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DOL Issues New Rules for Joint-Employer Status

The U.S. Department of Labor has issued new and more simplified rules for determining joint-employer status, which can often be found in work involving temporary workers, subcontractors or workers in franchises.

The new rule reverses Obama-era regulations that employers say opened a floodgate of litigation, making it easier for workers to sue more than one entity for labor violations, as for example in these instances:

  • Both the Subway Group and separately owned franchises that own Subway eateries.
  • A business and the subcontractor that it hires to do specific work.
  • A beverage delivery company and the temp agency that sometimes provides it with replacement drivers.

Joint-employer rules are important as they can help determine which employer is responsible for wage and hour violations. But the new rules apply mainly to violations under the Fair Labor Standards Act, when an employee may have, in addition to their employer, one or more joint entities that are jointly and severally liable with the employer for the worker’s wages.

The new non-binding rule, which takes effect March 15, spells out in which circumstances an entity can be considered a joint employer under the FLSA.

Balancing test

The final rule provides a four-factor balancing test when an employee performs work that also benefits another person or entity. It defines an employer as an entity that:

  • Hires or fires the employee;
  • Supervises and controls the employee’s work schedule or conditions of employment to a significant degree;
  • Determines the employee’s rate and method of payment; and
  • Maintains the employee’s employment records

An employer does not have to meet all four factors to be considered a joint employer.

The ruling does seem to fall in line with recent court decisions regarding McDonald’s Corp., which franchisee employees had sued along with the franchisee itself in seeking back wages and overtime.

The National Labor Relations Board in late 2018 approved a settlement between workers and their employer, a McDonald’s franchisee, which absolved franchisor McDonald’s Corp. from any direct joint-employer responsibility.

Also, the U.S. Ninth Circuit Court of Appeals in California decided in October 2018 that McDonald’s was not a joint employer with its franchisee for violations of California wage and hour laws, because the company did not exercise the “requisite level of control” over the workers’ employment.

The takeaway

When the rule becomes effective, it should provide clarity for all parties in a multi-employer or multi-company arrangement.

That said, you should not interpret the new rule as a reason to approach joint-employer responsibility recklessly.

If you use temp workers and/or subcontractors and you provide your employee handbooks and policies to any other entities’ employees, you should include disclaimers that make it clear that the provision of those materials does not create an employment relationship.

You may also want to take this opportunity to examine your relationships with the workers from whom you receive beneficial services, but whom you do not employ directly.


Congress Eliminates the ‘Cadillac’ and Other ACA Taxes

Congress before the new year passed legislation repealing the so-called “Cadillac tax” on generous group health plans, as well as two other taxes, finally putting to bed an issue that has plagued the Affordable Care Act since its inception.

Although it had not yet been implemented, employers didn’t like the Cadillac and labor unions came out against it as well. It was so unpopular that Congress voted twice to delay implementation, which was originally set to start in 2018. The latest start date had been pushed until 2022.

The Cadillac tax, an enacted but not yet implemented part of the ACA, is a 40% levy on the most generous employer-provided health insurance plans — those that cost more than $11,200 per year for an individual policy or $30,150 for family coverage. It was designed to only tax the portion of the premium that was above the threshold.

Effect of repeal on group plans

The tax would have been levied on health plans, which are legal entities through which employers and unions provide benefits to employees. It would have been paid by employers, but its impact on employees would be indirect and would have depended on how firms and health plan managers responded to the tax in offering and designing benefits.

None of these issues now need to concern employers offering group plans.

The tax was eliminated as part of a $1.4 trillion year-end budget bill that President Trump signed in order to keep the government open. Here are all the ACA-related taxes that the legislation eliminated:

  • The Cadillac tax, which had been expected to raise $197 billion over 10 years.
  • Starting in 2021, the health insurance tax, which had been projected to raise $150 billion over the next decade, and
  • The 2.3% excise on the sale of medical devices, which had been expected to generate $25.5 billion in the next 10 years.

