Before you start hiring a staff for your small business, it’s recommended you have a solid grasp on federal, state and regional employment laws. Failure to comply with these regulations can leave your organization open to fines and legal fees that can be devastating to a burgeoning enterprise. Here’s a brief primer on some of the different ways in which U.S. employment law can impact your small business.
Exempt vs. nonexempt
One of the most important decisions you’ll make as an owner is whether or not your employees will be exempt or nonexempt as defined by the Fair Labor Standards Act. In brief, exempt or salaried employees are paid the same amount of money regardless of how many hours they work per week, and depending on the state, are not entitled to meal and rest breaks. Nonexempt or hourly employees are entitled to meal and rest breaks, and must be paid overtime for any time they work more than 40 hours per week. Since it will impact your scheduling, tax filings and profitability, you need to carefully consider whether or not each position in your company is exempt or nonexempt before making any hires.
Another area of employment law founders need to be aware of is regulations regarding independent contractors. As independent contractors don’t require medical benefits, paid time off and workers compensation, some small business owners may see them as a preferable alternative to taking on full-time employees.
The Equal Employment Opportunity Commission has very specific rules differentiating employees and independent contractors. If those rules are inadvertently broken, you can leave your company vulnerable to federal scrutiny and private litigation. Consequently, owners should make themselves familiar with these regulations before they enter into any arrangements with independent contractors.
Employee termination is another area in which owners need to tread carefully. For instance, employees can be terminated for unapproved absences, tardiness and violation of company policy. However, the Family Medical Leave Act prohibits employers from firing workers if they take an unpaid leave to attend to family or medical issues. Furthermore, employers are prohibited from withholding their worker’s final paychecks after they’ve been terminated. Even in instances wherein the terminated employee still has company property, such as smartphones or laptops in their possession.
Because of the severe consequences associated with the violation of any U.S. employment laws, small business owners should craft workplace procedures and policies that minimize their potential liability, ideally with the assistance of an experienced employment law attorney.