5 Key Things to Know about Workers' Compensation Insurance

28. May 2015 08:29

injured worker

As a small-business owner, you probably already know a thing or two about Workers' Compensation Insurance – it's difficult to get far in the business world without picking up a few factoids about this policy. After all, it's your responsibility to provide employees with a safe work environment, which means you can be held responsible for their occupational injuries, too.

That's where Workers' Comp comes in. When employees suffer workplace accidents, injuries, or illnesses, this policy may offer coverage for:

Those are the basics, but there are some other things about this policy you should know about. Let's round them up.

1. Workers' Comp coverage is mandated in most states.

Nearly every state has some form of Workers' Compensation Insurance laws on the books. In many states, employers are required to carry this policy even if they only have one part-time employee. Other states' mandates don't kick in until you hire a certain number of employees.

Either way, you should know your state's requirements so you can comply accordingly. Failure to carry coverage can result in serious fines and even jail time. Find a summary of your state's regulations in our guide "Workers' Compensation Laws by State."

2. Workers' Comp costs vary widely around the country.

Because each state decides the minimum amount of coverage employers must carry, Workers' Comp costs vary from state to state. (Learn more about that in "How Does Your State Rank on Workers' Comp Costs?") Our Workers' Compensation Insurance Quote Analysis can give you an idea about rate trends and factors that influence your premium.

3. You may cut Workers' Comp costs by classifying your workers correctly.

No one wants to pay more for coverage than they have to, but what many small-business owners may not realize is that worker classification codes have different prices attached to them. These codes denote occupational risk for each type of job. The riskier the job, the more it costs to insure that professional. You can look up these codes on the National Council on Compensation Insurance (NCCI) website.

Make sure you take the time to properly classify your employees so you don't end up paying more for your coverage. No sense in categorizing everyone at your construction business as carpenters (a higher risk profession) when you have a clerical staff (a lower risk profession), too.

4. Your Workers' Comp policy may keep lawsuits at bay.

A long, long time ago, the only way injured workers could receive compensation for their work injuries was to sue their employers. Unfortunately, the cards were often stacked against these workers – employers could essentially claim the worker had it coming by taking the job in the first place. It was a dark time (and you can read more about it in "A Brief (Non-Boring) History of Workers’ Compensation").

Fortunately, global attitudes started shifting in 1884, and eventually, the Workers' Comp system was developed. In exchange for occupational injury compensation, employees waived their right to sue employers. Today, this is known as the exclusive remedy rule.

In short, if an injured employee accepts a Workers' Compensation Insurance settlement, they forgo their right to sue you over the same injury (but the laws can vary from state to state).

5. Workplace safety also affects your Workers' Comp premium.

Workers' Comp premiums depend on several factors, namely…

  • Your payroll.
  • The type of work your employees do.
  • Your claims history.

That last point is extremely important because part of the Workers' Comp premium calculation depends on your "experience modifier." This factor compares your actual losses to the expected losses for all members of your industry. As you might have guessed, the fewer claims you have, the lower your premiums will be.

The best way to cut down on claims? Make workplace safety a priority. Train employees on how to properly do their work and provide them with the necessary safety equipment. Discover more tips in "How Workplace Safety Can Save a Business Money."

Treat Your Data Like a Picnic Basket to Minimize Breach Damage

27. May 2015 08:08

picnic basket

Experiencing a data breach is no picnic, but your security measures might start to feel like one – if you take the insurance company ACE Group's advice.

According to ACE's infographic [PDF], segmenting networks to minimize access to sensitive information is a core component of a data protection plan. But that sounds complicated, so let's put an interesting spin on it.

Let's say you need more whimsy in your life, so you go for a picnic. Little do you realize, you automatically risk manage while packing the picnic basket: everything goes in a waterproof container in case something spills. That way, if a diet soda explodes in the basket, your precious peanut butter and jelly sandwiches will live to see another day.

In this scenario, unauthorized data access is that exploding soda can and your sandwiches are your data – the valuable thing you want to protect. Separating the sandwiches from the rest of the meal in waterproof containers is like segmenting your data via different networks. Only you can access the sandwiches; unauthorized users can't.

Still need time to digest? Let's take a closer look at which parties may try to access your privileged data.

