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Navigating the Complexities of Employment Law: Essential Insights for Entrepreneurs
Entrepreneurship is an exciting journey, but one that comes with its fair share of challenges. As a business owner, you are responsible not only for innovating and selling but also for ensuring that your operations adhere to various legal standards. A key area that can be particularly daunting is employment law. With different rules and regulations governing everything from hiring and firing to workplace safety and benefits, it’s crucial for entrepreneurs to have a solid grasp of employment law to mitigate risks and create a healthy work environment.
Below are some top tips to help you navigate the complexities of employment law:
1. Consult with Legal Experts Early On
Before you even hire your first employee, it’s advisable to consult with legal experts who specialize in employment law. They can provide you with customized advice that suits your particular industry and business model. Even a simple consultation can save you a lot of headaches down the line.
2. Understand Federal, State, and Local Regulations
Employment laws are not just federal; they can also vary by state and even by locality. Understanding the full spectrum of laws that apply to your business is crucial. Keep in mind that laws are also continually updated, so make it a practice to stay informed.
3. Document Everything
Proper documentation can be your best defense in employment-related legal disputes. This starts from the hiring process (resumes, interview notes) and continues through employment (performance reviews, disciplinary actions) and termination (separation agreements, exit interviews).
4. Develop Comprehensive Employment Policies
Your company’s employment policies should be outlined in an employee handbook that is given to every new hire. These policies should cover topics like harassment, discrimination, leave policies, and workplace safety. Make sure to consult with legal experts when creating these policies.
5. Be Cautious During Hiring and Firing
Both the hiring and firing processes are fraught with legal landmines. For instance, certain questions are illegal to ask during interviews in the United States, such as those relating to age, religion, or marital status. Likewise, terminating an employee also requires careful documentation and procedure to minimize risks of wrongful termination claims.
6. Implement Regular Training
Regular training sessions can help employees understand their rights and responsibilities, reducing the chances of unintentional violations of employment law. Topics can include sexual harassment, discrimination, and workplace safety.
7. Conduct Periodic Audits
Periodically review your company’s compliance with employment laws. This can help you identify potential issues before they become significant problems.
8. Address Issues Promptly
When issues do arise, address them promptly and transparently. Document all steps taken to resolve the issue and, if necessary, consult with legal experts on the best course of action.
9. Consider Alternative Employment Models
In some cases, freelancers or contractors might be more appropriate for your business needs and can help you navigate some complexities of employment law. However, be cautious: Misclassifying employees as contractors can result in hefty fines.
10. Keep Up With Changes
Laws change, and it’s vital for you to keep up to date. Join business associations, subscribe to legal updates, and keep an open line of communication with your legal advisors.
Navigating employment law can be a complex task fraught with challenges, but it is crucial for the long-term success of your business. A proactive approach that includes education, consultation with legal experts, and ongoing reviews can help you maintain a compliant and healthy work environment.
By taking these steps, entrepreneurs can focus on what they do best: building a successful business.
What Should Every Business Owner Know About Employment Law?
Employment law feels like this big category of federal laws and state laws and regulations. And that is because it is. It can feel enormous. It can feel overwhelming. So today, we are going to talk about the big stuff that business owners should know if you haven’t hired employees yet, or if you are about to, or if you have a few employees and you are growing.
Employee Classification: Contractor or Employee?
The first question is, is a worker an employee or are they an independent contractor? Business owners would love to categorize every single worker as an independent contractor. Why? Because you avoid payroll tax; that is about 15 percent of what you are paying. Second, you avoid all the employee rights laws. These are the laws that we will cover coming up next. Dealing with vacation time and sick time and termination and discipline and discharge and all these different pieces. You don’t have to deal with that when you have a contractor.
So the first question is, “Hey, can you just list all of your workers as contractors? Well, business owners have tried that and the states have said, “No, we want to protect the workers.” And so even if a business owner calls someone an independent contractor, we are going to figure out if they really are an independent contractor or if they are a worker, and I will give you a little hint.
Most of the time, the state is trying to figure out how to make someone a worker because the state is very concerned about the protection of workers in the state. Now, there are a number of tests and I have some other videos on what those tests are, but the question of whether a person who is working for you should be characterized as an independent contractor or employee is a very important decision at the foundation of employment law.
Ensuring Fair Hiring Practices
What is next? Hiring. When you hire, there are very strict rules that apply to how you process job applications. For example, can you discriminate against somebody if their name sounds foreign? No, you can’t. That is a right of job candidates protected by federal law and virtually all state laws. You can’t discriminate against someone based on your perception of their race or their foreign background. That is hiring.
Employment Agreements and Onboarding
What else? Non-compete agreements, non-solicitation agreements, non-disclosure agreements, agreements to follow employee handbooks and employee policies, the onboarding process of hiring someone and then having them sign paperwork.
Compensation and Overtime
There are state and federal laws for many aspects of those categories. And so that is another important area. I often see new business owners who are hiring some people not realizing that they are inadvertently violating the law. They failed to do something that is absolutely required under the law and they may suffer the consequences of that.
Once you have hired somebody, then the question comes up, how much do I pay them? Are they entitled to overtime? Do they get the time and a half? And how do you calculate overtime? You know, what if a person works a 24-hour shift? Are they entitled to overtime because on that day they worked more than a regular shift? Or what if it is in a week period? They work 50 hours a week instead of 40 hours. Are they entitled to overtime? Or what if it is during a pay period? State law governs all that and there are also federal laws that govern that. I am not going to necessarily go into what all those laws are today. This video would be quite lengthy, but it is important to know that over time and how it is calculated, and how much to pay people is an important category to discuss with your attorney and perhaps even a CPA.
