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What Are the Workers’ Compensation Insurance Requirements for North Carolina Employers?

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Workers’ compensation claims have a twofold purpose: to compensate employees who suffer work-related injuries and to protect employers from being sued by their injured employees. For this reason, North Carolina requires most businesses with three or more employees to obtain workers’ compensation insurance. Here, we discuss the general worker’s compensation requirements for North Carolina employers and how COVID-19 might impact employee claims.

General Requirements for Employers

The North Carolina Workers’ Compensation Act (North Carolina General Statutes §97-94) generally requires all businesses in the state (whether they operate as corporations, sole proprietorships, LLCs, or partnerships) with three or more employees to obtain worker’s compensation insurance. Certain exemptions apply, including for businesses that employ:

  • “casual” employees (those whose work is casual and not part of the regular trade or business);
  • domestic servants working in a household;
  • farm laborers when there are fewer than ten full-time, non-seasonal workers;
  • employees of certain railroads; and
  • North Carolina federal government employees.

Who Does NOT Count as an “Employee” for Workers’ Compensation Purposes?

Whether a business employs three or more employees is not as straightforward as it might sound. The following groups of individuals generally do not need to be covered by workers’ compensation insurance:

  • Business owners, such as partners in a partnership, do not necessarily count as employees.
  • Corporate officers may elect to be excluded from coverage (however, they will still be counted as employees when determining whether a business has three or more employees, even if they opt-out of coverage).
  • Finally, with some exceptions, independent contractors generally do not qualify as employees.

How Much Does Workers’ Compensation Coverage Cost Employers?

The cost of workers’ compensation insurance coverage will vary depending on the number of employees a business employs and the type of jobs its employees perform. The North Carolina Rate Bureau is a non-profit organization that sets “class codes” and “base premium rates” for workers’ compensation, which will determine the total cost of workers’ compensation for a business.

These figures vary and reflect how dangerous a job is compared to another type of job (with high-risk jobs carrying higher base rates than lower-risk jobs). Depending on an employee’s class code and base premium rate, the North Carolina Rate Bureau will set a rate for its workers’ compensation premiums, which businesses must follow.

North Carolina workers’ compensation insurers usually offer discounts to employers. These discounts will vary based on the insurer but can include discounts for a drug-free workplace; for businesses that are part of a professional, trade or industry group; and for businesses that implement certain safety or fall prevention programs. 

COVID-19 and Workers’ Compensation in North Carolina

For the foreseeable future, COVID-19 appears to be here to stay, and businesses across the State continue to be affected by it. While most businesses will undoubtedly be impacted by COVID-19 in one way or another, many business owners likely wonder how it will affect their workers’ compensation claims. Most notably: Will employees be able to file workers’ compensation claims for having contracted COVID-19?

Unfortunately, the short answer is that we simply do not know. It is unclear whether these claims will be compensable under North Carolina law. While it appears more likely that they will be denied, to understand why this issue is so complex, it helps to review the laws surrounding workers’ compensation claims.

Coverage for Workers’ Compensation Injuries

Coverage for workers’ compensation injuries is divided as follows:

  • Injuries that occurred because of an accident or specific trauma (e.g., a slip-and-fall at work); and
  • Injuries caused by an “occupational disease.”

Potential COVID-19 claims would likely have to be filed as “occupational disease” claims. The North Carolina statutes define an occupational disease as either one of the specific diseases enumerated in the Act (which does not include COVID-19), or any disease acquired while working at a job that placed the person more at risk for getting the disease than the general public.

Thus, if the general public is equally exposed to the disease outside of the place of employment, the disease is not considered an occupational disease and therefore would not be covered by workers’ compensation.

Establishing Eligibility for a COVID-19 Workers’ Compensation Claim

To be eligible for benefits, an employee must show that he or she contracted COVID-19 from exposure on the job and, because of the job, he or she was at a greater risk than the general public. It might be that some frontline workers, such as healthcare workers, would be able to show that they were at higher risk of exposure to the virus than the general public. Likewise, it is possible that others, such as grocery store clerks, could show the same.

