As a firm which represents small employers on a routine basis, we’ve discovered a number of common mistakes small businesses make, often due to a lack of regular legal advice. In no particular order, these common mistakes are listed below. We hope that your small business can benefit from even one of them.
Mistake #1: Bad Habits Die Hard
As a small employer, there’s a good chance that not all state and federal employment laws apply to your business. For instance, Title VII (the federal law which prohibits discrimination) does not apply unless and until you employ 15 or more persons. Small employers may be tempted to use their lack of employees as an opportunity to “do what they want” because they are not bound by such laws. Nevertheless, most small businesses don’t intend to stay small forever. Therefore, it’s vital to start good habits early and often. From the minute you start your small business and hire employees, you should begin to adopt a culture of compliance and act as if your business is subject to such laws despite its relatively small size. Businesses grow, and sometimes sooner than anticipated. So, if you haven’t developed a culture of compliance when your business has unexpectedly grown to 15 or more employees, there’s a good chance that one of those bad habits will likely rear its ugly head and result in a lawsuit. So, do yourself and your employees a favor and do things right from the start.
Mistake #2: Don’t Eat Your Words
Although lawsuits based solely on language contained within employee handbooks don’t often survive litigation, small employers should remain very weary of what they include in their handbooks. Small employers need to steer clear of any language that makes any promises, any policies that violate state or federal law, or any superfluous language that is open to interpretation. If a small employer makes any of the above or other mistakes, they open themselves up for litigation. Remember, just because a claim by a former employee may not be a strong claim, he or she can still file suit and may even survive a motion to dismiss. This, of course, becomes costly to your business and may even cause you to “eat your words.”
Mistake #3: Learn to Count Beyond 40
Small employers and large employers alike often make the mistake of calculating and paying their employee’s hours on a bi-weekly basis. This is one of the easiest mistakes an employer can make under the Fair Labor Standards Act (“FLSA”). If an employee works 41 hours one week and 39 hours the next week, they are owed one hour of overtime for the first week. You cannot “group” both weeks and use an 80 hour total when determining whether overtime is due during the employee’s pay period. This error is similar to another common mistake employers make under the FLSA – the use of “comp time.” In private employment, there is no such thing as “comp time.” Simply because an employee works 3 hours of overtime one week, you cannot allocate those 3 hours as “comp time” and allow that employee to leave 3 hours early the following week, or even a different week, without paying them for the overtime hours already worked. This is only legal under the public sector (government work). It is, of course, acceptable to pay your employee on a bi-weekly basis, but be sure that you calculate overtime on a weekly basis. If you’re caught engaging in either of these practices, you will not just be liable for the amount due, but twice that amount in the form of liquidated damages and the employee’s attorney’s fees. So, be sure your business learns to count beyond 40.
Mistake #4: The Not-So-Independent Contractor
The difference between an employee and an independent contractor is very tedious. There are many advantages to keeping a low employee count and simply issuing out work to independent contractors. But, unfortunately, just because an employer classifies someone as an independent contractor, that doesn’t make them one. Some of the basic differences between an employee and an independent contractor are that independent contractors must: supply their own equipment and materials; control the hours they work and how they do the work; only be employed for a short period of time; not be integral to your business, etc… If you’re caught misclassifying an employee as an independent contractor, you will have to reimburse the employee with all of the rights and advantages of a regular employee, including unpaid wages, overtime, and other benefits.
Mistake #5: The Complainer
Due to their size, if a small employer has an employee that often complains about issues at work, it can cause a lot of backlash and animosity at work. As a result, small employers are more inclined to terminate these employees and find others that are a better “fit” for their offices. Although understandable, this can be unlawful. If you have an employee complaining about their wages, discrimination, or fraudulent practices, be aware and take precautions. Take all complaints seriously and don’t be quick to fire them, or you may be facing a retaliation suit.
These are short summaries of only some mistakes small businesses make. If you own a small business or are interested in starting a small business, call our firm to discuss any of the above or other issues you might face or may have already faced. Never underestimate the value of preemptively protecting against future suit as a small business.