How to Barter to Save Money Without Running Afoul Labor and Tax Rules

Here's what your business needs to know about volunteers and paying in barter.
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Writer and Author, Specializing in Business and Finance
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This story appears in the June 2011 issue of . Subscribe »

When Rebeca Mojica, owner of Chicago jewelry company Blue Buddha Boutique, announced on Facebook that her shop was moving, customers responded, "How can we help?" and "I love to pack boxes!" That enthusiasm led her to "hire" three customers to help staff a booth at a craft show. The customers could opt to receive an hourly wage or be paid the equivalent of time-and-a-half in jewelry and supplies. All of them went for the latter, saving her $800--the difference between what it would cost her to hire them at an hourly wage and the cost of materials to make the jewelry.

It's not a huge number, but for a four-day show, with a total booth staff of six, it makes a difference to my small-business bottom line," says Mojica, who plans to staff shows this way in the future and use volunteer forum moderators for her Facebook page, which she estimates will result in savings of $250 to $300 per month.

While it's not unusual for small businesses to have friends or even enthusiastic customers who do what they can to see the business succeed, it's important to understand labor laws to ensure that you don't inadvertently fall out of compliance, says labor and employment attorney Truth Fisher of Gordon & Rees in Miami. In general, under the Fair Labor Standards Act (FLSA), individuals cannot volunteer services to for-profit, private sector companies, unless the activity benefits the employee, such as in the case of an unpaid internship. However, even such internships must pass strict Department of Labor criteria, Fisher says.

According to the U.S. Department of Labor, a company with annual revenue of less than $500,000 is exempt from FLSA requirements. In addition, unless the product is related to providing room and board, it is not a wage and is not subject to federal payroll taxes. States may differ in their interpretation, however. Fisher says the value of the product used as compensation should be at least the number of hours worked times minimum wage.

Also, the employer may be liable for any injuries that the individual sustains while working.

"We advise all of our clients doing this," she says, "to have these employees covered by workers compensation insurance."


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