The CPA’s Guide to Assisting Clients with Business Compliance Issues

As a CPA, you probably find that clients sometimes inquire about more than just their business’s taxes and finances. With a strong connection between their money and all other aspects of their companies, they may toss you questions about a variety of business compliance issues that aren’t in your normal area of focus.

You need to exercise caution in responding because your insight shouldn’t take the place of proper legal counsel or human resources guidance. However, having a working knowledge of diverse compliance topics can help you aid your clients’ understanding of certain issues and steer them to the right resources.

Startup entrepreneurs and existing business owners might ask questions about business compliance issues such as human resources laws and regulations and business formation and entity requirements. Let’s take a closer look at the types of inquiries you might encounter.

Human Resources Laws and Regulations

Businesses that violate the hiring, employee relations, and safety rules of the United States Department of Labor and other government agencies put their companies at risk of serious penalties. They must understand and abide by the rules of the Fair Labor Standards Act (FLSA) and the Occupational Safety and Health Administration (OSHA). Your clients should seek the guidance of a lawyer and human resources expert to make sure they understand the specific requirements that apply to them.

Below are some of the HR concerns business owners must pay attention to. These considerations represent a small sampling of the many employment-related topics your clients may need to discuss with their lawyers and HR professionals.

Ensuring Proper Worker Classification

Employee or independent contractor? Your clients need to take care to classify their workers correctly. As you know, employers must withhold federal, state, and local taxes and some other deductions from their employees’ paychecks but not from the payments to independent contractors.

Some of the criteria that indicate a worker is an independent contractor rather than an employee include:

• The individual has a “work for hire” or “independent contractor” agreement with your client.
• The individual gets compensated based on invoices they send your client.
• The individual uses their own equipment and software to do the work they perform for your client.
• Your client does not manage the individual’s work (e.g., hours that they work, how they do their work, or where they do their work).

The employee or independent contractor status also affects company benefits. While your clients may be required to provide certain benefits to workers on their payrolls, they do not need to do so for independent contractors.

When using independent contractors, your clients can help make the status clear by requesting a W-9 (Request for Taxpayer Identification Number and Certification) forms before those individuals do any work for their companies.

Avoiding Anti-Discriminatory Hiring Practices

When hiring employees, your clients must avoid discriminatory practices — whether intentional or accidental. If they’re not careful, they risk becoming the target of complaints and possibly lawsuits. All aspects of the hiring process (e.g., job applications, interviews, background checks, etc.) must comply with federal, state, and local municipality laws. A few of the federal laws enforced by the EEOC (U.S. Equal Employment Opportunity Commission) that your clients should familiarize themselves with include the Americans with Disabilities Act (ADA), the Age Discrimination in Employment Act (ADEA), and the Equal Pay Act.

And your clients should be vigilant in taking measures to avoid sexual harassment in the workplace. This highly visible and extremely sensitive issue requires awareness and education. Title VII of the Civil Rights Act of 1964 considers sexual harassment a form of sexual discrimination.

Abiding by Minimum Wage Laws

At the time of this post, the federal minimum wage is $7.25 (which has been in place since 2009). Your clients should know, however, that many states have their own minimum wage requirements—and 21 states raised their minimum wages in January 2024.  In cases where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages.

Correctly Issuing Workers’ Overtime Pay

The FLSA requires employers to pay employees at least time and one-half of their regular pay rates for any time worked beyond 40 hours in a workweek. Note that there are some exemptions to the rule, based on the nature of an employee’s position with the company and salary. For example, the federal government has exemptions for executive, administrative, and professional employees paid on a salaried basis instead of an hourly wage whose salary meets the minimum salary threshold defined in the federal regulations. If the state law is different from the federal law, your client will need to abide by the overtime pay regulation that’s most favorable to employees.

Following Minimum Employment Age Rules

In most cases, FLSA considers 14 years of age the minimum age for employment. Clients who hire employees under age 16 must be aware that those employees cannot work more than a specified number of hours per week. For employees 16 years old and over, the Act states no limit on the number of hours they may work, however, it prohibits employing a minor under age 18 to do jobs considered dangerous. Some examples include excavation work, operating certain types of equipment, and driving. States have their own laws regarding employing minors, and your clients must follow the law that offers the most protection to their young employees.

