Small Business Employment Law

Why is Employment Law Important to Small Business Owners?

Every business owner has their bottom line in mind when they are making tough decisions. It is also important for business owners to have employment law in mind when they are making business decisions because breaking employment laws can often lead to costly consequences.

Minimum Number of Employees Required

In order to be subject to employment discrimination law, an employer must have fifteen (15) or more employees.

Important Employment Laws that you need to Know About

Do not Fire an Employee for Taking a Necessary Leave

It may be tempting to fire an employee who cannot come into work for several weeks due to an illness or a family emergency. However, if one of your employees asks for unpaid leave you may be required to accept their request and protect their job.

The Family Medical Leave Act (FMLA) is a federal law that requires employers to allow employees to take an unpaid leave if the employee presents a qualifying medical or family reason. During this leave, the employee must not be fired from their job.

If you want to fire an employee for taking an unpaid leave, you should speak to an attorney to determine whether you are prevented from taking this action under the FMLA. If you do not seek legal advice prior to taking action, you may be liable to the employee.

Do not Subtract Loan Payments from your Employee’s Wages

Many states prevent employers from subtracting loan payments from employee’s pay. This prohibition does not prevent an employer from loaning money to her employee. However, it does mean that employers should obtain promissory notes from employees when the employer loans the employee money.

Do not refuse to Pay Employees while they are on Breaks

You may want to save money by not paying workers for breaks. You are free to allow employees to take a lunch break, and you are not required to compensate these employees for the time that they were on lunch break.

However, Federal law requires employers to pay employees for short breaks. If you are not compensating employees for these short breaks, your employees may be able to sue you to recover for these lost wages. If a break is under twenty minutes long it will likely be considered a short break. Thus, you will have to calculate these breaks into an employee’s pay.

Do not Label Independent Contractors as Employees

One critical business decision is whether a small business owner should label as worker as an independent contractor or as an employee. This decision is important for two reasons. First, the business owner has more financial obligations when a worker is labeled as an employee compared to when a worker is labeled as an independent contractor. For example, employers must withhold pay and income taxes as well as social security and medicare taxes for employees. Employers must also pay unemployment tax on wages that the employer pays to employees. Employers do not have these obligations when the worker is an independent contractor.

Another reason that classification of workers is important is that there are consequences for business owners who do not make the correct classification. If a business owner does not properly label an employee, the business owner will be liable for employment taxes for that worker.

How do I determine whether a worker should be labeled as an independent contractor or an employee?

Determining whether an employee should be labeled as an independent contractor or an employee can be a difficult task. A fact intensive analysis is required to determine whether a worker is an independent contractor or an employee.

Generally, a worker is an employee when the employer has the right to control the worker’s work. If the employer can determine when the work will be done or how the work will get done then the worker will likely be considered an employee.

Another way to determine whether a worker is an employee or an independent contractor is to look at the type of relationship that the worker has with her employer. If the worker has a written employment contract and has benefits that mirror employment benefits the worker is likely an employee.

When you are considering whether you should label a worker as an independent contractor or an employee you should make sure that you have a reasonable basis for making the classification. If you have a reasonable basis for coming to the conclusion, you may be able to avoid liability for employment taxes on a worker you incorrectly labeled.

If you are not sure how to correctly label an employee you can file form SS-8 (titled determination of worker status for purpose of federal employment taxes and income withholding) with the IRS. The IRS will review your specific facts and circumstances and will determine whether the worker should be labeled as an employee or an independent contractor.

It can take up to six months for the IRS to get back to an employer who files form SS-8, but filing this form can be very helpful to business owners. The form is particularly helpful when the business regularly hires the same type of worker.

Do not use Exempt Classifications to Avoid Overtime

It may be tempting for you to pay each of your employees a salary and label all of them as exempt from overtime. However, you should make sure that the employees that you are labeling as exempt meet the qualifications that the government requires in order for an employee to be labeled as exempt. If your employees do not meet this criteria it is possible that the employees will be able to sue you to recover for overtime pay that they should have received.  These are known as FLSA claims.

What happens if I break an Employment law?

If you have broken an employment law, you should fix the error as soon as possible. You should also speak to an attorney to determine whether you could be potentially liable to an employee or to the government.

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