Safety Tips That You May Not Have Considered

As the New Year gets underway, now would be a good time to double down on your workplace safety efforts to see if there are any areas that you may be overlooking.

While your safety regimen may be top notch, there is always room for improvement and you can consider these options as recommended by EHS Today:

Practice a 10-second rule

Workers should consider using the 10-second rule before resuming a task after a break or disruption. During this time before resumption, the worker can conduct a mental hazard check, which EHS Today refers to as STEP:
S – Stop before resuming a job or beginning a new task.
T – Think about the task you are about to do.
E – Ensure that any potential hazards have been identified and mitigated.
P – Perform the job.

Take advantage of OSHA training

The OSHA Outreach Training Program provides training for workers and employers on the recognition, avoidance, abatement and prevention of safety and health hazards in workplaces. The program also provides information regarding workers’ rights, employer responsibilities, and how to file a complaint.

Through this program, workers can attend 10-hour or 30-hour classes delivered by OSHA-authorized trainers. The 10-hour class is intended for entry-level workers, while the 30-hour class is more appropriate for workers with some safety responsibility.

Through this training, OSHA helps to ensure that workers are more knowledgeable about workplace hazards and their rights.

Reward employees for attention to safety

Many companies reward individual employees who are especially mindful of safety procedures. Rewards don’t have to be extravagant. Low-cost rewards such as $10 gift cards for everyday necessities (gas, groceries, fast food) are perfect for on-the-spot rewards or as redemption options in a point-accumulation program.

Communicate with non-English speaking workers

Non-English speaking laborers have more workplace accidents than their peers. Some safety experts blame this on the language barrier that may exist. The language barrier may keep them from reporting workplace hazards and they may not understand your safety instructions.

If you have non-English speaking workers:

  • Ensure that training is fully understood.
  • Try to get any safety training materials also printed up in Spanish, and other languages prevalent in your workplace.
  • If you have one, provide them contact in your organization that speaks their language, so that they can get answers to any questions they may have or to report concerns.

Urge your employees to speak up

Let your workers know that there will be no retribution for reporting perceived workplace hazards, no matter how minor. You can also implement the third suggestion above and reward employees that point out safety issues.

Temp workers need safety awareness too

Temporary workers often slip through the cracks when companies are training staff on safety. And it’s easy to forget when you get a temp that comes in for a day or two that they need to be aware of the hazards in the workplace and how to avoid getting injured.

The issue is especially important in terms of your company getting cited. Federal OSHA has made the safety of temporary workers one of its priorities. OSHA in 2014 published a guide for protecting temporary workers. To access the guide and for tips, check out: www.osha.gov/temp_workers/

Make your training engaging

The best safety training programs are those that employees remember. Some good ways to make sure the information is retained include using real-life examples, story-telling, skits and strong video presentations.

Do more than OSHA requires

OSHA’s regulations are meant to be comprehensive, but every workplace is different and for a truly effective safety program you should fine-tune your safety requirement specifically for your workplace. In other words, you can go a step beyond what OSHA requires.

Watching each other’s back

You should also instill a sense of responsibility among your staff to look out for each other. If a worker sees another performing a job in an unsafe manner, the worker should step in to offer assistance. This can be done without being intrusive or confrontational.

Some good approaches include: “Hey, would you like me to watch out for your safety?” and “As you know, you need to be wearing cut-resistant gloves to perform that task.”

Establish a leadership-driven safety culture

A safe workplace starts from the top. The company’s leadership needs to buy into its safety culture. “If your employees see leadership investing time and money into workplace safety, they’ll understand that it’s a priority for your company. And ultimately, they’ll make it a priority for themselves as well,” EHS Today writes.


Telemedicine Taking Off, Reducing Health Costs

One of the fastest growing parts of the health care system, and which touches significantly on group health plans, is telemedicine.

