Guest blog post by Mimi Soule, Managing Partner of Soule Employment Law Firm, who specializes in simplifying employment law compliance for business owners.
Let’s be honest, running a business is complex – especially for small business owners who are required to wear multiple hats including rainmaker, marketing, finance and, of course, human resources. While you can’t become an expert in all matters, you can better equip yourself with information and risk-reduction strategies to avoid significant and expensive challenges.
Note: The blog post below has been updated to include the links to the recording webinars
As a business owner myself, I have found that one way to reduce unnecessary risk is to simplify the human resources structure and processes. For small business owners in North Carolina, the primary risk of liability is often created by poor wage and hour practices – such as contractor (1099) misclassifications, exempt employee misclassification, incorrect overtime calculations, vague and incomplete commission payment arrangements, and unlawful wage deductions. These wage and hour violations can lead to personal liability for small business owners, but there’s work you do on your end to limit your risk.
Below are a few strategies to help simplify processes and reduce risk. There is certainly more to know than this list, but this is a solid start.
- Train all employees involved in the hiring process so that everyone understands what can and cannot be asked of potential hires. Generally, questions and discussions that could be perceived as discriminatory if the candidate is not hired around religion, age, race/ethnicity, medical history/disabilities, and similar subjects, should be avoided.
- During the interview, don’t forget to brag about all of the benefits of working for the company. Talk about your flexible scheduling, company culture, or company events. Your potential hires want to know more than just vacation time and health insurance options.
- Is the worker a contractor? Making the distinction between building a workforce of W-2 employees or 1099 contractors may seem like a personal preference, but it requires a legal analysis established by the IRS, the USDOL and NC law. Importantly, just allowing a worker to “make their own schedule” alone does not result in proper contractor classification. Making the wrong classification exposes businesses and owners to potential penalties, fines, taxes, interest, and legal headaches.
- Is the employee exempt? If you determine that a worker is properly classified as a W-2 employee, then the next step is to determine whether the employee should be classified as “exempt” or “non-exempt” for purposes of required minimum wage and overtime pay. Employees who are “non-exempt” are entitled to minimum wage and overtime payments under federal law (the Fair Labor Standards Act) as well as North Carolina law. Remember, paying an employee a salary does not equal exemption. The employee’s position must meet both the salary or fee requirement as well as the duties requirements of an established exemption under the FLSA and NC law. The most common exemptions under the FLSA and NC law are referred to as the “White Collar Exemptions”. As with contractor misclassification, making the wrong decision exposes businesses and owners to potential penalties. Those penalties can bring about unpaid wages, overtime, taxes, penalties and interest.
The employee exit is always difficult, but, as all business owners know, it’s a situation that cannot be avoided. Employees will come and go, so it is essential that you have a consistent practice in place that identifies and avoids legal risk.
Here are a few questions to help you determine whether you’ve got a solid employee exit plan in place:
- Does your company have technology measures in place to protect company data and information?
- Does your company have a process in place to follow when a resignation occurs or when an employee abandons their job?
- Does your company have a consistent process in place to follow when you need to terminate an employee involuntarily?