When working with small business I generally suggest they do an HR audit. Most often than not the HR audit comes out these businesses are not in compliance with some current federal, state and local laws and regulations which open their businesses for liability. What are the most common problems I find? What these employers are overlooking?
First, they misclassify employees (Exempt vs. Nonexempt). Exempt employees are workers who aren’t entitled to a 40-hour work week and are exempt from the Fair Labor Standards Act (FLSA). Most of your workers may be nonexempt employees who are covered by the FLSA. The government base employee exemptions on the way workers are paid and the job duties their employer gives them. You need to run the basic test to know whether or not your employees are exempt or nonexempt. You can find this test at the DOL website. Misclassification of employees may be very costly. Once an employee challenges his exempt status of his job and DOL find they are nonexempt, you’ll be on the hook for back pay for overtime, penalties for failure to pay overtime, etc.
Second, these businesses let the employees take their lunch whenever they want to and if they feel like it. You must provide a 30 minutes unpaid and off-duty meal period if they work for more than five hours. They also allow employees to come and go as the please, their start and quitting times are not clear to the managers and they do not know whether or not the employees are working overtime. Check what Wage and Order applies to your business. These wage and order documents are available online.
Third, these small companies make all their employees independent contractors. Be careful! If you have control over the manner in which the work is performed, how it is performed, who supplies the tools or equipment and when the work is performed, most likely this person is your employee! Also, I’ve encounter that some small business owners may not give employees their final check if they do not return company property. Remember, employees who are discharged must be paid all wages due at the time of termination. (Labor Code § 201) and If an employee quits without giving prior notice, must be paid his or her wages within 72 hours. If the employee gives at least 72 hours’ notice of his or her intention to quit, wages must be paid at the time of quitting (Labor Code § 202).
These are some of the problems I find in small businesses; they are a very easy fix! Fixing these small details can save you a lot of money and headaches! Do not let something this simple open your business for liability. Review some of your company policies and practices and change them if necessary. It is not worth the trouble if you can nip in the bud.
