Berman & Hopkins

Any new employer will need to become familiar with a multitude of labor laws and regulations, including:
Immigration Reform and Control Act of 1986.

The Department of Labor website (www.dol.gov) includes a wealth of information for employers. It also includes information on various state labor laws. New business owners should consider conferring with an employment lawyer for advice on the many labor laws and regulations.

EMPLOYING FAMILY MEMBERS

Advantages of Hiring Children in the Family Business

Income Shifting. The business owner deducts reasonable compensation paid to the child and the child receives and reports earned income from compensation, which is often taxed at a lower rate than the business income would have been. A child claimed as a dependent is entitled to a standard deduction equal to the greater of $850 or $300 plus actual earned income up to a maximum of $5,350 for 2007.

Fringe Benefits. The child-employee may be eligible to participate in employer-sponsored fringe benefit arrangements (that is, health and disability insurance, employer-provided vehicle for business travel).

Payroll Tax Exemption. Wages and compensation paid by a sole proprietorship (or partnership, if the parents of the child are the only partners) to the proprietor's (or partner's) child who is under age 18 are exempt from Social Security payroll taxes. Similarly, this compensation is exempt from federal unemployment tax if the child of the proprietor (or partner) is under age 21. However, federal income tax withholding will apply unless the child can claim an exemption from withholding.

Individual Retirement Account (IRA) Opportunity. Earned income paid to the child enables the child to fund an IRA contribution [up to the lesser of $4,000 (for 2007) or 100% of earned income]. Usually, the child will qualify to make a deductible contribution to a traditional IRA since he is either not covered by an employer retirement plan or his income is beneath a certain level. A Roth IRA, which potentially allows all earnings to be tax-free, may be another attractive option for a child, due to the child's long horizon for saving. The ability to compound income either tax-deferred or tax-free for many years is a powerful way to build wealth.

ADVANTAGES OF INDEPENDENT CONTRACTOR STATUS

By hiring independent contractors, rather than employees, a business -

EMPLOYER STOCK OPTIONS

A stock option is a contractual right granted an employee to purchase shares of the company's stock under a formal plan. The plan normally specifies how many options may be granted, who may participate, the option price, the form of payment, the periods for exercising options and making payment, and other matters.

Stock Option Terminology
Grant Date	The date on which an employee receives an option.
Exercise Date	The date when the employee exercises the option to buy stock.
Strike Price	The price at which the stock can be purchased under the terms of the option.
Bargain Element	The difference between the fair market value (FMV) of the stock and the strike price.
Even-Money	When the strike price equals the FMV of the stock.
In-the-Money	When the strike price is less than the FMV of the stock.
Vested	No restrictions on transferability.
Vesting	Attaining the right to exercise options because service or other requirements have been met
Incentive Stock Options (ISOs)	Also called qualified stock options, they must meet certain statutory requirements. Generally, an ISO benefits the employee by allowing for capital gains taxation on the future appreciation of the underlying stock.
Nonqualified Stock Options(NQSOs)	Not subject to any specific statutory rules. They generally create compensation income for the employee and an offsetting deduction for the employer upon exercise.