Small business owners often struggle with the complexities of employment law and with good reason. Employment laws can be a maze of convoluted and confusing state and federal statutes. 

After all, the excitement of having a business idea or even going as far as to create an LLC under which you will run the business is not an end in and of itself. There are myriad other processes and/or challenges you are bound to face while running your business, and employment laws, which are the focus of this article, are just one of them.

This guide is meant to help you understand employment laws by encapsulating and interpreting the key employment laws and regulations at the federal and state levels so you can avoid the most common employment law pitfalls. 

The following are the common pitfalls to avoid:

Misclassifying Employees 

One of the most frequent mistakes small business owners make is misclassifying employees. Are your workers exempt or nonexempt employees? Are they independent contractors or employees? Are they full-time or part-time employees?

According to the IRS guidelines, “An employee is generally considered anyone who performs services if the business can control what will be done and how it will be done. Independent contractors are normally people in an independent trade, business or profession in which they offer their services to the public. Doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers or auctioneers are generally independent contractors.” 

Misclassification of your workers can result in penalties and back taxes. With the Voluntary Classification Settlement Program, small businesses can reclassify their workers rightly to avoid legal consequences.

Understanding Employment Contracts

Having the correct employment contracts is essential. They set the tone for the employer-employee relationship. Think of them as the rule book for your workplace. Yet, many small businesses pay little to no attention to crafting this document. Drafting clear and comprehensive employment contracts will help to minimize misunderstandings down the line, and even when they do occur, the contract will show a clear path to resolution.

For instance, in drafting your employee contract, specify job roles and responsibilities, including details about compensation, benefits, and termination conditions. The expertise of an employment lawyer in creating an effective contract can save your business from legal headaches down the line.

Employment Eligibility Verification and Documentation 

The IRS form I-9 is used to verify the identity and employment authorization of individuals hired for employment in the United States. As a small business owner, you must correctly complete Form I-9 for every individual (both citizens and non-citizens) you hire in your establishment in the United States within the first three days of their service. 

Moreover, keeping thorough records of employment agreements and performance evaluations, as well as of employee hours, wages, and any disciplinary actions, can protect your small business in case of disputes.

You can use reliable software to manage records efficiently to ensure compliance and make it easier to access information when needed.

The adverse effect of inadequate documentation may make defending your business against wrongful termination or any discrimination claim challenging. To safeguard your business from penalties, fines, damages, and potential lawsuits, you should regularly update your employee files to maintain accurate records.

Employee Handbooks

An employee handbook outlines your company’s values. It communicates essential information regarding your organizational culture and clarifies your employees’ rights and responsibilities in the workplace. 

It serves as a reference point for employees and can be a lifesaver in disputes. Your organization’s handbook should cover all necessary topics, including mission, vision, policies, procedures, disciplinary measures, working conditions, code of conduct, attendance, and grievance procedures. 

It should be regularly updated, and employees must acknowledge receipt so everyone is on the same page.

Wage and Hour Laws

The Fair Labor Standards Act (FLSA) sets minimum wage, overtime pay, record-keeping, and youth employment standards for workers in the private sector and federal, state and local governments.  

Small businesses should be acquainted with these regulations and comply with these payroll practices as they apply to nonexempt workers to avoid penalties.

Anti-Discrimination Laws and Workplace Harassment Prevention Training

The Equal Employment Opportunity Commission (EEOC) prohibits employment discrimination based on race, color, religion, sex, sexual orientation, national origin, age, disability, and genetic information. It is also illegal to retaliate against a person because they have reported against any discriminatory act.

Ignorance of these laws is no excuse, as it can lead to lawsuits and hefty fines. It is essential to provide regular training on these issues to encourage an inclusive workplace culture because the law forbids discrimination.

EEOC also emphasizes that workplace harassment training is a good practice and often a legal requirement. Defending workplace harassment could cause a fine above $1 million minus legal fees. 

However, this training helps to create a safe and respectful workplace. A clear anti-harassment policy and regular training sessions are important. 

Employees should also know the appropriate communication channels to report harassment and feel confident that their complaints will be taken seriously without fear of discrimination. All employee training in your organization must be well-documented.

Inconsistent Enforcement of Policies

Enforcing policies randomly can lead to claims of unfair treatment or discrimination. Uniformly applying policies in any business will clearly define the difference between rules and suggestions. It will also allow fairness and equality in the workplace.

For example, if one employee is reprimanded for tardiness, all employees must be held to the same standard. Consistency in enforcement maintains fairness and protects your business from claims of favoritism or bias.

Inadequate Safety Measures

The Occupational Safety and Health Administration (OSHA) sets and enforces standards to ensure safety in the workplace. Non-compliance can lead to accidents in the workplace and severe penalties.

Your workplace should meet all health and safety standards. Providing regular safety training and maintaining a safe working environment free from hazards are essential practices to teach in your organization. An injury-free workplace boosts employee morale and productivity.

Employee Benefits and Leave Policies

Employee benefits include health insurance, retirement plans, and family leave. The Family and Medical Leave Act (FMLA) gives employees the right to take 12 weeks of paid, unpaid, or partially paid job-protected leave for specified family and medical reasons.

It is vital to outline your benefits and leave policies in your employee handbook to ensure employees understand their rights and responsibilities. As a business owner, keeping up-to-date with changes in these laws, which may affect these policies, is equally important.

Handling Employee Terminations

Terminating an employee is never pleasant but sometimes necessary. You should conduct terminations professionally and legally by documenting the reasons for termination and ensuring they align with your company policies and federal and state employment laws.

Avoid terminating employees in a way that could be construed as discriminatory or retaliatory. Mishandled firings can lead to wrongful termination claims. Having a business attorney review the termination policies and procedures can help prevent potential legal issues.

Staying Up-to-date

Employment laws are constantly changing, and to keep up with the latest trends, you should subscribe to industry newsletters, attend seminars, and join professional associations. These resources can/will provide valuable information on any legal changes or additions to the employment laws.

This proactive approach will help you adapt quickly to avoid potential pitfalls. Regularly review and update your company policies to reflect current laws.

Employment law can be complex. A business attorney can be an invaluable asset to your organization. They can review your contracts, policies, and procedures to ensure compliance. Their expertise can help you avoid costly mistakes and represent you in disputes, should any arise.

Summary

A small business thrives or fails based on hiring and managing employees. However, the employer-employee relationship, plus multiple federal and state laws and regulations, detract from the business owner’s ability to manage employees effectively and help the business grow. 

Incorporating sound legal practices from the outset, such as creating comprehensive employee handbooks, regular training, and maintaining consistent policy enforcement, can protect your business. When in doubt, consulting a business attorney can provide peace of mind and help safeguard your venture against legal troubles.

Understanding the laws and interpretations of these laws at the federal and state levels will help you shape them to your advantage by working within the realistic parameters they set.

Published By: Aize Perez