Leave Policies: Vacation and Sick Time
The next question that comes up with employment law for business owners is vacation time. How do you calculate vacation time? How much notice do employees need to give before taking vacation time? How long or how many days can they take at once? Very similar is sick time. How much notice does a person have to give if they are sick? Employees will tell you, they don’t often know if they are getting sick in advance, and what if their sick time significantly hurts the company? How many days can a person take off if they are sick and how sick do they really need to be in order to take time off? This is a hot area of state law and so states have very important protections and also vary state by state in what those laws are. Federal law also applies to sick leave or sick time off.
Workplace Safety and Discrimination
Workplace safety is another important issue. Now, if you have a business office, for example, with desks and chairs, the bigger concern here is whether a person has some sort of injury that requires reasonable accommodation so they can keep doing their job.
For example, most of the time, if a person requires back support on their chair, the law says an employer must provide that for them so that they can do their job, or if they need their monitor elevated, or if they need some other reasonable accommodation to keep doing their job. Now you might say, What is reasonable? That depends on state law. Now, if you are running an industrial type business, tooling or machinery, construction, something where risks are higher, then you are going to have more concerns regarding OSHA and workplace safety involving all of those. OSHA stands for Occupational Safety and Health Act. It is a federal law that provides employees rights regarding safety in the workplace.
Another hot category is discrimination. We are talking about discrimination on the basis of race, color, religion, sex, national origin, age, and disability. But you also have states that protect against discrimination on the basis of sexual orientation, family status, pregnancy, veteran status, and genetic information. Some of those are incorporated into federal laws. And we are not just talking about flat-out racism here or flat-out discrimination. We are talking about preferences when one person gets promoted and not another. And why is this really important? Because often the test is not, was the employer discriminatory in his or her heart? That is not the test. The first test is, did the employee feel discriminated against based on a protected class? And then the second question is, would a judge or somebody else investigating on the outside come to a reasonable conclusion that it was likely a discriminatory purpose that drove a specific action? So let’s say, for example, that you terminate a person of one skin color, but not another person of a different skin color. And let’s say you made a comment a week prior (just a generic comment) that is despairing people of a certain skin color. Well, think about that. A reasonable fact finder or judge or investigator will look at that and go, “Ah, we have the timing of a discriminatory comment. And then we have a termination of a person or you didn’t promote them. That can often lead a reasonable party to make a decision, looking at the facts to conclude there was discrimination there. Now you might say, “They were totally unrelated,” or the comment was made by one person in management, and a different person in management made the decision about a promotion or a termination.
Proper Documentation and Termination Process
And so what is an employer to do? Well, an important part of employment law is documenting the basis for various decisions that are made, whether it is termination or promotion, so that if there is ever a challenge to why decisions are made, there is documentation on what factors were considered that led to that. So if somebody argues, “Oh, it was discrimination for some other reason,” you can go back and look to the basis for that decision and the documentation prepared at the time to protect the company from a wrongful claim of discrimination.
Termination and Post-Employment Rights
Another important area is termination: doing it the right way, and making sure employees know their rights at the time of termination. For example, they have a right to health insurance and continuing company health insurance through COBRA. Employees may have other rights under state law, like a right to their employee file, and a right to wages within a certain period of time. And then finally, after termination, what rights do the employees have? Do they have the rights to their employment records? Do they have rights to have their certain information sent to an attorney or to a new employer or to the federal government?
Navigating the Complexities of Employment Law
This is employment law, and this is what a lot of business owners don’t realize because they are so focused on growing a great company. So it is absolutely understandable if you, as a business owner, don’t know what employment law is. Nobody is born as a child, knowing what employment law is. There is some point in time where you start to realize, “Ah, these are the issues that I need to pay attention to as I build a team of great people who support the cause in our business.”
And so if you have questions about employment law, that is a great opportunity to engage an attorney, and often new business owners will just hire an attorney for one hour to answer a lot of the questions that they have about the business. So you might consider making a list of questions you have and then reach out to a business attorney, and I would even send the attorney in advance your list of questions because some attorneys know employment law, but not trademark law, or they may know business law, but not copyright law. And so whatever your questions are, when you put those on a list, you can identify an attorney who is going to be able to answer all of those questions.
So if you are at this point, a great option is to just make that list and email a few attorneys who seem to have the qualifications and personality and credentials you are looking for and email them in your state and say, “Hey, could I buy an hour of your time to consult with you on the following questions that I have?”
If you are the type of person who is interested in avoiding legal problems by growing a great, healthy company, fostering a strong team, where you manage businesses and people within your company or companies, you are welcome to access our free resource. This resource equips you with the knowledge you need in contract law, intellectual property law, compliance with state and federal laws, and various other important areas that arise when running a business as an entrepreneur and leader of an entrepreneurial company. You can obtain it at aaronhall.com/free. There is no charge, and it provides you with access to exclusive resources, videos, checklists, etc. that I have created to assist business owners in avoiding problems.
All of this is part of our YouTube channel’s mission to help business owners prevent issues, reduce legal expenses, and avoid the disruptive distractions that lawsuits or government investigations can bring. The last thing you want is to become a target for lawsuits or government audits. By visiting aaronhall.com/free, you will begin accessing resources that empower you with education to navigate these challenges within your company, enabling you to achieve business success and lead a prosperous life.
I am Aaron Hall, an attorney for business owners and entrepreneurial companies. To learn more about me, please visit aaronhall.com.