As a small business owner, you strive to make things easier. You want to uncomplicate the way you run your business. You also want to make things effortless for your employees.
You have good intentions. But, does your simplification cause you to unintentionally break employment laws?
1. Classifying all employees as exempt from overtime wages
Exempt employees do not receive extra pay for working overtime hours. Exempt employees are typically paid a salary. But, simply paying employees a salary does not make the employees exempt from overtime wages.
Paying all your employees a salary and classifying them as exempt might sound nice. It would definitely simplify your payroll. But, exempt employees must meet specific qualifications. If you wrongfully exempt employees from overtime wages when they should receive them, your employees can sue you.
To be exempt from overtime wages, an employee must meet the federal salary and job duties requirements. Employees who do not meet the requirements are considered nonexempt. You must pay overtime wages to nonexempt employees when they work overtime hours.
2. Labeling employees as independent contractors
Hiring independent contractors is enticing. You don’t pay contractors overtime wages or benefits, and you don’t have to remit payroll taxes. Eliminating these things would really simplify your payroll. But, you do not get to choose if a worker is an employee or a contractor.
Federal and state governments are cracking down on worker misclassification. There are consequences if you label a worker as a contractor when they are really an employee. You could owe penalties, back wages, and back taxes.
It can be tricky to correctly classify a worker. You can use the IRS independent contractor test (or “economic realities test”) to help you. If you are still uncertain about a worker’s status, you can request an IRS determination by filling out Form SS-8.
3. Firing employees for taking leave
An employee is ordered to bed rest for a time. The employee’s leave is disruptive to business operations, so you fire the employee despite the termination costs involved. You just broke an employment law.
If an employee abuses your vacation policy or is constantly late, you can fire them. But, employment laws prevent you from firing employees for using FMLA leave, military leave, or time off to vote or serve on a jury.
4. Loaning employees money and subtracting payments from their pay
As a small business owner, you probably know your employees well. You want to take care of them. So, when an employee needs a small loan during a tough time, you help them out. You then deduct payments from the employee’s paycheck to repay the loan.
Turns out, you can’t do that. Most states do not allow employers to deduct anything other than taxes and benefits from employee paychecks. When you give a loan to an employee, have them sign a promissory note. You might want the help of a lawyer to create the promissory note. You will also create a payment schedule with the employee.
5. Denying employees of pay for rest breaks
For short breaks, you must compensate employees. Short breaks also count toward total time worked, so you must include them when calculating overtime. Short breaks normally last about 5 to 20 minutes.
If you offer breaks designated for meals, you do not have to pay employees. You also do not have to include meal breaks in the total time employees work. Meal breaks are normally longer than short breaks. They are typically at least 30 minutes long.
What to do if you have broken employment laws
Have you broken an employment law?
Employees can sue you for your error. Be sure to correct your wrong as soon as possible. If you need to reclassify employees, do so. If you need to pay employees more, adjust your payroll. In some cases, you might need to give employees additional pay to make up for your error. You might also need to make policy changes. If you do, make sure employees understand the changes.
You should always document your employment decisions. If you implement a new policy, write down all the details. When you classify your workers, write down how you came to each decision. If you discipline or fire an employee, write down your reasons.
As a small business owner, it is OK to try to make things easier for you and your employees. But, you must always abide by employment laws.
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