What becomes more challenging to prove, however, is causation, that is, a link between the employee’s job and the resulting COVID-19 infection. Even if it were likely that the employee contracted the virus while on the job, (such as while working at a hospital or treating patients infected with COVID), it would be very hard to prove this, as the disease could have just as easily been contracted outside of work. In other words, proving causation is extremely difficult, if not virtually impossible.

Currently, unless legislation is passed that defines COVID-19 as an occupational disease, it appears likely that an employer will be in the position to deny such claims in North Carolina. However, this is an unfamiliar terrain, and the coming months are likely to bring more clarity.

Workers’ Compensation Claims During Uncertain Times

While the costs associated with a workers’ compensation policy will vary depending on the size and nature of your business, owners of small, medium-sized, or large businesses should be aware of their obligations. At this time, it remains unclear whether COVID-19 claims will be covered under workers’ compensation insurance, but business owners should make sure they are fully in compliance with the laws regardless of what changes may be on the horizon.

What is Innocent Spouse Relief and How Can It Help Me?

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The 2022 tax season is upon us, and with it comes the typical anxieties that generally go hand-in-hand with dealing with Uncle Sam. Believe it or not, though, the IRS is not always out to get us: In some cases, it creates systems that help consumers recover from financial errors or setbacks.

One such example is known as Innocent Spouse Relief. This is a form of tax relief that can relieve you of your tax liabilities, interest payments, and penalties you may face if you file a joint tax return with a spouse or ex-spouse.

The IRS created this relief mechanism with the underlying justification of fairness: Generally, both spouses are held equally responsible for what they fie on their joint tax returns. However, arguably, it would be unfair to hold both spouses liable for an error made by only one. This is particularly applicable in situations in which the spouses separate or divorce and later, it becomes known that one spouse made an error on a tax filing, resulting in a substantial tax burden for the other spouse.

What Innocent Spouse Relief Does for Taxpayers

In short, Innocent Spouse Relief does three things – or, in other words, has three key benefits for you as a taxpayer.

  1. It can relieve you from having to pay taxes, penalties, and interest stemming from a joint tax return that you filed with your spouse or ex-spouse.
  2. It can help you avoid tax liability resulting from errors or mistakes that someone else made on your joint tax return.
  3. Finally, it can relieve you of a financial burden if, by your spouse or ex-spouse’s fault, you’ve wound up with tax debt.

Types of Innocent Spouse Relief

Generally, both the IRS and some states offer a few different types of innocent spouse relief, namely:

Classic Relief

The most common type of innocent spouse relief, this applies to under-reported tax obligations that result in erroneously applied tax liability.

Relief by Separation

This applies in cases of separation and divorce, in other words, when an understatement of tax is allocated between you and your former spouse.

Equitable Relief

In some cases, relief is available for an understatement of tax as well as an underpayment. This type of relief may apply if someone doesn’t qualify for the first two types of relief but, nonetheless, should not be held liable for tax obligations.

How Do I Qualify for Relief?

Per the IRS, there are a few qualifications for innocent spouse relief:

First, you must have filed a joint tax return with your spouse or ex-spouse.

Second, there must have been some error on your return that resulted in an understatement of your tax liabilities. The IRS refers to these errors as “erroneous items” and in general, they include unreported income (any gross income you or your spouse received that you did NOT report), or incorrect deductions or credits claimed by you or your spouse.

Third, you must establish that at the time you signed the joint return you didn’t know (and had no reason to know) that the tax was understated. The law is unclear on what it means to “have no reason to know,” and different states hold claimants to different standards. For instance, some state laws say that the spouse is not entitled to relief unless he or she has carefully reviewed the tax returns and personally investigated any suspicious sections in it. Others, however, think this standard is too high and apply a looser standard to determining whether someone qualifies for relief. Regardless, while most tax disputes place the burden of proving noncompliance on the IRS, the “lack of knowledge” portion of the rule forces taxpayers to prove that they did not know of the errors – otherwise, they’ll likely be held liable for the tax obligations.