Know the Risks so You Can Have Your Sandwich and Eat It, Too

ACE analyzed data breaches its insureds experienced and found some startling trends. For starters, ACE's data shows that hackers aren't the only ones prowling for data – former employees are increasingly a threat, too. According to the report, in 2014…

  • 40 percent of the data breaches were triggered by hackers and rogue employees.
  • 20 percent of data breaches were caused by lost or stolen devices.
  • 24 percent of insider misuse cases stem from former employees.
  • 16 percent of data breaches were caused by human error.

As we noted in the post "23% of Small Business Employees Still Make This Critical Mistake," human error is perhaps your biggest data breach exposure and the hardest one to mitigate. In that particular report, we discussed how almost a quarter of employees open phishing emails. It's not that these employees want to hurt the business and expose its sensitive data – they are simply human and make mistakes. Unfortunately, you're the one who ultimately pays the price for these slip ups.

Avoiding Soggy Sandwiches: Tips for Protecting Your Data

As we mentioned earlier, think of your data security plan as a picnic. In order to do that, you'll need to:

  • Identify the food items you don't want to get soggy. This is the step where you pinpoint the important data and set it off to the side.
  • Put those food items in waterproof storage. Store your sensitive data in a place where only authorized users can access it. Start by encrypting it, and then consider creating a separate network to house this information.
  • Check your basket. Just like you wouldn't want ants marching their way into your basket, you also don't want hackers or former employees breaking into your network. Monitor your networks so you can see when an unauthorized party attempts to access protected information.
  • Invite others to the picnic. People can't participate in the picnic if they don't know about it. Similarly, if your employees don't know about your security policy, they can't follow it. Train your employees on your policy and teach them best practices for mitigating data breach risks (e.g., regularly change passwords, only access data on approved software or networks, update software, don't open phishing emails, etc.).

For dessert, consider carrying a Cyber Liability Insurance policy. This policy can help you pay for data breach cleanup costs, such as notifying affected customers and patching up your network. Learn more about this coverage in "Want Data Breach Insurance? Try Putting It in Your BOP."

Survey: Reputation, Cyber, and Third-Party Liability Keeping Business Leaders Up at Night

26. May 2015 08:10

man who can't sleep

For small-business owners, there's no shortage of worries to keep them from sleep. Gone are the nights of counting sheep, replaced by counting fleeting dollars and cents or running through tomorrow's epic to-do list.

But budgets and housekeeping aren't all that's on the collective business mind these days. The Aon Global Risk Management Survey [PDF] shows that business leaders' concerns have shifted in the last year. Notably…

  • Reputation damage is now the top risk.
  • Cyber risk broke the top 10 concerns.
  • Professional and general liability risk also made the top 10.

Let's get a better look at these exposures and what small-business owners can do to mitigate them.

Reputation Damage: Nightmare on Tweet Street

It's no wonder brand / reputation damage is at the forefront of business owners' minds. Thanks to the rise of social media marketing, your brand is as good as your bond. One miscalculated post or joke and your business could feel the hot torch of the Internet's ire and lose followers and customers in the process.

Plus, if your business is accused of, say, defamation (e.g., publishing a libelous comment about a competitor on Yelp!), you could be sued over it. Though these types of lawsuits aren't too terribly common (they account for less than five percent of General Liability claims), they still cost a pretty penny to resolve – an average of $50,000.

In other words, it pays to keep an eye on your business's brand. Here are some ways to make sure a social media mistake doesn't tarnish the name you've worked so hard to establish:

  • Create a social media policy. This policy should explain advertising injury risks to social media managers so they don't accidentally infringe on copyrights or post defamatory statements. It should also outline what types of content you want associated with your brand. For more tips, read "Small Businesses: Create a Social Media Policy that Works."
  • Make customer service a priority. Your business's followers and fans want to engage online, so make sure their questions and concerns don't go unanswered. Keep the lines of communication open and promptly respond, especially if a fan raises a complaint.
  • Carry General Liability Insurance. If you do find your business named in an advertising injury lawsuit, this policy may offer coverage for legal defense fees.

Remember, managing risks is an important part of maintaining your business's good reputation. The goal is to curb problems before they start. For more social media risk management pointers, be sure to check out our eBook Tweet or Twibel: The Small-Business Owner's Guide to Advertising Injury.

