QUESTION: I am expanding my home business, and now need a full-time employee to serve as a driver (my company makes dedicated deliveries to banks). My question: Because I am adding a full-time driver, do I need to incorporate or carry more insurance? Please help me. Thanks. —Tricia
ANSWER: You don’t need to structure your business as a corporation simply because you’ve hired an employee, says Jennifer L. Goldberg, a labor and employment partner with Thelen Reid Brown Raysman & Steiner in Los Angeles.
However, now that your business is growing, it’s wise to consider the various legal structures that can give you freedom from personal liability, plus some nice tax benefits too, she says. The three main options are limited liability companies (LLCs), S Corporations and C Corporations. Many owners — particularly in the early stages — prefer the LLC route because the structure is flexible and requires less stringent record-keeping than a corporation. It’s best to consult with an attorney or an accountant about which ownership structure best suits your needs.
Keep in mind, once you start hiring employees (no matter which structure you choose) you’re obligated to pay Social Security, Medicare and unemployment taxes on their wages. Most states will require you to have workers’ compensation, even if you have only one employee. Check your state’s web site (see California’s as an example) for more information.
As far as insurance is concerned, you’ll need a commercial-auto policy, which, much like a passenger-auto policy, covers liability and property damage in the event of an accident. An insurer will have specific questions about what you’re transporting, what states you’ll be traveling to, and which type of vehicle (such as a van or large truck) you’ll be using before setting rates and coverage.
One last thing: Don’t forget to ask any job candidate about his or her driving record, says Arjay Pedalino, vice president at AIG Small Business, a specialty insurer in Berkeley Heights, N.J. Not only are you entrusting them with your vehicle, but an insurance company will want to check your driver’s name against state driving records. Just like personal auto insurance, a poor record can result in higher rates or denial of coverage, he says.
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