Fourth, considering all the circumstances, it would be unfair to hold you liable for the understatement of tax. The IRS will consider all facts and circumstances in determining whether it’s unfair to hold you liable for the tax obligations. Some factors the IRS will consider include, among others:

  • Whether you received a substantial benefit from the understatement of taxable income
  • Whether your spouse deserted you
  • Whether you and your spouse have been separated or divorced
  • Whether you received a benefit on the return from the understatement

Different courts and different states may apply different standards, however, so be sure to consult an experienced tax attorney if you think you may qualify from this type of relief or if the IRS is coming after you for alleged tax obligations.

And finally, you and your spouse (or former spouse) have NOT committed fraud in any way – for instance, by joining in a scheme to defraud the IRS. Fraud will cancel out any right to relief.

Contact The Experienced Tax Attorneys at Wilson Ratledge

If the IRS is after you for a tax debt that started when you filed a joint return with a spouse, and you don’t know what your spouse or ex-spouse did, we can help. The Wilson Ratledge team of experienced tax attorneys can help you gather the right facts, structure them into a valid case, and present evidence to the IRS to prove your statements.

At Wilson Ratledge, the tax controversy attorneys represent taxpayers in disputes with the IRS and the North Carolina Department of Revenue. They regularly handle disputes involving tax liens, audits, and collections, as well as other various aspects of tax controversy and litigation. For assistance, contact one of the experienced North Carolina tax attorneys today at 919-787-7711 or via the contact form below.

Protecting Your Company From Liability During Downsizing

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Your organization could resort to downsizing for many reasons, including cost-cutting, restructuring, mergers, and other factors. When you consider laying off employees, you must examine the risks of violating various state and federal laws. Furthermore, in the event of a layoff, several common law claims may be strengthened, and a mass layoff may expose you to multiple claims from several employees in a class-action lawsuit.

Successfully executing a layoff is one of the most challenging problems your company may face. However, a considerable body of best practices has been developed to aid management in carrying out the downsizing in a planned, legally compliant, and humane approach.

Legal Implications of Layoffs

An organization’s choice to downsize may violate several federal and state laws. Almost half of the states have their own notice laws. Some even go so far as to demand that corporations pay a modest severance package or continue to provide health insurance to employees for a limited time following the layoff. 

North Carolina, however, does not fit into either of these categories. Because North Carolina lacks its own layoff or plant closure statute, workers are solely covered by the Federal WARN Act.

Worker Adjustment and Retraining Notification Act (WARN)

The purpose of this statute (and its state law equivalents) is to reduce the harm caused by layoffs to workers and communities. WARN requires you to offer at least 60 days’ notice of a downsizing to the affected employees.

A “mass layoff” happens when at least 500 full-time workers lose their jobs within 30 days, or when at least 33% of workers at a single site of employment are laid off in 30 days, unless the percentage amounts to fewer than 50 people. A site of employment is a physical area where you run your business operations and could include a building, an industrial complex, or a campus. Physically separate worksites that are utilized for the same function, are in reasonable proximity, and share the same personnel and equipment may also be considered a single employment site.

The Federal WARN act is limited to larger firms. A large business has:

  • At least 100 full-time workers (those who work at least 20 hours a week and have been on the job for at least six of the previous 12 months prior to the notice) or,
  • 100 employees who work a cumulative of 4,000 hours or more each week.

Determining whether WARN applies to a given layoff can be challenging. It is advisable to seek legal advice in all instances, even in what may seem to be the most straightforward cases.

Notice Required by WARN

Employees who will lose their jobs during downsizing are entitled to 60 days’ notice. Individual notice is not available to unionized workers. Instead, the employer must inform its union representatives, who in turn notify the impacted employees.