Cyber Risk: The Monster under Your Bed (and in Your Laptop)

Cyber risks can be wily to manage because they are different for every business. For example, a store owner must contend with point-of-sale system vulnerabilities, while a healthcare business must comply with HIPAA security standards. But with data breaches splashing the headlines on a near weekly basis, business owners are wise to stay on top of their cyber security risks.

You can start by:

If you're like 98 percent of small-business owners, you probably don't have Cyber Liability coverage. It's a relatively new product, and plenty of insurance companies are still ironing out the details of the policy. However, it offers essential data breach recovery funds, which may help you pay for notifying affected parties, repairing your IT, and rebuilding your brand after an attack.

Third-Party Liability: Slip-and-Falls that Keep You Tossing and Turning

These risks are especially unavoidable and unpredictable because they stem from the clients and visitors your business interacts with. For example…

  • Every business has some measure of general liability. These are the risks that involve third-party bodily injuries, property damage, or advertising injuries. Anyone who doesn't work for your business can file this type of claim. So if a customer slips and falls on your premises, you can be held accountable for their medical expenses and other damages. (Good thing General Liability Insurance may cover these instances!)
  • Most businesses have professional liability, too. If you offer professional services, you could be sued over the quality of your work or breaching contract. Professional Liability Insurance can offer coverage for legal fees in these situations.

Perhaps the scariest thing about these risks is you never know when a person will sue. Some people slip and fall on commercial property and simply walk away. Others may not be so forgiving. The same goes for professional liability exposures – you never know when a disgruntled client may become a plaintiff.

To reduce these exposures, read "5 Ways to Prevent General Liability Claims" and "4 Ways to Prevent Professional Liability Claims."

Preventing Summeritus in Your Business

22. May 2015 08:15

two dogs playing

Keeping your team engaged during the summertime is often easier said than done. Even you might start feeling antsy when the weather gets nicer. You want to be flexible with your staff, but you don’t want productivity to suffer, either.

What can you do to prevent summeritus? Try these tips to help keep your business on track:

  1. Get out. Because summer is often a trickier time to pin clients down for meetings, meet with your staff instead, but do it outside. Let your team brainstorm on ways to improve the business. Being outdoors boosts creativity so you can really do some out-of-the-box thinking.
  2. Keep employees involved. A big reason employees work for small businesses is because they want to be part of the action and feel a sense of ownership. Be sure you’re engaging employees by keeping them in the loop on how the business is doing.
  3. Anticipate vacations. Keep time-intensive projects to a minimum during the summer so employees can take much-needed time off for vacations. If you can’t do that, outsource the project to an independent contractor so you can accommodate employees and keep customers happy.
  4. Get help. Hire summer interns who want to learn about your business and have your employees bring them up to speed. You’ll get additional hands on deck and your staff will feel valued – and relieved.
  5. Set small weekly goals. These easily tackled tasks keep employees engaged. You can even hold contests and set challenges among departments to create a sense of fun and enthusiasm.
  6. Help out. Take advantage of the good weather and plethora of summer activities by volunteering in your community. Make it a company-wide volunteer project by closing the office early to pitch in at a charity event.
  7. Set summer hours. Change the office schedule to 10-hour four-day weeks so employees can enjoy long weekends. Or give employees every other Friday afternoon off. (You’ll also save on utility costs.)
  8. Celebrate. When employees accomplish a significant goal, make a big deal about it by treating the whole team to a meal or rent a food truck for a day.
  9. Make work fun. Especially in summertime, no one wants to walk into work and immediately feel stressed. Talk to your team; find out what’s going on in their lives. Summeritus is harder to overcome when the office is a drag.
  10. Give employees what they need to flourish. You can’t expect employees’ best work if you don’t give them the proper tools to succeed. Up-to-date computers and software, functioning printers and copiers, and modern phone systems are essential for every business today.

Rieva Lesonsky is CEO of GrowBiz Media, a media and custom content company focusing on small business and entrepreneurship. Email Rieva at rieva@smallbizdaily.com, follow her on Google+ and Twitter.com/Rieva, and visit her website SmallBizDaily.com to get the scoop on business trends and sign up for Rieva’s free TrendCast reports.

Once More, with Feeling: Commercial General Liability Insurance Won't Cover Data Breach Liability

21. May 2015 09:20

audience members waiting for a play to begin

If you reach way back into your memory, you may recall skimming a few headlines about the 2011 Sony PlayStation Network hack (not to be confused with the more recent Sony Pictures hack) that compromised 77 million user accounts. Even if you have heard of this breach, chances are you didn't catch much word about the ongoing lawsuit between the Sony Corporation and its insurer Zurich American Insurance.

