Summary

[ LiB ]

Employees bring creativity and energy to a company as well as legal complexity and liability exposure. A human resources lawyer is essential to protecting your business interests, and you should consult her as early as possible to set up policies and contracts. Some key points to remember:

You are vulnerable to wrongful termination and discrimination suits and must take aggressive measures to protect your company.
The byword of employment law is "document" (verb form). Example of use in a sentence : "Document! Document! Document!"
In addition to the federal labor laws and those of the company's home state, your company may be subject to employment laws of different states. Example: you have more than one office. Consult local counsel and be mindful of the different state and federal laws that may apply to your company.
Develop policies early on regarding harassment , discrimination, computer use, salaries, confidential information, and other aspects of operation. Write these up in a handbook and have every employee sign a receipt that he has received, read, and understood it.
Every employee should be on an "at will basis" and should sign an employment agreement before starting work.
Get clear title to all IP by having employees and independent contractors sign confiden-tiality/assignment of invention agreements.
Don't pretend your employees are independent contractors.
Talk to a good insurance broker about applicable coverage.
Put some thought into your organizational structure, both as it is and how you want it to be in three years . Draw up an organization chart that fits that vision.

A comparison of major retirement options and their key features, compiled by the Pension and Welfare Benefits Administration

Key Advantage

SEP-IRA	Easy to set up and maintain.
Payroll Deduction IRA	Easy to set up and maintain.
SIMPLE-IRA	Salary reduction plan with little administrative paperwork.
401(k)	Permits employee to contribute more than in other options.
Profit Sharing	Permits employer to create large account balances for employees.
Defined Benefit	Provides a fixed, pre-established benefit for employees.
Money Purchase Plan	Permits employer to make a larger contribution than through other Defined Contribution Plans.

Employers Who Can Provide This Option

SEP-IRA	Any business that does not currently maintain any other retirement plan.
Payroll Deduction IRA	Any business with one or more employees.
SIMPLE-IRA	Any business with 100 or fewer employees that does not currently maintain any other retirement plan.
401(k)	Any business with one or more employees.
Profit Sharing	Any business with one or more employees.
Defined Benefit	Any business with one or more employees.
Money Purchase Plan	Any business with one or more employees.

Employer's Responsibilities

SEP-IRA	Set up plan by completing IRS Form 5305-SEP. No employer tax fil-ing required.
Payroll Deduction IRA	Set up arrangements for employees to make payroll deduction con-tributions.Transmit contributions for employees to funding vehicle. No employer tax filing required.
SIMPLE-IRA	Set up by completing IRS F5304-SIMPLE or 5305-SIMPLE. No employer tax filing required. Bank or financial institution does most of the paperwork.
401(k)	There is no model form to establish a plan. Advice from a financial institution or employee benefit advisor would be necessary. Annual filing of IRS Form 5500 required. Also requires special testing to ensure plan does not discriminate in favor of highly compensated employees.
Profit Sharing	There is no model form to establish a plan. Advice from a financial institution or employee benefit advisor would be necessary. Annual filing of IRS Form 5500 is required.
Defined Benefit	There is no model form to establish a plan. Advice from a financial institution or employee benefit advisor would be necessary. Annual filing of IRS Form 5500. Actuary must determine funding obligations.
Money Purchase Plan	There is no model form to establish a plan. Advice from a financial institution or employee benefit advisor would be necessary. Annual filing of IRS Form 5500 is required.

Funding Responsibility

SEP-IRA	Employer contributions only.
Payroll Deduction IRA	Employee contributions remitted through payroll deduction.
SIMPLE-IRA	Employee salary reduction contributions and/or employer contributions.
401(k)	Employee salary reduction contributions and/or employer contributions.
Profit Sharing	Employer contribution level can be determined year to year.
Defined Benefit	Primarily employer; may require or permit employee contributions.
Money Purchase Plan	Employer contributions only.

Maximum Annual Contribution Per Participant

SEP-IRA	Up to 15% of compensation or maximum of $24,000 (indexed).
Payroll Deduction IRA	$2,000
SIMPLE-IRA	Employee : $6,000 per year (indexed). Employer : Either match employee contributions $ for $ up to 3% of compensation (can be reduced to as low as 1% in any 2 out of 5 yrs.) or contribute 2% of each eligible employee's compensation, up to $3,200
401(k)	Employee : $10,000 (indexed). Employer/Employee combined : Up to a maximum of 15% of compensation or a maximum of $30,000.
Profit Sharing	Up to a maximum of 15% of salary or a maximum of $30,000.
Defined Benefit	Per plan terms, employer may permit or require employee contribution.
Money Purchase Plan	Up to a maximum of 25% of salary or a maximum of $30,000.

Minimum Employee Coverage Requirements

SEP-IRA	Must be offered to all employees who are at least 21 years of age, employed by the business for 3 of last 5 years and earned at least $400 in a year.
Payroll Deduction IRA	Should be made available to all employees.
SIMPLE-IRA	Must be offered to all employees who have earned at least $5,000 in previous 2 years.
401(k)	Must be offered to all employees at least 21 years of age who worked at least 1,000 hours in previous year.
Profit Sharing	Must be offered to all employees at least 21 years of age who worked at least 1,000 hours in previous year.
Defined Benefit	Must be offered to all employees at least 21 years of age who worked at least 1,000 hours in previous year.
Money Purchase Plan	Must be offered to all employees at least 21 years of age who worked at least 1,000 hours in previous year.

Withdrawals, Loans & Payments

SEP-IRA	Withdrawals at anytime ; subject to current federal income taxes and a possible 10% penalty if the participant is under age 59 1/2.
Payroll Deduction IRA	Withdrawals at anytime; subject to current federal income taxes and a possible 10% penalty if the participant is under age 59 1/2.
SIMPLE-IRA	Withdrawals at any time. If employee is under age 59 1/2, may be subject to a 25% penalty if taken within the first 2 years of participation and a possible 10% penalty if taken afterwards.
401(k)	Cannot take withdrawals until a specified event, such as reaching 59 1/2, death, separation from service or other event as identified in plan. May permit loans and hardship withdrawals. Withdrawals may be subject to a possible 10% penalty if participant is under age 59 1/2.
Profit Sharing	May permit loans and hardship withdrawals. Hardship withdrawals may be subject to a possible 10% penalty if participant is under age 59 1/2. Payment of benefits generally at retirement.
Defined Benefit	Payment of benefits generally at retirement, may offer participant loans.
Money Purchase Plan	Payment of benefits generally at retirement, may offer participant loans.

Vesting

SEP-IRA	Immediate 100%
Payroll Deduction IRA	Immediate 100%
SIMPLE-IRA	Employee and employer contributions vested 100% immediately.
401(k)	Employee contributions vested immediately. Employer contributions may vest over time according to plan terms.
Profit Sharing	May vest over time according to plan terms.
Defined Benefit	May vest over time according to plan terms.
Money Purchase Plan	May vest over time according to plan terms.

Contributor's Options

SEP-IRA	Employer can decide whether or not to make contribution year to year.
Payroll Deduction IRA	Employee can decide how much to contribute at any time.
SIMPLE-IRA	Employee can decide how much to contribute. Employer must make matching contributions or contribute 2% of each employee's salary up to the set maximum.
401(k)	Employee makes contribution as set by plan option.The employer may match.
Profit Sharing	Employer makes contribution as set by plan terms.
Defined Benefit	Employer makes contributions as set by plan terms.
Money Purchase Plan	Employer makes contribution as set by plan terms.