The notice must include specific details regarding the impending layoffs, including whether they will be temporary or permanent or whether the employee will be given bumping benefits. It should also state when the layoffs are slated to begin and when the employee will receive a termination letter.

In some cases, you are not required to give any notice at all or can give less than 60 days’ notice.

No Notice Required

An employer is not legally compelled to give early notice of a mass layoff in some instances. They include:

  1. Temporary Projects: No notice is necessary if an employer releases personnel employed solely for a temporary project that has been completed or shuts down a facility that was only meant to be open for a limited time. This exception is only applicable if the employees were aware of the temporary situation during hiring.
  2. Strikes and lockouts: WARN does not apply if a closure or downsizing results from a workers’ strike or an employee lockout.

Shorter Notice Allowed

In select circumstances, you may offer less than 60 days’ notice. You must clearly explain in a written notice why you were unable to provide the mandated 60 days’ notice.

  1. Unforeseeable business conditions. A shorter notice period is permitted if the grounds for the downsizing or layoff were not reasonably foreseeable at the time, the employer should have given 60 days’ notice.
  2. Natural calamities. If a natural disaster causes a layoff, you may give less than 60 days’ notice.
  3. Faltering Enterprise: If your company is facing financial difficulties, it may give a shorter notice. You must, however, demonstrate that your business was actively seeking business or funding that would have enabled it to defer or avert the downsizing and that it reasonably believed that giving a 60-day notice would have gotten in the way of obtaining the necessary money or business. However, this provision is only applicable for plant closures, not mass layoffs.

What Happens With A WARN Violation?

An employer who breaches WARN may be held liable for all wages and benefits lost due to the violation, up to the full 60 days mandated by WARN. Any salaries or severance fees paid voluntarily by the employer are deducted from the sum. You may also be required to pay the legal fees and court costs of affected employees who win their lawsuits. 

Additionally, you may have to pay $500.00 in civil penalties for every day you fail to notify local authorities. However, if you deliver back pay to every affected worker within three weeks of parting, you can avoid the $500.00 civil penalty.

Because WARN stipulates that an employer’s maximum liability is limited to 60 days, providing your employees with full benefits eliminates any potential liability. However, no provision in WARN allows for payment in lieu of notice, and the laws do not recognize the concept.

Our North Carolina Business Attorneys Can Help

As seen from the above discussion, federal WARN and its state equivalents can be highly complex and technical legislation that should be considered whenever your business is having to downsize. 

If your company is considering layoffs or downsizing, the Wilson Ratledge North Carolina business attorneys can help you ensure compliance with all applicable state and federal labor regulations. Call them today at 919-787-7711 or fill out the form online to schedule a consultation!

Chapter 11 Reorganization in North Carolina

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There are many forms of reorganization and bankruptcy, but not all are available to – or make sense for – small businesses. Due to recent changes in the law, however, a Chapter 11 reorganization, which used to be somewhat challenging to access for many small businesses, has become much more accessible. 

Here, we discuss what a Chapter 11 reorganization is, the benefits of one to a small business, and the beneficial changes in the law that have recently been made. 

What is a Chapter 11 Reorganization, and What are its Potential Benefits?

In short, a Chapter 11 reorganization is a process that enables a business to reorganize and continue to operate despite financial struggles. More specifically, a Chapter 11 filing provides for the following:

  • Automatic Stay Protection: The automatic stay is a bankruptcy law mechanism that forecloses creditors from collecting on the small business debtor’s debts. Litigation is put on hold, lenders cannot proceed with foreclosures, and sales of business assets are also put on hold. 
  • Rejection of Unfavorable Contracts: A small business debtor can reject unfavorable contracts, such as a rental lease, allowing him or her to leave a rental location with above-market rent that is no longer financially feasible. 
  • DIP Loan access: A small business debtor can borrow money through access to a debtor-in-possession, or DIP, loan. These loans allow lenders to obtain super-priority liens, putting them first in line before the small business debtor’s existing lenders (making these loans very appealing to a lender and, therefore, opening up more credit availability to debtors).
  • Asset Sales: Further, a small business debtor can sell its assets (such as equipment, machinery, and other property) free and clear of liens and claims (liens will, however, attach to the proceeds of the sale).
  • Debt Reprieve: Finally, a small business owner facing financial struggles can find relief through a debt reprieve. This means that the business owner can seek to take a break from paying pre-bankruptcy debts. This allows the business to direct money to more urgent needs or to build up a cash reserve. While the debts will need to be paid back eventually, the temporary reprieve can offer breathing room for the business. 