Providing the Required Family and Medical Leave (FMLA)

Something that your business clients should consider as they plan their finances is FMLA requirements. The Family and Medical Leave Act requires that employers give certain employees up to 12 workweeks of unpaid leave per year (without fear of losing — or being demoted in — their jobs) to tend to certain family or medical situations. Group health benefits for employees on leave must be maintained as if the employees continued to work. The FMLA also gives eligible employees military leave entitlements if certain family members are deployed. In addition, FMLA provides up to 26 weeks of leave in a single 12-month period for an eligible employee to care for a covered service member who is ill or injured.

Per FMLA rules, employee eligibility requirements include having been employed for at least 12 months, having worked at least 1,250 hours in the last 12 months, and working at a location where the employer has 50 or more employees within 75 miles.

Paying Federal and State Unemployment Insurance

Your clients should also be aware of the requirement to participate in the Federal-State Unemployment Insurance Program, which provides temporary compensation to eligible employees who meet state-specified eligibility requirements and became unemployed through no fault of their own.

The general criteria for when employers must pay into the Federal Unemployment Tax Act (FUTA) include:

• The employer has paid at least $1,500 to employees in any calendar quarter in the current or previous year.
• The employer had one or more employees working at least some portion of the day in 20 or more weeks in the current or previous year.

After an employee’s year-to-date wages exceed $7,000, the employer is not responsible for FUTA on the employee’s subsequent wages in the year.

State Unemployment Tax Act (SUTA) — also known as State Unemployment Insurance (SUI) — rules vary. In many states, the program is funded solely via a tax on employers and the threshold at which employers must pay the tax follows the FUTA criteria.

Providing Medical Coverage

Things are constantly in flux with health care, but at the time of this post, the Affordable Care Act rules still apply. Businesses with an average per month of 50 or more full-time (or full-time equivalent) employers must provide affordable minimum essential health coverage to their full-time employees. If a business has over 50 employees but does not offer coverage that meets certain standards, it may have to make a Shared Responsibility Payment to help defray the costs that workers for insurance through the health insurance marketplace.

Paying Workers’ Compensation Insurance

Another requirement your business clients will need to budget for is insurance to cover costs (medical expenses and wages) of employment-related injuries and illnesses suffered by employees. States have their own workers’ compensation insurance programs, so your clients should research the rules and costs that apply to them. Generally, the insurance covers illnesses and injuries regardless of who was at fault.

Business Formation And Entity Compliance

Whether your clients are in the process of starting or growing a business, they might wonder about the steps involved in legitimately forming a business entity type or the tasks they need to complete on an ongoing basis to keep their existing business in good standing. Some of their inquiries may flow naturally into your area of expertise while others may require you to align clients with other resources. For example, business owners should talk with their attorney to get the lowdown on legal requirements for their specific type of business and their location.

Below, I’ve listed some of the top business formation and compliance-related needs your clients are likely to have. Fortunately, there’s a way you can directly assist them with these items — by enrolling in the CorpNet Partner Program — which I will explain in more detail later in this article.

Changing a Business Entity Type

Perhaps you’re working with a Sole Proprietor who wants to protect personal assets while running her company. Or maybe the owners of a multi-member LLC (Limited Liability Company) have decided they want to be able to sell stock to raise funds to expand their business. In these situations and others, your clients must submit documentation to legally form or change their business entities.

Examples of business formation paperwork by business entity type include:

• Filing an Articles of Organization for registering an LLC
• Filing an Articles of Incorporation for registering a C Corporation
• Filing a Certificate of Conversion to convert an LLC to a C Corporation
• Filing IRS Form 2553 for electing to have an LLC or C Corporation be treated as an S Corporation for tax purposes
• Filing a Certificate of Authority for the foreign qualification to operate an LLC or corporation outside of the state in which it was formed

Obtaining an EIN

As you advise your clients that they’ll need to obtain an Employer Identification Number (EIN) to hire employees, set up a bank account, and file their taxes, they may ask about the cost and where they get one. EINs are federal tax ID Numbers issued free of charge from the U.S. Patent and Trademark Office. Business owners may have a third party request an EIN on their behalf.