According to Insurance Business America, Zurich sued Sony when the entertainment company filed a claim on its General Liability Insurance policy to defend and indemnify Sony from class-action lawsuits over the breach. That was back in 2011, and the two companies only just now reached a settlement – four whole whopping years (and probably millions in legal fees) later.

Why pay attention to this years-in-the-making settlement? It offers a notable lesson for small-business owners – one that we've taught before but will happily repeat: General Liability Insurance doesn't cover data breaches.

Enter Stage Right: Cyber Liability Insurance

If it's so obvious that General Liability Insurance doesn't cover data breaches, why would a mega corporation draw on the wrong policy? Good question, dear reader. The answer is three-pronged:

  1. Cyber Liability Insurance is a relatively new product. This is the policy that is designed expressly to cover data breach recovery costs (e.g., notifying affected parties, repairing security, and good-faith advertising). It's so new, in fact, that even in the age of data breaches, many small-business owners don't know the coverage exists. Back in 2011, Sony may not have been aware that the policy was available.
  2. There is some overlap between Cyber Liability and Commercial General Liability policies. This doesn't help dispel the myth that General Liability covers cyber risk – a myth that 39 percent of private companies still believe, according to a Marsh survey. The fact that both Cyber Liability Insurance and General Liability Insurance can offer advertising injury liability coverage doesn't help matters.
  3. Some people think third-party data is the same as third-party property. General Liability can cover damage to third-party property. However, this coverage only applies to tangible property (e.g., laptops), not intangible property (e.g., electronic data such as usernames and passwords). So if you make a mistake that dings up someone's car, turn to General Liability Insurance. If you make a mistake that exposes your customers' data, you need Cyber Liability Insurance.

Regardless of where the confusion stems from, there's simply one takeaway: only Cyber Liability Insurance can cover cyber risks. While there may be a couple avenues to get this coverage (you can purchase it as a standalone policy or add it to your Business Owner's Policy), there's no getting around the fact that if you want data breach coverage, this policy is the way to go.

Curtain Call: Getting Your Policies Straight

Ask yourself the following questions to determine which policies you may want:

  • Am I looking for coverage that helps address data breach cleanup costs? If so, it's Cyber Liability you're after.
  • Am I searching for data breach lawsuit coverage? Third-party Cyber Liability policies can help cover legal expenses associated with lawsuits over data breaches.
  • Am I concerned about damaging my clients' tangible property? You'll want General Liability Insurance for this scenario.
  • Am I worried about my point-of-sale system being physically stolen? That's a job for neither Cyber Liability nor General Liability Insurance. Only Property Insurance can reimburse you for insured items that are lost or stolen.

That's a wrap, folks. For more resources to help you understand the ins and outs of Cyber Liability Insurance, check out the articles "What Is Cyber Risk Insurance?" and "Why Cyber Liability Claims Cost More Than People Think."

Reminder: It's Your Job to Keep Customer Data Safe

20. May 2015 08:04

lock and a credit card

According to entrepreneurial news outlet The American Genius, a small survey found that small- and medium-sized businesses are uniquely positioned to be absolutely blindsided if they ever experience a data breach. Why?

  • Only 33 percent of small business respondents know their state's data breach laws.
  • 51 percent don't have a data breach security plan in place.
  • 82 percent don't encrypt customers' personally identifiable information – you know, the stuff that most state laws require you to protect.

Do these numbers reiterate that you're ahead of the curve or remind you that it's time to figure out once and for all what your business is responsible for when it comes to customer security? If you're in the latter camp, this guide is for you.

Data Breach State Laws: Fines and Notification Regulations

Perhaps the first step toward shoring up your data security plan is to figure out what information you are responsible for protecting. Though credit card numbers and Social Security numbers may immediately spring to mind, that's not the only valuable information to potential hackers.

Some states have broadened the definition of personally identifiable information to account for this fact, and those laws may consider names, email addresses, physical addresses, and pin numbers as protected information that if exposed qualifies as a breach.

At this point in time, 47 states have some form of data breach legislation on the books (Alabama, South Dakota, and New Mexico continue to be holdouts, though New Mexico may join the fold soon enough). A federal data breach law that would supersede state laws is in the works, but for now, you must follow your state's regulations.

