ➤ ➤ Liability ◦ Strong liability protections Ownership ◦ Highly flexible, multiple classes of interests allowed ◦ Transferable, subject to securities laws Governance ◦ Highly flexible, set forth in the LLC operating agreement ◦ Can be member-managed or manager-managed Business Taxes ◦ Pass through taxation ◦ Flexible allocation of income, loss and other tax items ➤ ➤ ➤ Initial Formation ◦ More expensive ($200) ◦ Publication Requirement Ongoing Administrative Requirements ◦ Less onerous than corporation, but recordkeeping requirements important “Life” ◦ May be for a designated period stipulated in the Articles of Organization; OR until a dissolution event occurs and the company takes no action to continue. 12

Important Takeaways § § § Hire an accountant Do not commingle personal and business funds Sign documents in the name of the entity rather than in personal capacity ◦ for example: “XYZ Corp. , by John Smith, CEO” rather than “John Smith” 13

Tax Considerations Choice of Entity ➤ • ➤ election for eligible entity Two economic possibilities • Entity tax (corporation) • Flow-through tax (partnerships, LLCs, S-corps) ➤ Other • State • Local • Payroll Taxes • Sales and Use Taxes 14

Tax Considerations Other Considerations ➤ Employer Identification Number (“EIN”): Must have one to open a bank account and if wages paid to any employee; Use IRS Form SS-4 ➤ Self-Employment Tax Considerations ➤ Taxes on Payments to Employees: • • Withholding of Employee’s Income Tax (Federal and NYS) Payroll Taxes Ø Ø Consider payments to ordinary employees (Social Security and Medicare Taxes, Federal Unemployment Taxes), payments to family members (“reasonable compensation”) Payments to independent contractors: No tax needs to be withheld, but have information reporting requirements. Business generally must report to the fed gov’t payments of $600 or more it makes to independent contractors 15

Tax Considerations Other Considerations (cont’d) ➤ Tax • • • ➤ Returns: C-corps file income tax returns, other entities generally file info returns Sole proprietors must report business income on NYS tax return Single-shareholder S-corp must still file entity-level returns Employers file NYS returns quarterly, even if no wages paid (Form NYS 45) Business files NYC returns (Form NYS-202 or NYS-204) if it has gross income (before deduction for services performed or cost of goods sold) of more than $95 k, and files a Form NYC-5 UBTI each quarter Estimated Taxes: • C-corp that anticipates federal tax bill of $500 or more must estimate its income tax liability for the tax year and pay quarterly installments • Sole proprietorships, partners in partnerships: pay estimated taxes if prior year’s NYS & NYC tax owed was at least $300 and this year’s income tax withholding on wages and credits won’t cover most (90%) of anticipated tax owed 16

Tax Considerations Other Considerations (cont’d) ➤ Capital gains • ➤ Individuals get reduced rates, corporations don’t Sales taxes: NYS and NYC • Retail sales of most tangible property are taxed, and sales of some services (e. g. , film developing, printing, sales of food and beverages by restaurants, and repair and maintenance) • Seller personally liable for the tax (but consumer usually pays) • Sellers of taxable goods and services must register with state & city BEFORE they do business • File sales tax returns (even if had no taxable sales or purchases) 17

Tax Considerations “Where Do I File/Pay Taxes? ” ➤ ➤ NY business generally needs to register, file returns and pay tax in another state if it • “Does business” in the state (i. e. , has employees or regular sales in the state) • Has an office in the state • Owns or leases property in the state � Internet, telephone or mail-order sales only are likely not enough State & Local Taxes • Varies, but similar to NYS in most respects • Some states don’t impose corporate tax on S-corps • Most cities don’t impose municipal corporate and unincorporated business taxes • Each state has a formula to divide revenues among states where business operates to avoid paying tax on same income in more than one state 18

Nonprofit Formation presented by Linda S. Manley, Legal Director Lawyers Alliance for New York

NFP Formation: Why Incorporate? � Groups intending to engage in charitable or educational activity tend to do so either as a not for profit corporation (NFPC) or unincorporated association. � Advantages: 1. 2. 3. 4. Limited liability for directors, officers, and members. Facilitates the process of applying for tax exemption Perpetual existence May help generate revenues 20

