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Legal Restrictions on Home Businesses

Filed under Your Workplace. Fact checked on May 24, 2012.

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Federal, state and local governments impose rules and restrictions on running a business out of your home.

One of the main considerations you must take into account when contemplating whether you should run a business out of your home is whether any laws bar, limit, and regulate the type of businesses that can be operated in a residence. Let's take a look at the obvious and not-so-obvious restrictions federal, state and local governments impose on home businesses.

Cottage Industry Regulation

The Department of Labor, under the federal Fair Labor Standards Act (FLSA), can restrict work done at home in order to enforce the minimum wage laws. Employees producing certain types of goods are protected and violations of this regulation can result in civil and criminal penalties as well as being forced to shut down the home workplace.

State law also may restrict the hiring of employees and outside contractors if they work out of their homes. Check with your state's Department of Labor to see if there are any rules relating to this issue in your state.

Zoning Regulations

The main rationale behind prohibitive or restrictive zoning laws is to maintain the residential character of a neighborhood. On the flip side, it is often illegal to live in some commercially zoned areas where you are running a business.

Local zoning laws can impose many types of restrictions that will affect your ability to maintain a home business. Some localities restrict the right of property owners to build separate structures. There may also be restrictions on how much of your home can be used exclusively for your business. Local zoning laws can limit the number of employees you are allowed to have, or may not allow you to have any employees working in your home.

Advertising and parking restrictions. Some local ordinances prohibit advertising signage to maintain the residential character of neighborhoods. Many communities also have parking restrictions that could seriously impact your ability to conduct business. Restrictions on the amount and type of vehicular traffic in residential areas can also be an issue.

Environmental restrictions. Noise, smoke, and odor can all be subject to zoning rules. Certain types of equipment are prohibited due to environmental concerns. The disposal of chemicals, hazardous substances, etc., may also be regulated by zoning.

Permits and business licenses. You may need a home-occupation permit or a business license to have a home business. The cost is usually a flat fee or a percentage of annual receipts from your business.

How do you obtain the information you need regarding zoning laws that could affect your home business? There are several ways to go about this, some more anonymous than others:

  • Your local zoning rules may be available online. You may also be able to get information from non-government sources such as the local chamber of commerce, local industry associations, and trade groups.
  • Perhaps an easier, although less anonymous, way to get zoning information is to contact your local planning department or zoning board. They are usually accessible through your county offices if you live outside city limits or through city hall if you live within city limits.
  • If you live in an apartment building, contact the manager or board responsible for setting up rules for activities in the building. Similarly, find out if your neighborhood has a homeowner's association and check its policy on businesses run out of the home. If you live in a condominium or co-op, check the lease or ownership agreement to find out if running a business out of your home is prohibited. If you rent your house or apartment rather than own it, check your lease agreement because it might prohibit a home business.

How to Handle Zoning Violations

If you are violating zoning laws by having a business in your home, you can be forced to close down. You may be able to remedy whatever is causing a nuisance, and your business will be allowed to continue operating.

Tip

If your home business does not attract much attention from the neighbors and does not detract from the neighborhood, it is unlikely that you will run into zoning problems even if you are technically committing a violation. Local custom and usage (e.g., how the laws are actually enforced) and your relationship with your neighbors may be more important than the letter of the law.

Getting the green light from your neighbors. While home businesses have been shut down for violating zoning rules, the rules are often enforced only if neighbors complain about disturbances resulting from the operation of a home-based business. That's why a crucial step in operating a home business free and clear of zoning problems is getting your neighbors' approval. Their approval need not be explicit — although being upfront with them about what you are doing may work best.

If you don't feel comfortable approaching your neighbors directly, you can get their implicit approval. You can do this by keeping increased traffic, noise, and any other undesirable traits for residential neighborhoods to a minimum, so that they barely notice your business is there.

Tip

A good barometer to use is the fact that you live in the neighborhood, too. If it wasn't your own business that was causing a particular change, how would you feel about it? While a change in the character of the neighborhood may be unavoidable, that change must be kept below the level where neighbors are angry or disturbed enough to lodge complaints. Formal complaints by neighbors could jeopardize not only the existence of your home business, but your quality of life as well.

Apply for a variance. If you run into or anticipate running into zoning problems, you can apply to the zoning or planning board for a variance. Avoiding this step is extremely desirable because variances are not easily granted. The following criteria have been used to determine whether variances should be granted:

  • Applying the zoning ordinance would deprive you of your livelihood.
  • The business use of your home would not harm the neighborhood.
  • The requested business use of your home is similar to one currently allowed in the area.

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