Here's what a few states' laws entail:

  • California: The Notice of Security Breach Act in California requires business owners to notify customers when their personal information is breached.
  • Florida: The Florida Information Protection Act of 2014 requires businesses to notify affected Florida residents within 30 days of the breach. If more than 1,000 people are affected, credit-reporting agencies must also be notified. Failure to comply means a fine of $1,000 per day per breach or up to $50,000 per 30-day period (but caps at 180 days and $500,000).
  • Illinois: The Personal Information Protection Act also requires business owners to notify affected parties and give them information about the appropriate consumer reporting agencies. Those who don't comply with these regulations can be fined $100 per affected individual, or up to $500,000 in total fines.
  • New York: New York businesses must notify affected residents about the breach as soon as possible. The state attorney general, Department of State, and Office of Information Technology Services must also be informed. Compared to Florida and Illinois, New York's noncompliance fines are relatively small: either $5,000 or $10 per affected resident (whichever is greater, but can't exceed $150,000).
  • Texas: The Identity Theft Enforcement and Protection Act requires businesses to notify customers about a breach that compromises their information. Businesses can be fined up to $100 per affected person per day, or up to $250,000 per breach.

For all these laws, an exposure of a name or identifier coupled with a data element (e.g., SSN, driver's license number, account number, or credit card number) can constitute as a breach. The subtext for most of these laws? You're responsible for protecting data you collect from customers.

An Ounce of Data Security > A Pound of Data Recovery

You don't want to be caught off guard when you face a data breach, lest you face fines on top of other data breach costs. Moreover, you should do what you can to prevent a breach in the first place because it's your responsibility to do so. Here are some pointers that might help:

  • Understand your state's data breach notification laws. Get your research underway with this guide from the National Conference of State Legislatures (NCSL) or check out our sister site TechInsurance's guide "Data Breach Laws by State."
  • Encrypt personal data your business collects. Only authorized parties should have encryption keys. Work with a data security consultant to figure out who should have access to encrypted information.
  • Create a data breach response plan. Know which parties you need to notify in the event of a breach and which professionals you need to call in to help you clean up the breach. Carrying Cyber Liability Insurance is also a smart move because this policy may provide funds for notification and cyber repair costs.
  • Train your employees. Unfortunately, employees are often the weakest link in the data security chain. Combat the trend by training your employees on how to spot common cyber threats (e.g., phishing emails) and how to stave off these risks (e.g., not opening malicious links on work devices or accounts, using protected WiFi to access work files, etc.).

For more data security tips, stay current on our data breach blog series.

New OSHA Poster Outlines Worker Rights & Employer Responsibilities

19. May 2015 08:27

worker wearing safety gear

Like the versions that came before it, the latest OSHA Job Safety and Health: It's the Law poster informs employees about their rights and the employer's responsibilities under the Occupational Safety and Health Act. What you may not know is that you are required to display this poster in your business in a place where your employees can easily see it (unless you already have a previous version of the poster proudly displayed – in which case, get down with your compliant self).

If you're new to the business world and OSHA compliance, let's touch on some helpful reminders the poster points out and other employer responsibilities you should be aware of.

Worker Rights & Employer Responsibilities: The Takeaways

As OSHA states, all workers have a right to:

  • A safe workplace. It's up to you – the employer – to make sure your employees aren't subject to unnecessary hazards around the workplace (e.g., boxes stored precariously above head level). Read about Dollar Tree's mistakes so you don't make the same ones in "What Not to Do: Workers' Compensation Edition."
  • Raise a safety or health concern. Your employees can report work injuries or illnesses with you or OSHA without being retaliated against. In other words, you can't fire an employee for making a complaint about workplace hazards or for reporting occupational injuries.
  • Receive information and training on occupational hazards. Provide these materials and training to your employees on their first day of the job to reduce the risk of workplace injuries and accidents. For instance, if your employees must lift heavy boxes, you should create brochures that address possible safety issues with this task and outline steps to minimize the risk of injuries. Note: OSHA requires you to produce this material in a language and vocabulary your workers understand. For more tips, read "Workers' Comp Investigation Offers Small Businesses a Reminder to Communicate."
  • Request that OSHA inspect the workplace. You must comply with all applicable OSHA standards, and if a worker feels you're not complying, they are entitled to ask OSHA officers to follow up. Again, you can't retaliate against employees who report unsafe or unhealthy conditions to OSHA. Workers are also entitled to see any OSHA citations issued to you, which you must post near the place of the alleged violation. (Related reading: "A Crash Course in Types of OSHA Violations.")
  • File a complaint with OSHA over retaliation. Employees can report being retaliated against for using their rights within 30 days.
  • Request copies of the workplace injury log. Workers can also request their medical records and tests that gauge workplace hazards. Be sure to keep this information on file to readily access it upon request. Also worth noting: covered employers are required to report all workplace fatalities within eight hours, and occupational hospitalizations, amputations, and eyesight loss within 24 hours to OSHA.

