Social Responsibility: If Small Businesses Won’t Take the Lead, Who Will?

If you’re a small business owner, what do you think of the phrase ‘corporate social responsibility’? I imagine it’s somewhere between the phrases ‘employee leave policy’ and ‘estimated tax payments’. It’s just not that exciting sounding!

Photo by Joshua Rodriguez on Unsplash

Although it doesn’t sound sexy, I assure you this is an important concept that has implications for how we at Joy Accounting interact with any business as well as how we run our own business.

Let’s start with the definition. According to this article, corporate social responsibility refers to the “self-imposed responsibility of companies to society in areas such as the environment, the economy, employee well-being, and competition ethics.” When you survey the corporate scene, how many companies are doing well at being socially responsible?

The Inherent Challenge

As noted in the definition, the social responsibility that we’re talking about is self-imposed – meaning that there are no industry or government regulations that compel the company to do so; we are strictly talking ‘above and beyond’. There are a lot of reasons for companies to engage in social responsibility, and motives can range from purely altruistic on one end to simply looking good on the other. But whatever the motive, it is a net positive when the market demands that companies move in a direction towards social responsibility.

Employee well-being (one of the categories listed above) is quite important to any of us who are employees. As the US economy has done quite well, it has become a job seekers’ market. As a consultant working with quite a few large companies in the US, I’ve seen first-hand the race to attract better talent by offering increased salaries and a more attractive benefit package, which is (of course) a good thing. But it’s fair to ask what happens when the tables turn and it’s no longer a job seekers’ market.

This is why I was shocked (in a good way) when in 2015 Dan Price, CEO of Seattle-based Gravity Payments, instituted a minimum salary of $70,000 for everyone in his company. I’m sure this was not a ‘smart money’ move in the traditional capitalistic sense. But it was inspiring because it was clearly designed to improve the lives of employees despite it likely not making sense to the immediate bottom line. (Please check out this article to read more about Dan’s perspective – wow!)

Therefore, the inherent challenge to the small business owner who wants to be socially conscious is to do so for the right reasons – because you truly want to use your business to improve the world we live in.

The Gap to be Filled

If we’ve learned one thing over the last few years of political chaos in much of the Western world, it’s clear that government as a whole cannot be counted on to go ‘above and beyond’ for the citizens that they lead. I wouldn’t exactly give the most powerful governments in the world an ‘A’ on social responsibility over the last few years.

This leaves it to businesses and individuals to fill the social responsibility gap. And the question of whether larger companies will only be as ‘socially responsible as is convenient’ is going to be an important one in the coming years. I hope more people like the Dan Price’s of the world step forward and take the lead – but it’s not a sure thing.

Small business owners, that means you and I have an opportunity to fill this gap. We are uniquely positioned to do this because we do not have the layers upon layers of stakeholders that larger businesses have; we can nimbly steer our company towards social responsibility. Although oftentimes our impact as individual businesses can feel quite small, our collective impact is significant.

In future blogs I’d like to explore a few ways that small businesses can in fact lead the way on social responsibility. 

Should You Hire a Subcontractor or Employee?

If you have hired a contractor to help you with your small business, you are not alone. There are many reasons hiring a contractor can be a great way to grow your business. But did you know that the IRS has special classifications for hiring independent contractors verses employees? If you don’t know the difference, you risk hiring a worker under the incorrect category, which could lead to penalties and unexpected employment taxes. Below is a brief breakdown of the categories used by the IRS to determine contractors vs. employees.

Behavioral Control: A worker is an employee when the business has the right to direct and control the work performed by the worker, even if that right is not exercised. An example would be training the worker how to do the job using your methods.  Employees are typically trained on the job whereas an independent contractor would need little to no training and uses their own methods.

Financial Control:  Does the business have a right to direct or control the financial and business aspects of the worker’s job?  Did the worker significantly invest in the equipment being used to work for someone else? Typically, a contractor would provide his or her own equipment.

Relationship: The type of relationship depends upon how the worker and business perceive their interaction with one another. Are the services provided a key activity of the business? Generally, this would be classified as an employee-employer situation.

There are more examples of each category here. The IRS looks at the facts relating to these 3 categories for each situation. If you are located in Washington state, the WA Labor & Industries has a 6-point test for determining contractors vs employees, which can be found here. If you are audited by L&I and have misclassified your contractors, you could be liable for workers compensation on their hours. If you are located outside of Washington state, we encourage you to research your state’s employment laws or get in contact with an HR professional that can provide the information for you for your area.

If you review the IRS rules and determine your contractors qualify, be sure you obtain a W9 form from each contractor as early as possible for your records. The W9 form will provide you (or your accountant!) with information necessary to issue a 1099 at year-end. The Joy Accounting team members are experts at tracking contractor payments during the year so there is no scramble come January. Feel free to reach out to us if you need help with contractor payments!