From 2016 to 2017, insurance claims for services rendered via telehealth as a percentage of all medical claim lines ― grew 53% nationally, faster than any other avenue of care, according to “FH Health Indicators,” a white paper published by the nonprofit FAIR Health.

Telehealth uses technology to provide remote care via video conferencing and other means and is proving to be more and more effective, especially for time-pressed individuals or people who live in rural areas where patients often have to travel great distances for care.

Elderly patients especially find it useful, since it eliminates the need for transportation.

But as telehealth gains traction, the focus is shifting away from the novelty of connected devices and new technology and more toward providing patients with top-notch care ― and giving providers, physicians and nurses alike the power to deliver it effectively. As it evolves, it is also a promising new trend in terms of reducing health care delivery costs.

Telehealth can reduce the cost of care by eliminating the physical barriers that prevent patients from managing their health. As more patients take advantage of digital services like remote patient monitoring, automatic appointment reminders, and remote physician consulting using live video and audio, patients can use these services to reduce the cost of care and improve their chances of early detection.

And that can reduce your overall group health plan costs, as well as out-of-pocket costs for your employees.

Tech firms are coming up with more efficient ways for patients to communicate with their doctors that save time and money, and reduce liability for doctors as well. For example, more and more health care practitioners are adopting an online patient portal as a direct link between the patient and the doctor.

Doctors, patients embrace online portals

The portal can easily be password-protected for each patient and streamline routine interactions from appointment-setting to refilling prescriptions ― and everything in between. 

For example, when it’s time to get a prescription refilled, the patient simply makes a request to his or her doctor, via the patient portal or even via a cell phone or tablet app that can be proprietary to the practice. The doctor checks the dosage and approves the request in a few clicks, and in seconds the information is sent directly to a pharmacy so the patient can pick up the prescription.

The patient doesn’t have to get the doctor on the phone or bug the staff for a moment with the doctor, and the doctor doesn’t have to do additional paperwork or get on the phone with the pharmacy to call in the prescription after already having spoken with the patient on a separate call. The result is tremendous time savings ― and ultimately, cost savings for both the doctor and patient.

Online portals also facilitate communication between doctors and patients between appointments. If a patient has a question or clarification that does not warrant an additional office visit, the doctor or staff can quickly respond in an instant, without playing phone tag, and without having to route calls to busy doctors who can’t always be on the phone.

Physicians can also leverage these portal technologies to send lab results and images directly to the patient using a secured and encrypted link, and to make clinical summaries easily available online. When the doctor adds new information to the file, such as a lab report, the portal system can be programmed to automatically send an e-mail alert to prompt the patient to log onto the portal.

For all the technology though, we still have a way to go in implementing it. According to a recent study in the Journal of General Internal Medicine57% of respondents said they want to use their doctor’s website to review their medical records, but only 7% of those polled reported having made use of that technology to access their own information online.

A study from the Annals of Internal Medicine found that 77% to 87% of individuals who used their physician’s portal to open at least one note, and who completed a post-intervention survey, said that the process helped them be more in control of their health care.


New Booklet Helps Employers Set Up Safe Driving Programs

OSHA has published a set of guidelines to help employers reduce accidents among their driving employees.

The document is not a set of new regulations or a new standard. It is only advisory ― the federal agency describes it as “informational in content” ― and is intended to assist employers in providing a safe and healthful workplace.”

Nonetheless, the guidelines are an excellent way to establish a system that can reduce the likelihood of crashes involving your driving workers.

OSHA recommends implementing a safe driving program that includes the following:

Management commitment and employee involvement

Senior management can provide leadership, set policies and allocate resources (staff and budget) to create a safety culture. Actively encourage employee participation and involvement at all levels of the organization to help the effort to succeed. Involve workers in the planning phase of the policy.