NFP Formation: Disadvantages � Depending on the scope of services it can be somewhat difficult to qualify as a not-forprofit corporation in NYS. � Can be time consuming and expensive. � Will not automatically generate revenues. � Difficult to dissolve. 21

Nonprofit Formation � Nonprofit corporations are governed by the Not-for-Profit Corporation Law, which is based on the Business Corporation Law but with significant differences. 1. Must be formed for non-pecuniary purposes. 2. There are no shareholders. 3. Processes of formation, certain amendments and dissolution for NFPC are much more involved and time consuming. 22

NFP Formation: Types of New York NPC � Nonprofit Revitalization Act creates two types of nonprofit corporations: charitable and noncharitable. � Corporation formed for both charitable and noncharitable purposes will be a charitable corporation. � Existing corporations are automatically reclassified: ◦ Type A corporations will be non-charitable. ◦ Type B or C will be charitable. ◦ Type D will be charitable if they were formed for charitable purposes and non-charitable if they were not. 23

NFP Formation: Structure NPC � � Membership vs Non-membership ◦ Role of members ◦ Members serve similar function as shareholders ◦ Membership add a layer of bureaucracy; small organizations may not be adept at keeping membership list current Board of Directors ◦ Responsible for oversight of organization � Officers � Staff 24

NFP Formation: B Corp � � B Corp is a business corporation whose directors and officers can be required to consider non-financial values when rendering decisions on behalf of the corporation. Three key points: 1. Benefit corporation has a corporate purpose to create general public benefit; 2. Directors and officers have expanded fiduciary duties that require them to consider non-financial values; and 3. Benefit corporation has to publish an annual report measuring its social and environmental performance against an independent standard. 25

NFP Formation: Process of Incorporation � Reserve Name � Prepare Certificate of Incorporation ◦ 1. Purposes clause either “charitable” or “noncharitable” or specific activities ◦ 2. Obtain necessary governmental approvals � File with Department of State 26

NFP Formation: By-Laws � Document governing the operation of Board � NPCL establishes the baseline for operations � Need to have flexibility � Best practices for governance 27

NFP Formation: 501(c)(3) Charitable Organizations � Corporation or foundation organized and operated exclusively for religious, educational, charitable etc. purposes – cultural purposes will not qualify. � Major advantage is that donations are tax deductible. � Significant restrictions on 501(c)(3) organizations ◦ limited lobbying (influencing legislation) permitted ◦ no partisan political activity permitted � Corporations which anticipate engaging in some lobbying activity should make 501(h) election. 28

NFP Formation: Form 1023 � Applications filed within 27 months of incorporation receive tax-exempt status retroactive to the date of incorporation. � Applications filed after 27 months of incorporation retroactive to the date of filing 1023. � Decide when the organization’s Fiscal Year will end. � Key Components: ◦ Narrative description of the past, present, and future activities of the organization ◦ Compensation and financial affiliates 29

NFP Formation: Form 1023 EZ � Streamlines the tax exemption application process for small nonprofits seeking 501(c)(3) status � Generally, only nonprofits that have had less than $50, 000 in revenue for the past 3 years, project less than $50, 000 of revenue for the next 3 years, and do not have assets whose value exceeds $250, 000 may use the 1023 -EZ form. � Other exceptions apply, so please consult the worksheet in the Form 1023 -EZ instructions for more information. 30

NFP Formation: Public Charity vs. Private Foundation � � Classification depends on source of organization’s financial support. Important because: 1. 2. Private foundations are prohibited from any lobbying; Are subject to 2% tax on investment income; 3. No compensation to any directors or officers; and 4. Must make a certain percentage of distributions each year. 31

NFP Formation: Fiscal Sponsorship �A contractual relationship between an exempt sponsoring organization and an organization that intends to carry out a charitable purpose. � Why find a fiscal sponsor? ◦ Allows an organization that does not have tax-exempt status to receive grants, charitable contributions and other tax-deductible donations ◦ Short-term projects may not need independent status � Other Considerations ◦ Fees, depending on services offered (back office, payroll, etc. ) ◦ Two organization’s missions must match – risk to sponsoring organization 32