The Small Business Reorganization Act of 2019 

While the benefits above may sound too good to be true, until recently, many small businesses have been unable to take advantage of a Chapter 11 reorganization because of certain restrictions and high expenses involved in a filing. 

The Small Business Reorganization Act (SBRA), which went into effect on February 19, 2020, aimed to address some of the issues preventing small businesses from taking advantage of a Chapter 11 reorganization. The SBRA created a sub-chapter V of the Bankruptcy Code, which has the main objective of allowing small businesses to quickly and inexpensively emerge from bankruptcy with a court-approved plan of reorganization. 

Here are just a few of the many changes the SBRA made:

  • Continued Ownership: allows small business debtors to retain a stake in the reorganized entity, so long as the ultimate reorganization plan is fair and equitable. The debtor’s management may also continue to operate the business. 
  • Plan of Reorganization Confirmation: holds that creditors no longer need to confirm a small business debtor’s plan of reorganization, as long as they meet certain requirements. This means that small businesses will no longer have to negotiate with creditors regarding payments, saving both time and money.
  • Appointment of a Trustee: provides that a trustee is appointed and will act to facilitate the reorganization and assist the small business debtor with following its plan of reorganization. 
  • Streamlined Process:  removes procedural hurdles and many of the costs associated with corporate reorganizations.
  • Delayed Payment of Administrative Expense Claims: provides that the small business debtor is no longer required to pay administrative expense claims on the effective date of the plan. Instead, business owners are permitted to pay these administrative expenses claims throughout the term of the reorganization plan. 

Further Benefits Implemented by the CARES Act 

The SBRA provided for a small business, which it defined as a business with debts in an amount not greater than $2,725,625, to restructure its debts through the more cost-effective Chapter 11 process. However, many small businesses did not qualify because they carried too much debt.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) amended the SBRA to increase the debt limit for debtors filing a Chapter 11 reorganization under subchapter V of the Bankruptcy Code. The debt limit was increased to $7.5 million, allowing for more debtors to take advantage of the streamlined Chapter 11 process. This debt limit will return to its prior limit of $2,725,625 after one year (unless further extended). 

Is a Chapter 11 Reorganization Right for Your Small Business?

A Chapter 11 reorganization is not the solution for every struggling small business. However, because of the recent changes to the Bankruptcy Code made by the SBRA and the further (temporary) changes implemented by the CARES Act, a Chapter 11 reorganization is now a more accessible option for many small businesses who find themselves unable to pay their creditors or afford their bills. 

Contact Our Experienced Business Law Attorneys     

There are many complex issues that you must address in the reorganization  process to ensure that you are taking the proper steps to protect your business. There is no one-size-fits-all solution, so it’s vital to consult an experienced business planning attorney who can advise you on the benefits, potential pitfalls, and challenges involved in this process. 

The attorneys at Wilson Ratledge regularly advises their clients on processes like business reorganization. As a small business, Wilson Ratledge is committed to helping business owners thrive in a post-pandemic climate. For questions or assistance, call one of the experienced North Carolina business attorneys at 919-787-7711 or via the contact form below. Wilson Ratledge looks forward to serving you and helping your business find its way back to success in a turbulent market.

Business Loan Options In North Carolina

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Raising money for starting or growing a business is one of the most challenging parts of being an entrepreneur or a business owner. You might have that revolutionary idea for a product or a service, but your resources aren’t just enough. So, where do you turn to get the financing for your business idea?

