5 Spring Cleaning Tips for Your Small Firm

by Alexa Drago on March 9, 2017

By Sara Sharp and Christina Saunders

Spring Cleaning Just Ahead Green Road Sign with Dramatic Clouds, Sun Rays and Sky.

It’s that time of year again. The New Year frenzy is settling down, and we are already well into the second quarter of 2017. There is no better time than the present to dust off your policies and procedures and take a fresh a look at your company’s legal compliance. Even if your company or firm was in perfect legal shape a few years ago, it may be time for some TLC this spring. The legal landscape has been changing rapidly, and the mere fact that your company’s number of employees has increased or decreased might mean that different laws now apply to you.

1. Get Your Corporate Formalities Straight. Have you ever filed articles with the Colorado Secretary of State on behalf of your entity? Make sure that your address is up to date and that you pay for your annual report on time so that you stay compliant. Do you have a Colorado LLC? Make sure you have an updated operating agreement, especially when there is more than one member. Operating agreements can be relatively easy to put off when you are starting up but are absolutely essential to address as early on as possible. An appropriately drafted operating agreement will strengthen your corporate veil, establish the rules that govern the management and economics of the company, outline each member’s rights and obligations, and allow members to plan for future events, such as unfunded tax amounts, exits, financings, and sales. Likewise, if your company is a corporation, you should confirm that your company bylaws, articles of incorporations, and any other governance documents are up to date and actually being followed. In addition to any other requirements in these documents, you should make sure your company is in the habit of holding scheduled meetings and keeping accurate records.

2. Revisit Your Hiring Policies and Procedures. Starting out, hiring practices often evolve organically, but as your company grows, you should prioritize formalizing your hiring process to ensure you are attracting quality employees and complying with applicable federal, state and local laws. If you don’t already have one, create a hiring policy and draft standardized interview questions. Make sure you review your job application forms, advertisements and any other selection criteria. The law limits the questions that may be asked about an applicant’s race, gender, disability, national origin, sexual orientation, sexual identification, marital status, pregnancy, age, family plans and other personal issues. Make certain everyone involved in the hiring process at your company is aware that these topics should be avoided. Otherwise you might expose your company to potential legal liability, such as discrimination claims. If your company requires background checks, verify that they are in compliance with the FCRA and Colorado state law on consumer reports, criminal background checks and driving record information.

3. Update the Company Employment Handbook. Employee handbooks can offer a lot of value to an organization. First and foremost, having good policies in place can cut down on the risk of unlawful behavior. Some laws require employers to communicate certain information to their employees, which is most conveniently done in a handbook. In many cases, having appropriate policies in the handbook can help employers limit their exposure to liability for lawsuits or even provide a legal defense in an employee lawsuit. However, having the wrong information in a handbook can also expose the company to much greater liability. For instance, it is extremely important that the handbook protects your company’s legal right to terminate employees at will. Once you have a handbook in place, it is important to have it reviewed each year to comply with new laws. If your company is growing, you may have unknowingly crossed a threshold, triggering new laws to apply to your company. If you recently expanded beyond 20, 50 or 100 employees, you’ll most likely need to update your policies. Likewise, if you are decreasing your workforce below these thresholds, you might want to remove policies that no longer apply to your company. Finally, with imminent changes on overtime rules expected, many employers are revising their handbooks to address the exempt/non-exempt distinction. For instance, you might wish to update your handbook to require non-exempt employees to obtain prior authorization before working overtime hours.

4. Establish Good Evaluation Procedures. Performance evaluations provide employers with an opportunity to assess the strengths of their workforce and to provide feedback to their employees. These are essential to developing a good team but are easy to put on the back burner because they are time intensive. This factor can be lessened if a good standard performance evaluation system is in place. (This usually includes a standard evaluation form, standard performance measures, guidelines for delivering feedback and disciplinary procedures.) In the event that you have a poorly performing employee, good evaluation procedures should allow you the best chance of reforming them. To the extent that you might need to terminate an employee, well-documented standard evaluation procedures will often serve as the first line in your legal defense. If your company does not already have a standard evaluation system, spring is an excellent time to put one in place.

5. Plan for Taxes. This spring is as good of a time as any to take a new look at your tax planning vehicles. You still have the majority of the year left to make changes. Obviously, it is important to have a good relationship with financial professionals early on and to strategically evaluate your corporate elections (i.e. S-Corp, C-Corp). But even after you have made these elections, you can affect your tax outcomes significantly by implementing mechanisms to defer income and accelerate expenses for the taxable year (i.e. utilizing a depreciation schedule of equipment and furniture).

 

Sara Sharp is an attorney at Sparkman + Foote LLP. She can be reached at sharp@sparkmanfoote.com. Christina Saunders is a partner at Sparkman + Foote LLP. She can be reached at saunders@sparkmanfoote.com. This post originally appeared in The Docket.

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