Written policies

Create a clear, comprehensive and enforceable set of traffic safety policies and communicate them to all employees. They can cover such things as:

  • A zero-tolerance policy for using smartphones while driving and only using hands-free technology when talking on the phone.
  • A zero-tolerance policy of driving under the influence of alcohol or illegal drugs.
  • Requiring all driving staff to wear seat belts at all times.

These policies should be posted throughout the workplace, distributed to staff and discussed at company meetings. Offer incentives for sticking to the rules, and set consequences for disregarding them.

Driver agreements

Establish a contract with all employees who drive for work purposes, whether they drive assigned company vehicles or use their personal vehicles. By signing an agreement, the employee acknowledges awareness and understanding of the organization’s traffic safety policies, procedures and expectations regarding driver performance, vehicle maintenance and reporting of moving violations.

Check driving records

Check the driving records of all employees who drive for work purposes. Screen out drivers who have poor records. Review their moving violation records periodically to ensure that the driver maintains a good driving record. Clearly define the number of violations an employee/driver can have before losing the privilege of driving for work.

Crash reporting

Establish and enforce a crash reporting and investigation process. Require employees to report all accidents to their supervisor as soon as feasible after the incident. Set policies for what driving employees should do after an accident. Also, investigate all crashes and try to identify their root causes, so you can possibly help workers avoid making the same mistakes in the future.

Vehicle maintenance and inspection

Selecting, properly maintaining and routinely inspecting company vehicles is an important part of preventing crashes and related losses.

Review the safety features of all vehicles to be considered for use. Conduct routine preventative maintenance on vehicles as per manufacturer’s recommendations. Also check safety-related equipment and brakes regularly.

Disciplinary action system

Set rules for dealing with employees who are cited for a moving violation or are involved in a preventable crash while driving on the job. Options include:

  • Assigning points for moving violations.
  • Progressive discipline if a driver begins to develop a pattern of repeated traffic violations and/or preventable crashes.
  • The system should describe what specific actions will be taken if a driver accumulates a certain number of violations or preventable crashes in any predefined period.

Reward/incentive program

Develop and implement a driver reward/incentive program that includes recognition, monetary rewards, special privileges or the use of incentives to motivate the achievement of a predetermined goal or to increase participation in a program or event.

Driver training and communication

Provide continuous driver safety training and communication. Even experienced drivers benefit from periodic training and reminders of safe driving practices and skills. It is easy to become complacent and not think about the consequences of our driving habits.


Your Last-Minute Open Enrollment Checklist

By now you should be prepared and ready to go for your 2020 employee benefits open enrollment. You should have all your plan documents and have prepared or held presentations for your staff to explain the benefits package and any major changes to the plans that you offer. 

Employees should be familiar with how to use the enrollment portal and who they should talk to if they have questions. 

To be on the safe side, there are a few things you should do to make sure you maximize enrollment, that your employees have the correct materials and that you are in compliance with the law. 

Take an active role — Most of the policy selection is done online, but that doesn’t mean you can’t support your employees and let them know you are there in case they have any questions or are confused about any aspect of the benefits package. 

You should want all of your employees to choose the package that best fits their individual needs. To ensure they make the best possible choices and have a successful experience, motivate them to take an active role in their education by encouraging questions and showing them where they can find answers in the online enrollment platform. 

Last-minute blasts — You’ve probably sent a few e-mail reminders to your staff, but most certainly some of them still missed those communications. Make sure you send a few extra blasts at different times of the week, like Tuesday at 10 a.m. and another on Thursday at 2 p.m. 

You should also have all of your employees’ mobile phone numbers, and sending them reminder text messages is a sure-fire way to get in front of the ones who may not be as diligent about monitoring their e-mail. 

Double-check your plan materials — Do a final review of your plan documents for any necessary updates regarding member eligibility, plan benefits, new vendors and name changes to ensure that the current state of your benefits offerings is complete and accurate. 

