It’s National Small Business Week: a great opportunity to acknowledge significant contributions made to our economy by entrepreneurs and small business owners. According to the U.S. Small Business Administration, “more than half of Americans either own or work for a small business, and they create about two out of every three new jobs in the U.S. each year.” Undeniably, being a small business owner does not come without its share of significant challenges. Small business owners must often juggle a host of competing roles, demands, and expectations.

Human resources functions are one of those important responsibilities. If placed too low on the priority list, unaddressed human resources issues can pose a significant threat to a start-up or established small business. Below are three of the most common issues I’ve encountered in my practice and some tips for avoiding them.

 

1.  Misclassification of Workers

Small business owners are legally responsible for the classification of a worker as an employee or an independent contractor. This distinction has important implications for the mode and frequency of wage-payments, as well as carrying significant tax consequences. Generally speaking, in New Jersey a worker is assumed to be an employee unless an employer demonstrates: (1) the employer does not exercise control over the worker and his performance; (2) the work provided is either outside the usual course of business of the employer or performed outside of all the places of business of the employer; and (3) the worker is customarily engaged in an independently established trade, occupation, profession, or business.

Employees must be paid minimum wages and employers must make the required Federal and State withholdings from their paychecks.  Unless an exemption applies, employers are also responsible for paying employees overtime pay for any hours worked, in excess of forty in a workweek, at a rate not less than time and one-half their regular rates of pay. Individuals employed in a bona fide executive, administrative, professional or outside sales capacity are exempt from overtime.

But the analysis of who is entitled to overtime can be tricky and job titles alone are not determinative on the issue of exempt versus non-exempt status. Other common pitfalls employers must be aware of avoiding include: 1) assuming that if an employee is paid salary they are necessarily exempt from overtime; 2) knowingly allowing non-exempt employees to work through a scheduled lunch or break thereby accumulating more than forty work hours in a week; and 3) having non-exempt employees also perform exempt duties during overtime hours. These and other common practices can lead to a violation of overtime laws and carry significant penalties to employers.

 

2. Failure to Have and Utilize an Employee Handbook

A good employee handbook is the foundation of effectively communicated human resources policies and procedures.  It informs employees on a variety of relevant topics affecting their employment ranging anywhere from hiring to termination, vacation time to medical leaves, drug testing to cell phone usage, anti-harassment and discrimination statements to intellectual property designations, and more. Regardless of their size, all employers are impacted by some, if not all of these issues, and can only stand to benefit from a well- maintained employee handbook.

But simply having a handbook is not enough.  The policies and procedures contained in the handbook must actually be effectively and consistently implemented.  While often granted with the best of intentions, exceptions to these policies and procedures, which are carved out for individual employees, can be problematic and should be avoided when possible as they can easily lead to employee morale issues and, in worst case scenarios, claims of unlawful, differential treatment of employees.

Handbooks also need to be regularly updated.  Staying abreast of legal updates impacting your small business is critical to maintaining a relevant and effective handbook.

 

3. Not Documenting Performance Issues

An at-will employee can be terminated for any reason or no reason, so long as the reason is not an unlawful reason.  That’s seemingly the easy part.  But when a former employee feels blindsided by their termination a small business could face exposure to the costly litigation of a wrongful termination claim, even if ultimately determined to be without merit.

Small business owners are well served to perform regularly scheduled performance reviews, address performance issues with their employees on an as needed and ongoing basis, and maintain employee personnel files.  These files should not only contain hiring and other onboarding documents, but also the performance reviews and any documents reflecting progressive discipline (verbal warnings, written warnings, suspensions, etc.) imposed by the employer.  Should an employee subsequently be terminated, an employer will have a well-documented history of performance issues to defend against a claim of wrongful termination, discrimination, and/or retaliation.

 

Whether acting as the human resources manager or delegating the role to someone else, it is important that small business owners make time to prioritize human resource considerations.  Hoagland Longo attorneys are available to assist small business owners in this regard. For more information about these human resources considerations or for any other labor and employment questions you may have, please feel free to contact me at jpassannante@hoaglandlongo.com or 732-545-4717.