In almost every state and under most conditions, you are required to carry Workers' Compensation Insurance as soon as you hire employees. Though that may seem like one more hoop to jump through, it's actually a good thing for your business. Instead of paying out of pocket for employee medical expenses when they are hurt on the job, your Workers' Comp policy may cover the cost.

Plus, if you do your part to keep the workplace hazard-free and properly train employees, you can reduce occupational risks from the start. It's a win-win for everyone: your employees stay healthy and protected, you comply with OSHA standards, and your business reduces the chance of Workers' Comp claims, which keeps your premium manageable. For more on that, read "How Workplace Safety Can Save a Business Money" and our Workers' Comp Insurance Quote Analysis.

How to Keep Your Business Partners from Exposing You to Data Breaches

18. May 2015 08:10

cat carrying a kitten

If you want something done right, do it yourself – but what happens when that's not an option? Once your business gets to a certain size, you may find yourself relying more on third parties to help out. For example, you'll probably need…

  • Credit card processing equipment or apps.
  • Vendors or wholesalers.
  • Independent contractors for building maintenance and other projects.

While these relationships take a significant amount of work and worry off your plate, they also introduce risk in the form of new data breach exposures.

Take Target's data breach, for example. In 2013, hackers were able to break into the retailer's payment systems and swipe about 40 million customer credit cards because of one reason: they first stole Target's HVAC contractor's the login credentials. When a foothold is all you need to break into a sophisticated network, you go after the weakest link. Unfortunately, third parties are often that link.

With that in mind, let's look at some ways you can manage these business relationships to strengthen your cyber security on all possible fronts.

Vendor Management & Cyber Security: Two Sides of the Same Coin

So we've established that third-party vendors are a possible cyber exposure for your business. And what's at stake is more than just data breach cleanup costs (which can be significant) – your business's reputation is also on the line. After all, a breach is bad for business, and customers are becoming increasingly wary of who they trust with their confidential information.

Here are some ways you can make sure third parties don't inadvertently expose your network to potential hackers:

  1. Manage third-party responsibilities with contracts. These should have an indemnification clause, which can protect you when a vendor's actions cause a breach. You'll probably have to negotiate the extent of the indemnification coverage, but it's worth asking for in your contract. Having contracts can make eventual court cases over breaches easier to handle and more likely to work in your business's favor. Read more about how to use third-party contracts in this Business Insurance article.
  2. Monitor third-party network access. If a third party has access to your network, watch out for command-and-control activity and unusual activity. Also note: not all third parties should have the same level of access to the network. Limit system access to only the areas that the vendor or contractor needs to do their work.
  3. Use two-factor authentication. Make sure that all third parties that can access your network use strong passwords and implement a two-factor authentication process. If vendor credentials are compromised, hackers will need yet another access code or physical security token to access the system.

Remember, it's in your vendors' best interest to take your business's security seriously, too. When a data breach happens and lawsuits start rolling in, usually all responsible parties will be named in the suit. Plus, it's not good PR for the vendor to be the reason a business suffered an attack.

That does give you some leverage when ironing out the details of your third-party contracts. At the same time, recognize that your vendors are accepting risk by working with you, too, so come to the table ready to negotiate fairly.

For more cyber security tips, check out our data breach blog series.

What You Need to Know about Hiring Your Kids

15. May 2015 08:26

child wearing a tie and playing on a tablet at a desk

I grew up in a family of small-business owners. My grandfathers, my two uncles, and my dad all operated their own businesses. In the mid 1950s, my dad opened a men’s clothing store with his father in Bayside, Queens, a borough of New York City. From the moment one of us kids was old enough to unfold a box, we were put to work during the store’s busy times – Christmas and the Saturday before Father’s Day.