NFP Formation: Annual Filing Requirements � Annual Reporting Obligation to the IRS is Form 990, due 5. 5 months after end of fiscal year ◦ public (including funders) relies on information contained in Form 990 � CHAR 500 due to NYS Attorney General Charities Bureau ◦ audit required if gross revenue above $250, 000 ◦ accountant’s review report required if gross revenue about $150, 000 ◦ must be up-to-date to obtain AG consents 33

Commercial Leasing For Small Business Owners Presented by Peter Batten Bingham Mc. Cutchen LLP

A Commercial Lease Overview ➤ Commercial lease is a contract. ➤ Commercial tenants generally have few rights outside of the contract. ➤ There is no “warranty of habitability. ” Unless required in the lease, the Landlord doe not have an obligation to maintain or repair. Commercial tenants take “as is. ” ➤ No “duty to mitigate. ” If a commercial tenant vacates before the end of the lease term, the landlord does not need to try to lease the space and may pursue the business for the rest of the lease term. ➤ There is no rent regulation: the landlord has no obligation to offer a lease renewal and once the lease expires, there is no limit on the rent the landlord can charge. 35

Issues to Consider Before Negotiating Lease ➤ Determine the type of business entity that will be named as the tenant on the lease. ◦ Sole Proprietorship, Partnership, Corp. , LLC ◦ Type of entity can insulate the principals from personal liability ➤ Is the space suitable for the business? ◦ Check the Certificate of Occupancy and property profile. ◦ Go to NYC Department of Buildings and fill in the address and borough http: //www. nyc. gov/html/dob/html/home. shtml ◦ Determine whether the space may be used for a variety of purposes, in case the business needs to change ◦ Use a broker ➤ Who owns the building? ◦ To find out ownership history go to the on-line City Register at http: //www. nyc. gov/html/dof/html/property/acris. shtml ➤ What is the Property Tax? ◦ Commercial tenants are generally required to pay a share of property tax. Go to NYC Dept. of Finance and click on “search by address” to find out tax. 36

Lease Terms: The Basics Rent: Totally negotiable – know the going rate in your area. Security Deposit: 2 -3 months is very common, may be more. Lease term: Standard length 3 -10 years. § commencement and expiration dates “Free Rent” Period: 2 -6 months for build-out. 37

Lease Terms: Permitted Use ➤ The “standard” lease often limits use of the space to a very specific purpose—this can be fatal to an exit strategy. Best language: “Tenant may use and occupy the premises for all lawful purposes. ” ➤ You have no legal right to sell or do anything that is not permitted by the lease. ➤ Keeping the permitted use general permits sublet or assignment to a wide variety of businesses. ➤ It is unlikely that the party who takes over the tenant’s lease will have the same type of business. 38

Lease Terms: Insurance Coverage ➤ The lease will require casualty (property damage) and liability (damage to persons or property of others) coverage, at a minimum. ➤ Lease terms should be reviewed by an insurance agent. ➤ You may also want to consider insurance that covers the replacement value of items in your store and business interruption. 39

Lease Terms: Build-out/Construction/Signage ➤ Construction Who will pay for it? Who will own the fixtures after the lease is over? Who has to remove furniture or other items at the end? Limit the fees that Landlord can charge to review plans or supervise work. o Any planned alterations should be pre-approved by the Landlord before lease execution o o ➤ Signs o Obtain pre-approval of signs o Permit “closing” and “going out of business” signs 40

Lease Terms: Repairs and Maintenance ➤ Landlord should maintain and repair the structure of the building, building systems & common areas. ➤ Landlord should be obligated to minimize interference with the tenant’s business. ➤ If critical repair item is within the space, negotiate the right to do work and have credit against rent. 41