Also, do a final review of your summary of benefits and coverage (SBC) and your summary plan description (SPD) to make sure they reflect any changes from the prior year. This is crucial as both documents are required under the law. 

The SPD may include the elements necessary to meet the requirements of the SBC, but it also needs to be a separate document that can be handed out with respect to each coverage option made available to the participants. 

To account for the annual open enrollment window, double-check your open enrollment schedule, deadlines, documents and forms, coverage options and changes, phone numbers, and website and mobile information for contacting resources, statement of current coverage, and plan-specific summaries and rates. 

Identify staff that didn’t enroll last year — To make sure you maximize participation and that nobody misses out, run a list of all your staff who didn’t sign up for benefits last year so you can approach them individually and convey the importance of securing health coverage. 

While you’re at it, make sure that all of your new hires in the past year have also signed up for coverage and that you didn’t miss them when sending out reminders about open enrollment. 

Check compliance with ACA — If you are an “applicable large employer” under the Affordable Care Act, meaning that you have more than 50 full-time or full-time equivalent employees, you are obligated under the law to provide health coverage to your staff that is “affordable” and covers 10 essential benefits. 

There is a figure for what is considered affordable, which changes every year. For your plan to be considered ACA-compliant, it must not cost an employee more than 9.78% of their household income.?? 

ACA refresher — The ACA remains as controversial and misunderstood as ever and most people only know what they have heard about it from their favorite news outlet, which can result in a skewed, and often incorrect understanding of the law. 

Also, there have been a number of changes to the law during the last few years, the biggest of which is the elimination of the penalties associated with individuals not securing health insurance as required by the individual mandate portion of the law. 

Give your staff a last-minute refresher to help them understand how the ACA affects their health insurance — and what the employer’s and their obligations are under the law. 


Lockout/Tagout Training Essential in Any Shop with Equipment

A printing shop employee notices a piece of cardboard jammed inside a press. The first instinct is to remove it and continue the work, so he grabs the cardboard and tries to pull it out, while the press is running.

Tragically, in this real-life example, the employee’s arm got caught up in the machinery, resulting in a gruesome injury that resulted in him losing part of the limb.

By following proper lockout/tagout procedures, this employee would not have reached for the cardboard without first powering down the machinery. Unfortunately though, he had never been trained in such procedures.

What your employees need to know

Under lockout/tagout regulations, only authorized employees who have the appropriate level of knowledge and training can perform maintenance on equipment. Those that operate the equipment may not perform maintenance but are allowed to shut the machine down and place a tag on it to warn co-workers that the equipment should not be used.

Tagging the equipment is an important step because if co-workers don’t know why a conveyor belt or other piece of heavy machinery was shut down, there’s a risk one of them might start it back up not knowing there’s a problem or that someone’s performing maintenance.

What your employees need to do

Your employees serve as extra sets of eyes and ears at the workplace. They can listen for strange sounds that might indicate a machine is not working properly. They can also inspect the equipment throughout the day looking for frayed cords, jams or any other physical signs that could lead to trouble.

When a malfunction occurs or something is jammed inside a machine, the first step should be to shut it down and disconnect the power source, if possible. Next, the worker should tag the machine (tagout) and notify their supervisor, who contacts an authorized repair person.

A padlock or other locking device (lockout) is then used to further secure the machine and prevent anyone from starting it up without authorization. After that, repairs can commence.

What to tackle at your safety meetings

To prevent serious injuries, your team should be well-versed in lockout/tagout procedures, which they should learn in safety meetings. Here are some tips:

  • Make sure your team knows who is authorized to perform repairs. No matter how easy a repair or fix seems, it’s not worth the risk of injury like the one suffered in the printing machine mentioned above.
  • Train them on how to shut down equipment and disconnect the power source.
  • Train them in where the tags can be found to place on malfunctioning equipment.
  • Train them in the protocol for notifying a supervisor of any jam or malfunction.