Thankfully, there are many loan options for you and professionals to help you get the best terms.  Various options are available, including state grants, crowdfunding, regional loans, and state-based loans.

In this post, you’ll learn how to get the funds to start your business or keep it running. Here are ten ways to fund your start-up business or get resources to realize your business goals.

#1. Bank loans

Many small and medium businesses are eligible for a bank loan if they have a good credit rating. Banks will need to look at your business’ financial health and your income to determine your eligibility. In North Carolina, many banks have programs designed specifically for small businesses to get off the ground.

#2. SBA loans

If you don’t qualify for a regular bank loan, you may still be able to obtain a Small Business Administration (SBA) loan. The SBA Guarantee Program helps small and medium-sized businesses that may not be able to get funding elsewhere. Working capital loans can last up to 10 years and up to $ 5 million.

The SBA reduces the risk to lenders by guaranteeing repayment of loans. Businesses have a wide range of SBA loans to choose from. Each type has its own parameters and stipulations on using the money and when to repay it.

#3. Private equity

Private equity is a large industry that invests in businesses that are not publically listed. Private equity firms participate in your business and generate operating profit that you can use to build your business.

They usually stay in your company for around four years before leaving. Private equity entities typically make money by selling their position to another investor or back to you.

Some individual investors are focused on many types of businesses. For example, venture capitalists tend to focus on early tech companies, while some focus on late consumer companies.

#4. Strategic partnership

Suppose other companies or organizations are ready to contribute to your success. In that case, they are probably prepared to invest in helping you support yourself.  If you can create opportunities for them, they may be interested in supporting your growth by building strategic partnerships.

This mostly happens if your business is up and running and can offer opportunities to potential strategic partners. Strategic partners can be vendors, suppliers, and other people you have a common interest and benefit from the partnership.

#5. Crowdfunding

Crowdfunding is a novel way for small and medium businesses to fund their activities. These platforms use technology to connect the right entrepreneurs and investors. 

Crowdfunding can save time and effort by successfully creating a single business environment for all potential investors using profiles. The most popular funding platforms in the United States are Indiegogo and Kickstarter.

Remember that crowdfunding forums differ significantly in terms of performance, features, and requirements. Therefore, it is best to determine which one best suits your goals.

#6. Angel investors

Angel investors invest in promising business ventures that need quick funding for a piece of the business.

Angel investment is quite similar to private equity though it functions differently. It typically focuses on the earliest stage of technology start-ups. If you’re an innovative start-up with a bias to technology, this is one of the best options for funding your business.

One of the issues with this is that you will need to provide the angel investor with equity in your company and, most likely, some power in decision-making. Therefore, the angel investor approach must align with your vision and the company’s purpose.

#7. Grants

Government agencies and charities provide grants to businesses in various areas. A business grant is money given to companies in need when repayment is not expected. The money you’re given is not a loan, and therefore no interest is attached.

Generally, businesses that qualify for grants will have to offer some form of ‘public good.’ There are research and development grants programs, environmental companies, social services, child care, etc.

#8. Business credit card

If you’re short on cash, a business or personal credit card can be good to use to help your new venture get off the ground. Be careful with these, though, as interest rates can be high and terms can be onerous.

#9. Short-term loan

Not all companies (or business owners) have good credit scores, but funding options are still available. You can get the funding or capital you need with a short-term loan. Generally, the repayment period is only a few months, and interest rates can be higher than other options.

#10. Invoice financing

If you charge a customer, you may have to wait weeks or months for payment to be made. However, you can get your money earlier with one of the many programs which offer invoice financing, which borrows money based on the value of unpaid invoices.

Our Raleigh Business Lawyers Can Help With Your Startup

Starting a business is hard – the team at Wilson Ratledge can help your firm with legal and startup advice to put you in the best situation as you launch your new venture. Call them today at 919-787-7711 or fill out the online form to schedule a consultation today!