Lease Terms: Sublet & Assignment ➤ A tenant’s most powerful strategy to get out of the lease is to get someone else to take it over. § Assignment = you move out before the end of the lease term and another person or company takes over the lease. § Sublease= you permit another person/business to use all or a portion of your leased space but you retain control over the space. ➤ Certain events should not require Landlord’s consent: § Mergers, acquisitions and sales of businesses § In an office lease, occupancy by affiliates ➤ Landlord should be reasonable in considering requests for consent to sublease or assign, and should be obligated to respond to such requests within a specified period of time. 42

Lease Terms: Default ➤ Default is a violation of the lease. ➤ Events that may trigger a default include: § Failure to pay rent § Failure to perform obligations § Vacating or abandoning the space ➤ Must have notice and chance to cure the default ➤ A default that is not corrected may lead to termination of tenancy and eviction. 43

Lease Terms: Cancellation Right ➤ Cancellation right permits a tenant to terminate the lease before the end of the lease term. ➤ Tenants like them because it gives them a seat at the table to negotiate as part of an exit strategy. ➤ Even an “expensive” cancellation right is valuable to a tenant because it is probably will probably be less than the remaining rental obligation. ➤ Landlords will resist including a cancellation right, but it is worth asking for. 44

Lease Term: End of Lease ➤ Landlord should be required to return the security deposit quickly. ➤ Avoid agreeing to restore the space to its original condition or to remove fixtures or other improvements. ➤ Avoid high “holdover” rent penalties and consequential damages. 45

Lease Guarantees Landlord may require a personal guaranty from individual owners, which puts their personal assets at risk. ➤ Not unusual for Landlord to require especially if tenant is a limited liability company or corporation with limited assets ➤ Director and Officers of not-for-profit entities should strongly resist any personal liability ➤ Limit the extent of the guaranty ➤ Provide for substitute guarantors in the case of lease assignment or retirement - or provide for increased security deposit if substitute is not available. 46

Lease Guaranties: the “Good Guy” Guaranty ➤ Not a full lease guaranty ➤ Personal guaranty for payment ➤ Only responsible for rent up to surrender of lease by tenant (or certain period after surrender) 47

Employment Law Essential for Small Business Owners Presented by Patrick Collins Mc. CARTER & ENGLISH, LLP

Independent Contractors vs. Employees Critical to determine whether individuals providing services are employees or independent contractors � � Independent contractors are in business for themselves and make their services available to the public. Consider degree of control and independence. ◦ Does employer have control over the means of doing job or just the result? ◦ Does company control or have right to control what the worker does and how and when the worker does his or her job? ◦ Are business aspects of the worker’s job controlled by the company? (how worker is paid, who provides tools/supplies, etc. ) ◦ Are there written contracts or employee type benefits (i. e. pension plan, insurance, vacation pay, etc. )? ◦ Invoices? Tax ID No. ? Website? Business cards? D/B/A? 49

Intern or Employee? Unpaid internships must meet all the following criteria or face potential liability for federal and NY wage and tax law violations: � � � � � Internship must be similar to training provided in an educational program. Training must be for the benefit of the intern. Interns must not displace regular employees and must work under close supervision. Business must derive no immediate advantage from the intern’s activities. Intern must not necessarily be entitled to a job at the end of the internship. Interns must receive written notice that they are not entitled to wages and not considered employees. Any clinical training is performed under supervision and direction of people who are knowledgeable and experienced in the activity. Training is general and not designed specifically for a job with the employer. Screening process for interns is not the same as for employees and only uses criteria relevant for admission to an independent educational program. Advertisements for the program clearly discuss education or training. 50

So you are ready to hire… 51

Employment Discrimination An Employer CANNOT refuse to hire, discharge, or otherwise take any adverse action against an applicant or employee with respect to compensation, terms, conditions or privileges of employment based, in whole or in part, on the applicant’s or employee’s protected characteristics under federal, state or local law. � Laws governing employment discrimination include: ØTitle VII of the Civil Rights Act of 1964 (Title VII) ØAge Discrimination in Employment Act (ADEA) ØEqual Pay Act of 1963 (EPA) ØAmericans with Disabilities Act (ADA) ØGenetic Information Nondiscrimination Act of 2008 (GINA) ØNew York State and New York City Human Rights Laws 52