Applying for Business Licenses and Permits

Many of your clients may need certain business licenses and permits to legally operate their companies at their location. The requirements will depend upon where they are and what they do. Some businesses might require federal, state, county, and local business licenses and permits, so it’s essential that their owners check to find out what requirements apply to them.

Designating a Registered Agent

Clients that form an LLC or Corporation must assign a registered agent to receive service of process (state and federal correspondence, legal notices, corporate filing notifications, and other important paperwork) on their behalf. If a client has foreign qualified their business in another state or has other companies in other states, it must maintain a registered agent in each of those states. Having a commercial registered agent authorized to provide services in all 50 states can make the process of signing up for and renewing registered agent contracts simpler.

Registering for Payroll Taxes

Before a business can withhold state taxes from its employees’ pay, it must complete the payroll tax registration process to set up a tax account with the state. Depending on where the business and its employees are located, it might also be required to set up accounts with local tax authorities for city or county payroll taxes.

Filing a BOI Report

The Corporate Transparency Act (CTA), effective January 1, 2024,  includes a Beneficial Ownership Information (BOI) Reporting Rule that affects many small businesses. Any domestic or foreign business entity that matches the description of a “reporting company” and doesn’t qualify for an exemption, must file a BOI report to the Financial Crimes Enforcement Network (FinCEN).

The report may be filed online using the BOI E-Filing System or via paper filing. It is required just once but must be updated if a company’s beneficial ownership information changes.

Deadlines for BOI Reports:

• Existing entities registered before January 1, 2024, must file before January 1, 2025.
• Entities registered after January 1, 2024, must file within 90 days of business formation.
• Entities registered after January 1, 2025, must file within 30 days of business formation.

While the reporting requirement and the CTA are being challenged by some legislators, the law remains in place at this time and business owners can face civil penalties (currently $591 per day for each day a BOI filing is late) and criminal penalties (including up to 2 years imprisonment and a fine of up to $10,000) for not complying.

Submitting Annual Reports

Some states require LLCs and corporations to submit annual reports or “statements of information” to keep companies’ vital information up to date in government records. In the states that require them, the deadline may be annual, every two years, or on some other schedule. Sometimes, the filing deadline for an annual report may be aligned with the deadline to file other state fees or taxes.

Closing a Business

When clients decide to cease doing business, they must officially notify the state(s) in which they operate their companies by filing Articles of Dissolution. If they do not formally close their businesses with the state, they continue to bear the responsibilities of filing reports, paying taxes, and performing other compliance tasks.

How the CorpNet Partner Program

After clients have consulted with you and their lawyer to determine their legal and tax-related responsibilities, you can enhance customer trust and loyalty by helping them save time and money on their business formation and compliance filings. When you sign up for our CorpNet Partner Program’s Reseller option, Referral Partner option, or both, you can make additional income for your accounting business and reduce business compliance issues for your clients in any state. There’s no cost to join our program, and we give you turnkey marketing materials to make it easy for you to promote your expanded suite of services.

• Reseller Partner – As a reseller of our services, you can help your clients register a business, file annual reports, and meet important deadlines. You get wholesale pricing on business formation and corporate compliance, and you can resell our services to your clients under your brand while CorpNet acts as your silent business filings fulfillment partner.

• Referral Partner – Become a CorpNet Referral Partner. Refer your clients to CorpNet for any business formation or compliance filing and earn up a commission on each sale. Just send us the business, and we’ll send you a check.

As a referral partner, your business receives a commission every time a prospect you’ve sent our way signs up for us to handle their business formation and compliance filings.

Regardless of which option you decide will work best for you, CorpNet’s team of filing experts is here to support you as you provide additional value to your clients. To learn more, call us at 888-449-2638 or chat with a CorpNet team member now.