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7 Major Misconceptions Business Owners Have About Employment Law

When it comes to labor and employment law, business owners need to be vigilant. Small businesses sometimes think lawsuits only happen to big businesses. The truth is, it could happen to anyone.

If you own a business, you should study up on labor and employment law in your state.

Although employees win only 1% of federal civil rights lawsuits at trial, a lawsuit alone can be costly.

U.S.-based small and medium-sized businesses have about a 12% chance of facing an employment claim. If you haven’t read up on labor laws in your state, here are 7 misconceptions you need to remedy.

1. You Can Fire Someone for Any Reason

Firings are one of the most frequent catalysts for employment lawsuits. Businesses that face such lawsuits must typically hire employment law solicitors to defend themselves.

Not only does this lead to enormous costs, but it can also damage your business’s reputation.

Most states have “at-will employment” laws that let businesses fire employees for almost any reason. But you can’t fire someone for just any reason.

You can’t fire an employee because of their protected status. These include race, gender, national origin, disability, religion, genetic information, or age. You can’t fire an employee because they complain about OSHA violations or because of they refuse to take a lie detector test, either.

If you have a contract of union agreement with an employee, these may set other conditions for legal termination.

2. Sexual Harassment Only Happens to Women

According to studies by the Equal Employment Opportunity Commission (EEOC), women are more likely to experience sexual harassment than men. But that doesn’t mean men don’t experience sexual harassment as well.

Women have about a 3 in 5 chance of experiencing sexual harassment. Men have a slightly less than 1 in 5 chance.

As an employer, you need to take every accusation of sexual harassment seriously. You should have a sexual harassment policy on the books, and it should be displayed where your employees can read it.

Your state may have requirements for sexual harassment training. Your state may also have requirements for distributing literature about sexual harassment. Consult with your attorney or a state office to determine what you need to do to comply.

3. Salaried Employees Don’t Get Overtime Pay

Many small business owners don’t know if salaried employees are entitled to overtime pay. Making this mistake can be a one-way ticket to the courthouse. It could cost you thousands of dollars in back pay, too.

According to the Fair Labor Standards Act of 2004, there are specific exemptions from overtime pay:

  • The employee must make more than $23,660 per year
  • The employee must receive the same pay at regular intervals, not by the hour
  • The employee must only engage in “white collar” work, such as administrative duties

The law dictates that overtime pay must be 1 ½ times the regular hourly wage. If you fail to pay overtime, an employee could sue you.

4. Every Employee Should Get the Same Treatment

Treating all your employees the same makes sense on paper. In practice, it can lead to trouble.

You want to keep your employees happy by treating them fairly. To do this, you must recognize that some employees have special requirements.

The passing of the Americans with Disabilities Act in 1990 requires employers to make reasonable accommodations for disabled employees. There can sometimes be confusion about how should initiate this effort.

If you have disabled workers, your best course of action is to be proactive. Unless you can claim “undue hardship” for this accommodation, you need to comply.

5. Small Businesses Don’t Need to Put Anything in Writing

Even if you think of your employees as family, you need to put policies in writing. This goes for any business that has employees.

This can be a daunting task for small businesses. If you need help with the legal requirements of communicating company policies, you may be able to rely on an outsourced firm to help.

6. You Can Classify Employees as Independent Contractors to Save Money

Independent contractors are generally paid more than regular employees. But they don’t come with the same overhead. You are not required to provide contractors with insurance and other benefits.

Contractors are also known as 1099 employees. Form 1099 is the form businesses use to report payments to a business or person who is not an employee.

Hypothetically, you could hire only independent contractors. But if you have employees, you cannot have contractors doing the same duties. You also don’t have as much direct control over contractors, as they are treated as a separate business entity by the law.

If you situate your contractors with your employees, the government could classify them as employees. You could then run into legal trouble because you’ve failed to give your “employees” their due benefits.

If you use contractors, always work within the confines of a contract. A contract eliminates any grey areas as far as the law is concerned. It’s also a good practice for ensuring your contractors do quality work and continue to work with you.

7. You Don’t Need to Pay Employees on Time

From an ethical standpoint, you should always pay your employees and contractors on time. But payroll issues happen. When they do, you need to be prepared to protect your business and comply with the law.

Employees must be paid at the end of each pay period. Pay periods can vary depending on your business. You may pay weekly, bi-weekly, semi-monthly, or monthly.

If you fail to pay your employees at the end of a pay period, their first course of action will be to document it and report it to you. If you still fail to pay your employees, they may take legal action against you.

Contractors may not be a part of your payroll system, but you still need to pay them on time.

You should have established a payment period in your contract. It’s typical for contractors to give you a window of one week or two to pay them.

If you don’t abide by your contract, contractors will usually reach out to you first. If you still don’t pay or refuse to pay, they can take legal action against you.

If you’re working with independent contractors but you don’t have a contract, that doesn’t mean you don’t have to pay them. If you’ve paid them previously, this could be enough documentation for them to have a case against you. They could have other documentation, such as emails, that show you promised to pay them.

Either way, you will still have to face a legal challenge and could go to court.

Learn More About Labor and Employment Law

Don’t stay in the dark about labor and employment law. For more information, check out the hiring and employment section on the At Your Business website.

Do you need templates for service contracts, rental agreements, employee performance reports, and more? Download free forms and templates here.