Discrimination Law: Protected Characteristics Federal: Race, color, sex (including pregnancy, childbirth, and related medical conditions), religion, national origin, age (40 or older), citizenship, disability, certain veterans, genetic information NY State: All of the above, plus: age (18 or older), marital status, NY City: sexual orientation, AIDS/HIV status, military status or service, observance of Sabbath, political activities, use of service dog, domestic violence victim status, conviction record (with exceptions), lawful use of any product or lawful recreational activities outside work All of the above, plus: transgendered status, actual or perceived sex, gender identity, self-image, appearance, behavior or expression, status as a victim of domestic violence, stalking and/or sex offenses 53

Employer Cannot Base Hiring Decisions on Protected Characteristics (or appear to do so) Some Pre-hire, Pre-Offer, Interview Dos and Don'ts Do: Are you over the age of 18? Don't: How old are you? When did you graduate from college? What is your birthday? Other questions that indirectly ask for the applicant’s age. Do: Are you authorized to work in the U. S. ? What languages do you read, speak or write fluently? (if job related) What professional associations do participate in? (if job related) Don't: Are you a U. S. citizen? Where were you/your parents born/grow up? What is your native language? What clubs or social organizations do you belong to? 54

Employer Cannot Base Hiring Decisions on Protected Characteristics (or appear to do so) Some Pre-hire, Pre-Offer, Interview Dos and Don'ts Do: Would you be willing to relocate if necessary? Would you be willing to travel as may be needed? Would you be able and willing to work overtime as may be required? Don't: Are you married? Who do you live with? Do you plan to have a family? When? How many kids do you have? What are your child care arrangements? Do: Can you work on evenings and weekends if necessary? Don't: What is your religion? What religious holidays do you observe? What are your plans for the upcoming holiday (for ex. , Christmas, Easter, Passover, etc. )? 55

Employer Cannot Base Hiring Decisions on Protected Characteristics (or appear to do so) Some Pre-hire, Pre-Offer, Interview Dos and Don'ts Do: Ask about: (a) applicant's ability to perform a specific job function, (b) non-medical qualifications such as education, work history, certificates and licenses, (c) how the applicant would perform job tasks or ask to demonstrate such tasks, (d) whether applicant can meet attendance requirements. (e) current use of illegal drugs. Don’t: Ask about: (a) applicant's general or specific health, medical condition or mental/physical disability, (b) how many days applicant was absent last year due to illness, (c) workers compensation claim history, (d) legal drug use. 56

Federal Wage and Hour Law: Fair Labor Standards Act (FLSA) The Basics about Overtime: Ø All time worked over 40 hours in a single workweek must be compensated at a rate not less than one and one-half times the employee’s regular rate. Ø Each workweek stands alone. No averaging. Ø Some employees may be exempt from overtime: • “White collar” (administrative, professional & executive) employees and others, based on duties. • Exemptions narrowly construed. Title, salary NOT determinative. Burden on the employer to prove. 57

Minimum Wage/Overtime in New York � Currently $8. 00/hour, but set to rise incrementally: ◦ $8. 75/hour effective December 31, 2014 ◦ $9. 00/hour effective December 31, 2015 � Minimum wage and overtime laws apply to all non-exempt employees (but do not apply to independent contractors). � For-profit businesses do not have “volunteer” workers. � Tips, meals and lodging may be credited towards the minimum wage in some cases. Specific rules apply. � Employers must post the provisions of the Minimum Wage law in a the workplace. � Overtime rules generally same as under federal law. 58

Recordkeeping/Personnel Files � If you hire employees, you MUST secure for your records the following forms: ◦ Eligibility to Work in the US (Form I-9) ◦ Employee’s Social Security Number ◦ Employee’s Federal Tax Withholding (Form W-4) � NY Wage Theft Prevention Act: Employers must notify employees in writing and retain acknowledgement of notice: rate of pay and regular pay day 1) at the time of hiring; 2) any time there is a wage change; AND 3) on or before February 1 st of each subsequent year of employment. � Other records to maintain: ◦ Records of wages, hours, overtime and withholdings for each employee for each workweek ◦ Job descriptions ◦ Performance reviews ◦ Disciplinary notices ◦ Employee health and safety logs � Records should be maintained for a minimum of 7 years (longer, if possible). 59