Also, make sure to ask your workers the following to ensure they understand:

  • Do you have any questions about lockout/tagout procedures in this shop?
  • Are there times when you aren’t sure when to utilize lockout/tagout procedures?
  • How can we make sure that everyone is following our lockout/tagout procedures?

Many Workers Struggle with Medical Bills, Despite Having Insurance

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A new survey has found that many American workers are struggling with medical bills even though they have employer-sponsored health plans.

The good news from the survey was that 81% of respondents said they had health insurance, which meant they were 19% more financially fit than people without insurance. They were also happier.

The survey found that:

  • One in 10 employees who have insurance and pay part of the premiums, also have annual out-of-pocket medical bills of more than $10,000.
  • 33% of insured employees carry medical debts that they are trying pay down.
  • Insured employees that carry medical debt are 42% less financially fit than those who do not have such debt.

Carrying debts related to medical care also affects employees’ health. The survey found that workers with money problems are:

  • Three times more likely to suffer from anxiety and panic attacks.
  • Eight times more likely to have sleep problems.
  • Four times more likely to suffer from depression and have suicidal thoughts.

Stress from medical debts can also affect worker productivity. Of employees with medical debt problems:

  • 24% have troubled relationships with co-workers.
  • 22% cannot finish their daily tasks.

Lost productivity from these two issues costs businesses up to 14% of payroll expenses, the survey found.

What can you do

Given that health care costs show no signs of abating, what can you do for your low-wage employees and also ensure that your own health insurance premiums don’t spiral out of control? Here are some options:

Vary premium level – If you have a mix of highly paid staff and lower-wage workers, you can create a tiered system where the latter receive greater premium contributions from you than do the former. About a quarter of large employers vary employee health insurance premiums. This is something that’s not feasible for all businesses, particularly if money is tight.

Offer plans with generous benefits – You can offer a slate of plans, from ones with larger copays and deductibles to those with low or no out-of-pocket costs for those employees willing to pay more in premium. This way, your low-wage workers have a choice of health plans which include lower deductibles and lower variability in potential out-of-pocket liability.

Offer skinny plans – Skinny plans still cover the 10 benefits required by the Affordable Care Act, but they typically have a narrow network of providers in exchange for low out-of-pocket costs for the enrollee. While this option is good for your younger and healthier worker, it is often a non-starter for those who have existing health issues.

Carefully review incentives and subsidies – Employers should design wellness incentives that do not penalize low-wage workers, who are more likely to smoke, (many employers impose a tobacco surcharge averaging $600 a year). Employers should couple tobacco surcharges with tobacco-cessation programs, and waive surcharges for employees who are trying to quit.

Offer plans with modern attributes – Telemedicine services can reduce health care costs, as they reduce the worker’s need to take time off for an appointment and also lower the cost of delivery of care.

Push for lower prices and costs – You should coordinate with us, so we can work with your health plans and providers to reduce costs.


The Difficulty of Dealing with Workers with Substance Abuse Problems

With the opioid epidemic continuing to sweep the nation, more and more workers are battling addiction than ever before.

But if you as an employer suspect or know one of your staff has a substance abuse problem, you need to be careful about how you approach them and try to deal with the issue.

Even if many employees can keep their addictions under wraps in the workplace, not all of them can. According to a survey conducted by the website drugabuse.com, which offers educational content and recovery resources to people dealing with addiction:

  • 23% of workers surveyed said they had used drugs or alcohol on the job.
  • 60% said they had used alcohol on the job work (not including office parties or functions).
  • 23% said they’d smoked marijuana on the job.

On top of that, 75% of U.S. employers say they’ve been affected in some way by an employee’s substance abuse. That can include:

  • Employee theft to support the habit.
  • Mistakes that cost the company money and lost business.
  • Workplace accidents.
  • Accidents that injure third parties.
  • Reduced productivity because of presenteeism.