If you have school-aged children, you’re most likely concerned about keeping them active during the summer months – that includes both their bodies and their brains. Why not have them chip in a few hours a day at your business and give them some lessons in entrepreneurship? It’s never too early to show your kids what your business is really about and why you work so hard.

But are your kids old enough to help with your business? And what do you do about compensation?

Actually, even minors can help out in the family business. In fact, by paying minor children, you can move family income out of a higher tax bracket (yours) and into a lower one (your children’s). It's an easy way to transfer wealth to your dependents without incurring federal estate and gift taxes.

Here’s what the IRS has to say about hiring family members:

  • Payments for the services of a child under age 18 who works for their parent in a trade or business are not subject to Social Security or Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.
  • Payments for the services of a child under age 21 who works for their parent in a trade or business are not subject to Federal Unemployment Tax Act (FUTA) tax. Payments for the services of a child are subject to income tax withholding, regardless of age.
  • Wages for the services of a child are subject to income tax withholding as well as Social Security, Medicare, and FUTA taxes if they work for:
    • A corporation, even if it is controlled by the child's parent.
    • A partnership, even if the child's parent is a partner, unless each partner is a parent of the child.
    • An estate, even if it is the estate of a deceased parent.

Also important: make sure your children are doing real jobs, not just sitting around playing games on the company’s computers. Give them specific job duties and pay them in real money (i.e., not with pizza or movie tickets). Lastly, keep the same records you do for your other employees and track their hours and wages.

Rieva Lesonsky is CEO of GrowBiz Media, a media and custom content company focusing on small business and entrepreneurship. Email Rieva at rieva@smallbizdaily.com, follow her on Google+ and Twitter.com/Rieva, and visit her website SmallBizDaily.com to get the scoop on business trends and sign up for Rieva’s free TrendCast reports.

Check Out the Latest Winners of insureon's Small Business, Big Impact Scholarship

14. May 2015 08:17

graduation cap on a pile of money

It's with a tip of our hat that we announce the winners of insureon's Small, Business, Big Impact Scholarship:

  • Joseph Katula of Yorkville, Illinois.
  • Margaret Manto of Charlottesville, Virginia.

Their essays, which were selected because of the inspiring and passionate ways these students articulated their dedication to service, were chosen from a pool of nearly 200 entrants. Both winners will receive $2,500 to put toward their educational expenses.

Let's learn a little more about the most recent scholarship winners.

Meet the Victors

Joseph Katula plans to study biomedical engineering at Case Western Reserve University – a wonderful use of the perspective he gained during his time with Yorkville Laundromat and his own organization Yorkville Cares 4 Kids.

In his essay, Joseph describes how he and his siblings founded Yorkville Cares 4 Kids to help provide clothing for children during the foreclosure crisis. He got the idea for the organization when he noticed parents and children struggling to access basic necessities, so his efforts focused on collecting clothing from schools' lost and founds to distribute at local food pantries.

But Joseph and his siblings ran into a problem when they wanted to take their service the extra mile by cleaning and repairing the clothing items. Their family washing machine wasn't up to the task of all those loads. The Yorkville Laundromat donated washing machine time to help Joseph realize his goals and help the community.

Margaret Manto, who is no stranger to hard work, will put that effort toward studying biological engineering at MIT. In her essay, she describes how her time at Atlas Coffee, a café owned by her mother, helped shape her outlook and drive. Her mother was an inspiration to her, showing her firsthand that with enough effort, she could accomplish any goal. The lessons she learned from her mother and working at Atlas Coffee will surely carry her far in her career.

Both students' essays exemplified how their small business experience shaped their lives and their future career decisions, making these personal lessons uniquely poignant and universal.

Enter to Win the insureon Small Business, Big Impact Scholarship

Feeling inspired? If you're a college student (or will be a college student in the fall), put your small business experience to words for a chance to win one of our two $2,500 scholarships. We hold this contest three times per year, and the current contest is now open for submissions.

For this contest…

  • Write a 500- to 750-word essay about how a summer job at or as a small business inspired you.
  • Make sure your essay is original, creative, logically structured, and free of spelling and grammatical errors.
  • Complete the contest application and submit your essay by July 31, 2015.

It's that easy! Visit our official scholarship contest page for more details.

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