Benefits � Types ◦ ◦ ◦ ◦ of Benefits: Short Term Disability Insurance (required) Workers’ Compensation (required) Health Insurance (required by 2015 for employers with >100 FTEs. Small business may be eligible for SHOP exchange) Life Insurance (optional) Sick Leave (Paid sick leave required in NYC. Unpaid FMLA leave required for employers with >50 employees. ) Vacation/Holidays (optional) Breaks (meal break required for full-time employees) 60

NYC Paid Sick Leave Law � Went into effect April 1, 2014. � Requires employers with 5 or more employees in the City to provide paid sick leave, which may include leave for either employee’s or a family member’s illness. � Applies to any full-time, part-time or temporary employee who works more than 80 hours in a calendar year. � Employers with fewer than 5 employees are only required to provide unpaid leave.

NYC Paid Sick Leave Law � One hour of is earned for every 30 hours an employee works, up to a maximum of 40 hours’ accrued leave per year. � Employees can use accrued sick leave starting 120 calendar days after the start of employment. § Accrual for those already employed began April 1, 2014; accrual for new employees begins on their date of hire. § Unused sick leave may be carried over to next year, but employee’s use is capped at 40 hours per year.

NYC Paid Sick Leave Law NOTICE REQUIREMENTS: � Employers must give new employees a notice of rights on their date of hire. � Existing employees should have been provided the notice of rights as of May 1 st. � Maintain records of compliance with the law.

Workers Compensation Employers Must: • • • Obtain and keep in effect workers compensation coverage for their employees without a lapse in coverage; Post a notice of workers compensation coverage; Keep accurate records of the number of employees, classification, wages and accidents for 4 years; Not discriminate against an employee or applicant because of workers compensation claims; Report most injuries to the Board and the insurance company within 10 days after an accident; and Report an injured worker's wages or other compensation to the Board, as well as any wage or work status changes. 64

ADDITIONAL CONSIDERATIONS � Family and Medical Leave Act (FMLA): ◦ Applies to employers with at least 50 employees and entitles an eligible employee to twelve weeks of unpaid leave in a 12 -month period (but employer must continue health insurance coverage) � Americans with Disabilities Act (ADA): ◦ Prohibits discrimination on the basis of disability against any “qualified person” with a “disability” who can perform the “essential functions” of the job, with or without a “reasonable accommodation” 65

Performance Management � Set clear expectations � Address problems promptly � Provide accurate, timely feedback, including performance evaluations � Be clear about policies and work rules ◦ (e. g. , employee handbook) � Apply policies and rules firmly, consistently and fairly � Provide the necessary training and tools to do the job properly and safely 66

Discipline & Termination • Consider consulting with a professional before termination • No final decisions when emotions are high • Consider progressive discipline unless serious offense (e. g. , violence, sexual harassment, theft, serious insubordination) • Consider prior discipline of others in similar cases • Consider if accommodation is indicated (performance cases) • Consider any recent exercise of a protected right • • Investigate employee’s complaints so no appearance of retaliation for complaints Check compliance with policies and practices 67

Document, Document. . . • If it isn't documented, it didn't happen! • “Just the facts” • • • Include prior supervisory actions Include effects on company Document third-party statements Document employee responses Progressive discipline, as appropriate 68

Terminating an Employee � � � Determine whether progressive discipline followed Obtain appropriate review and approval (e. g. , human resources, senior management, legal counsel) Document basis for termination for internal use (e. g. , performance, discipline, reduction-in-force) � Assess possible claims against company � Avoid retaliation or appearance of retaliation � Written notice of termination, cancel of benefits date � Final pay and accrued vacation (if applicable) � COBRA? � Consider possible unemployment insurance claim, defenses 69

Supervisor Personal Liability • • Discrimination or harassment claims • retaliation; • aiding and abetting; • coercing, threatening, intimidating, interfering; • failure to act; “deliberate indifference. ” Tort claims • assault and battery; • defamation; • invasion of privacy; • false imprisonment. 70