While you can have policies in place that bar employees from working under the influence – under threat of firing – it’s a trickier matter if one of them comes to you to tell you they have a problem.

The Americans with Disabilities Act protects workers who:

  • Have successfully completed a rehab program and have stopped taking the drug that caused them to enter the substance abuse program,
  • Who are currently in a rehab program, or
  • Who have been wrongly accused of having a substance abuse problem.

It’s also a challenge for employers to know the difference between an employee who may have been taking one Vicodin every day for years for pain but continues to do a great job, or someone who needs treatment. Taking the wrong action can set you up for being sued, and it’s hard to win a case if the employee is taking medication as prescribed by a physician.

What you can do

There are ways that employers can legally find out if employees are taking opioids. You can set a policy that requires employees to disclose if they are taking prescription medications that may cause impairment or come with warnings about drowsiness.

This is legal under Equal Employment Opportunity Commission regulations as long as the policy is companywide.

But if you think you have a worker on staff who has a substance abuse problem, you need to go through an interactive process as prescribed by the ADA.

Steps under the interactive process start with talking to a worker you think has a substance abuse problem or is taking medication that could create a safety risk, to see if there is some way you can accommodate them. That could include:

  • Restructuring their job.
  • Offering a leave of absence to let them get treatment.
  • Modifying their schedule so they don’t have to work after they have taken their medication.
  • Reassigning them to a vacant position that will not put them or others at risk.

If you have an employee who has been on leave to get treatment for their substance abuse, you can ask them to take a fitness-for-duty exam to make sure they are up for resuming their old job.


Why a Corporate Liability Shield Is Not a Replacement for Liability Insurance

Business owners who form a corporation or a limited liability company (LLC) may question the need for the business to carry insurance. A major benefit of these forms of business organization is that they shield the owners’ personal assets. Because of this, they may believe insurance is unnecessary.

A corporation is a legal entity separate from its owners. It acts as an artificial legal person. It can do the things that individuals may do, such as:

  • Enter into contracts
  • Incur debts
  • Earn income
  • Make investments
  • Sue others, and be the target of lawsuits.

It gives its owners a legal shield against many of its obligations. In other words, an individual owner of a corporation (called a “stockholder”) does not have to pay for the business’s debts out of his or her own funds.

An LLC also shields its owners (known as “members”). However, tax laws apply differently to LLCs than they do to corporations. If a corporation earns $10,000 in income, it must pay tax on that $10,000. If an LLC earns $10,000, the money is distributed to the members and they individually pay taxes on it.

Corporations and LLCs shield their owners and members from liability for the entity’s debts.

Suppose someone sues the business, claiming that its product injured them. A court orders the business to pay the injured individual $1,000,000. The business must pay that amount out of its assets. But, the individual owners or members do not have to cash in their bank accounts or homes to pay it. The most they stand to lose is the amounts of their investments in the business.

Legal shield only goes so far

The shield is not absolute. A court may hold individual stockholders and members liable in some situations. If they personally and directly injure someone, the shield does not protect them.

The court may also decide that the corporation is a sham entity. It could do this if the business has not conducted the normal activities of a corporation, such as:

  • Holding regular stockholder meetings.
  • Keeping business records separate from those of the owners.
  • Investing adequate capital in the business.

Regardless of the shield, the business should carry insurance. The shield cannot protect the time and effort that goes into building a business. An uninsured accident can wipe out all of the business’s assets. Without large additional investments, it might not survive. The stockholders’ investments in money, time and work will have been wasted.

Also, an individual acting on the business’s behalf may incur personal liability. For example, while driving on company business, a member may injure someone in a car accident. Business liability and auto insurance policies usually insure individual stockholders and members for acts they perform in their roles with the business. Without this coverage, the individual would have to hire their own lawyers and pay judgments out of pocket.

For these reasons, wise business owners buy insurance. They should insure the business’s buildings, property, and liability risks. The personal liability shield is no substitute for insurance protection.


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