The regulatory differences between operating a brick-and-mortar small business and a virtual small business are minimal, but the ones that do exist are important.
The main differences between a traditional brick-and-mortar business and an online business may seem obvious. One is tethered to a physical location, while the other can be based anywhere from a coffee shop to a home office. Although the variations in usual workplace safety issues and parking regulations are apparent, the regulatory differences between the two types of businesses are more nuanced.
Read below for some of the main regulatory differences.
Privacy Policies
An important practice of a virtual small business is privacy policies.
“Virtual online businesses do face some more specific regulations. For example, virtual businesses typically must have privacy policies that define and explain how the businesses or websites will use the electronic data gathered from people who are browsing the site. Take a look at crowdspring’s privacy policy, as an example,” says NFIB member Ross Kimbarovsky, founder and CEO of crowdspring, a digital small business that matches graphic, web, and industrial designers with clients across the world.
As an online business that relies on a website to act as your storefront, privacy policies need to be clearly outlined to protect both your business and its potential clients.
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Global and State Regulations
As a virtual small business owner, you have to keep up with more scattered geographic regulations than a traditional small business owner.
“Virtual businesses must also be aware of changes in regulations across the world. Most traditional brick-and-mortar businesses serve a small geographic area and must therefore only be aware and comply with local regulations. Virtual businesses, however, often serve clients around the world and must understand how regulations around the world impact those businesses,” Kimbarovsky says.
Kimbarovsky cited the international General Data Protection Regulation that will come into effect on May 25, 2018, as an example.
“This is a European law that impacts virtual businesses that offer goods or services, or monitor the behavior of European citizens. In practice, a virtual business that’s not located in Europe but is targeting consumers in Europe will be subject to that regulation. This is a big change from the current regulations,” he says.
This can be applied on a national level, as well. If your small business is based in one state, but your clients are out of state, then you must be aware of differing state regulations.
“A standalone, one-location, fixed business will have to comply with all state and federal regulations, but a virtual business may face multiple state regulations depending on their customer’s locations, as well as additional federal regulations that pertain to interstate commerce,” says Karen Harned, executive director of the NFIB Small Business Legal Center.
Employees
As a virtual small business owner, it is more than likely that a majority of your employees may never meet you face to face. “The core crowdspring team is small—11 people at the moment. About half of the team is in Chicago but the others are distributed across the world,” Kimbarovsky says.
If freelancers and contracted workers make up a significant portion of your workforce, then it’s imperative to keep all of your records in order, and maintain clear policies and expectations.
“For example, you must keep records and pay for all hours worked for non-exempt employees, regardless of whether they are working in a traditional office or working remotely,” Harned says. “Always consult a legal professional. An ounce of prevention is much better than a pound of cure.”
As with any small business venture, a virtual small business still needs legal guidance to navigate the world of regulations. NFIB’s Legal Guide Series is a great resource for small business entrepreneurs.
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