5 Employment Mistakes Small Businesses Should Avoid

You’ve probably heard stories about large companies getting entangled in legal battles due to employment disputes. Small businesses can find themselves in hot water too, especially if they’re not up to speed with employment laws. Just like large corporations, small businesses can become targets of lawsuits by current and former employees, as well as investigations by the Department of Labor. So let’s dive into the top five mistakes the small business owner will want to avoid to limit exposure!

1. Not having an up-to-date Employee Handbook: Imagine trying to assemble IKEA furniture without instructions. Chaos, right? That’s what happens when you don’t have an employee handbook. The handbook is your company’s playbook, outlining all the dos and don’ts for your team. Without it, you’re playing a risky game of “employment law roulette” – and really, no one wants to be in that situation. As important as it is to have a handbook, more important still is knowing what’s in it. Many small business owners incorrectly view the handbook as just an unimportant checklist item; they either do not bother to read it, or do not tailor it to their specific business and workplace. A better and safer strategy is to create a customized guide for your business that spells out expectations, company rules, and legal requirements. Not having a handbook, or having one that is outdated or irrelevant to your specific business, can lead to disputes, misunderstandings, and claims of unfair treatment. A comprehensive, well-tailored handbook is an essential tool for protecting your business from potential liabilities.
2. Misclassification of Employees: Are they independent contractors? Are they hourly employees, or are they exempt and can be salaried? Misclassifying anyone on your team can lead to a world of legal headaches and exposure to significant penalties under both state and federal law, and it may allow misclassified employees to recover damages. A better strategy is to consult an attorney regarding the state law classification of independent contractors, as well the Fair Labor Standards Act (FLSA) (and any state Wage and Hour counterpart) definitions of the types of employees that may be treated as salaried and which ones must be paid overtime.
3. Non-Compliance with Wage Payment Laws, The Payday Puzzle: While Wage and Hour laws address how much to pay, a different set of laws, Wage Payment Laws, address when to pay. Paying your employees should be as straightforward as feeding your pet – do it regularly and without fail. But some businesses get a bit too creative with their pay schedules, paying monthly when that may not be permitted. A review of your state’s and city’s particular laws is critical, because these laws are extremely nuanced. In New York, for instance, certain types of employees must be paid weekly, yet many businesses do not adhere to that requirement.
4. Not Keeping Detailed Employment Records for Your Employees: Keeping detailed employment records is like having a diary for your business. Maintaining detailed employment records is not just good practice; it’s often a legal requirement. These records are vital in the event of disputes, or if you need to justify employment decisions. Remember, our memories fade, but good records are forever.
5. Mishandling Co-worker Disputes or Complaints: Office drama doesn’t just happen in soap operas. Many small businesses lack a designated Human Resources department, and may be inclined to put the complaining employee and the target of the complaint in the same room to “hash it out.” But while such an approach may seem a more efficient and straightforward way to resolve a disagreement, it is likely to get the employer into hot legal water. When conflicts arise, you need a plan to deal with complaints and disputes.

Properly addressing complaints brought by coworkers or those to whom they report, and providing the complainants a safe space to air their grievances to HR, is essential. Informal, ad-hoc approaches to investigations or conflict resolution can lead to policy violations, violations of law and proper procedures; negate EPLI insurance coverage; and lead to further complications. Establishing formal, fair, and consistent procedures for handling such complaints is key to maintaining a lawful and harmonious workplace.

Wrap-Up: Running a small business is like juggling flaming torches – it’s exciting but it requires skill and attention! By steering clear of these common pitfalls, you’re not just helping yourself mitigate legal risks; you’re setting up your business for success. And if you ever feel lost in the legal maze, a chat with an employment attorney can light the way.