Law Office of Alan Kansas, LLC

What Employment Law Issues Do Even The Smallest Companies Need To Follow?


Even if a company does not have enough employees to be covered by the laws against discrimination in employment, there are still a lot of employment related legal issues that small companies need to manage to protect themselves from liability. The first and most important one is the Fair Labor Standards Act (FLSA). This is a federal law that requires employers to pay employees minimum wage for all time worked and overtime wages for any hours worked above 40 in a work week. There are a ton of exceptions to this overtime requirement, the most common and important being for salaried exempt employees. However, even if a company only has two or three employees, it is still probably covered by the Fair Labor Standards Act. Thus, it is always important to ensure that employees are being classified correctly in terms of exempt or non-exempt and that their pay is correct and legal.

There are so many different FLSA issues that we can’t cover them all here. Even something as simple as designating when the work week begins and ends can create liability for an employer. Calculating the overtime rate when an employee receives an hourly rate plus a bonus or a commission is also something that needs to be done carefully to avoid liability. Tipped employees can be paid a lower than normal minimum hourly wage, but there are several rules to follow and pitfalls to avoid in order to make sure the employer has the right to pay the lower tipped employee hourly wage. Proper time records must be kept, and employers cannot let employees work “off the clock” without pay. So, even if a company has just one employee, there are several FLSA issues that can lead to problems if not handled correctly.

Beyond the Fair Labor Standards Act, there are several other important employment issues small companies must consider. Most small companies rely on computer technology and communication devices to get the most done with a small team. Companies want to make sure that they have set clear expectations with a set of policies on employee use of the company’s electronic equipment. Usually, this includes stating that the company has the right to review emails, files and text messages that are sent through the company’s equipment. When the company allows employees to use their own devices, the right to demand a search of those devices is severely limited and forcing an employee to allow inspection of private devices can create liability for the company. So, even with one or two employees, there are several employment issues that a small company should focus on to avoid serious legal problems.

Can Small Companies Avoid Employment Laws By Using Independent Contractors Instead Of Contracted Employees?

This is a huge issue. When done correctly – that is, when the company has made sure that independent contractor status applies — then the answer is yes. When the people doing the work are legitimately independent contractors and not just employees that have been stamped with the independent contractor label, the company does not have to comply with most of the employment laws. However, improper designation of employees as independent contractors can destroy a company and create personal civil and even criminal liability for the responsible individuals. I see far too many employers incorrectly applying the independent contractor label to employees and the various federal agencies involved all promise more vigorous enforcement on this issue. The whole trick is to make sure that the company is correctly labeling someone as an independent contractor.

There is a whole lineup of different laws that depend on this distinction. If a business (or business person) treats an employee as an independent contractor and does not withhold income taxes, it could get into huge trouble with the IRS. If a company treats an employee as an independent contractor and does not follow the laws prohibiting certain types of discrimination or harassment in the workplace, then it will have a liability problem. The same goes for the Fair Labor Standards Act. Immigration laws require employers to complete I-9 eligibility forms for employees, but not independent contractors. Proper classification is also necessary for obtaining the right kind of workers’ compensation insurance coverage, which is an issue that has the potential to cause a whole host of problems for a company that gets it wrong.

Generally, in determining whether someone is an employee or an independent contractor, the courts will look at whether the worker is really operating like an independent business. If the company exerts control over the details of the work, the worker has no personal investment in equipment or supplies, and the worker is economically reliant on that one company to earn a living, the courts are likely to find an employee/employer relationship. In most cases, a company can modify the way it does business to improve the chances that a court would agree with the treatment of people as independent contractors. This requires a careful analysis. Independent contractor status is something a lot of companies overlook. A lot of them get away with it, but there are huge consequences when they don’t.

When Is It Most Important For Small Companies To Get Legal Help For Employment Law Issues?

When bringing in a new employee, a company wants to make sure it is classifying that person correctly as an employee or as an independent contractor. For employees, the company needs to ensure that they are going to be paid correctly under the FLSA. If a company is sending an offer letter or a contract to someone, then it needs to understand whether the documents are setting up an employment at will relationship (which is the most common in Louisiana) or creating a guaranteed term of employment. So, on the way in, it’s important to set up a relationship correctly.

On the other end, if a company is considering terminating someone, it should understand that most employment claims are brought over terminations. Thus, before terminating an employee, it’s always smart to pause and make sure that the decision is being made for rational reasons and not in a fit of anger or for questionable purposes. In most cases, I recommend a policy that requires a supervisor to obtain approval from a higher-level manager (or two) before terminating anyone’s employment. This gives the company a chance to gather the facts and consider whether the decision is correct and supported by the evidence. Having an experienced employment attorney available to review the facts and help make sure the decision is solid is also a good idea – especially when there is any doubt about the situation. Many times, a good employment lawyer can suggest a few minor changes that will help the company achieve its purpose while minimizing potential liability. This small investment is well worth it because once an employer follows through with a problematic termination, the problem becomes much harder to correct.

The Law Office of Alan Kansas, LLC is focused on Employment Law Issues For Small Companies. Get the information and legal answers you are seeking by calling (504) 300-0071 today.

Alan Kansas, Esq.

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