To Top

5 Important Laws You Can’t Afford to Break When Employing People

Most entrepreneurs take the easy approach when setting up and running their business. They minimize costs wherever they can to maximize the profit they generate.

You are probably one of those entrepreneurs, and although this is the right approach to reduce the complexity of your business model, there are employment laws that you may easily overlook while making decisions that impact your employees.

Not to worry though, as this article highlights the most probable violations you may make as an entrepreneur with employment laws.

Independent Contractors vs. Employees

There are many benefits to labeling employees of the company as independent contractors, mostly related to cost reductions. You are not liable to pay overtime wages or benefits of any sort to independent contractors but you must give these to employees under the law.

The government takes such misclassification of employees very seriously, and, if caught, may hold your business liable to pay due to wages, taxes on all not-paid wages, and may impose severe penalties on your business.

How to classify employees and contractors can be tricky business for any company. To ensure you do not misclassify your workers, the Department of Labour (DOL) has designed a test that you can use to figure out the classification of all workers at your company. It is imperative that you classify workers correctly, as the government takes these things very seriously.

Working Overtime

There is a category of salaried employees who are exempt from receiving overtime pay

There is a category of salaried employees who are exempt from receiving overtime pay, and hence, knowing who is exempt and who is not, can save you a lot of money.

Of course, an entrepreneur can make the mistake of exempting those salaried employees from receiving overtime who, in all legality, are not exempt and must be paid overtime wages. However, this mistake can cost you a lot of money if your employees, whom you mistakenly misclassify as exempt, sue you for the unpaid wages.

The government lists down the requirements which salaried employees must fulfill to be classified as exempt from overtime wages. Those who don’t are classified as non-exempt, and must be treated as such.

Loan Payments CANNOT be subtracted from pay

As a small business owner, your employees may ask you for loans due to the personal relationship which they develop with you. Of course, logically you may arrange the loan repayment in a manner that it gets deducted in installments from the paycheques of the employee.

However, this is not allowed under the law. The law allows employers to only deduct taxes and benefits from the paycheques of the employees, and nothing more. Hence, any such loan servicing would have to be done by other means such as having the employee sign a promissory note.

If you fire employees who are on leave due to medical reasons, you will be breaking the law

Employees CANNOT be fired for taking a leave

The Family Medical Leave Act (FMLA) outlines certain reasons for which employees can take time off from work. If you decide to fire employees who are on leave due to medical reasons, you will be breaking the law. This includes employees taking leave to vote or serve as a member on a jury.

Of course, you can fire employees if they are incompetent or constantly come late to work or take undue advantage of the vacation policy in place.

You must pay employees for rest breaks

Federal law requires that you pay employees for the time they rest at work, provided it does not exceed more than 20 minutes. The employees may not be compensated for the meal breaks, which last for more than 45 minutes to usually an hour long.

These meal breaks are not a part of the employees overall working schedule. However, for the short breaks, they must be compensated.

Mishandling employees can lead to expensive lawsuits which usually cost the company too much

Entrepreneurs must be careful when dealing with employees

The government protects the employees, and hence mishandling employees can lead to expensive lawsuits and fines which will cost the company much more than paying what is due to the company.

Make sure you classify your employees correctly, pay them for overtime if they are not exempt, deduct only taxes and benefits from their pay and not anything more, and not fire them for taking a leave justified and allowed under law.

More in Legal Advice