By David B. Monks
Starting your own business is thrilling, and the thought of calling the shots inspires many entrepreneurial spirits. But along with the thrill comes the responsibility of dealing with the endless array of employee issues.
Here are the top five personnel mistakes an entrepreneur can make:
1. Inadequate Record-Keeping. State and federal laws in California require employers to keep accurate records of employees’ work hours, compensation and other basic information to ensure compliance. Failure to maintain records compliant with both state and federal regulations puts the company at risk for substantial fines. Good record-keeping practices are critical to protect your company. Here’s how to protect yourself:
- Develop a standard “personnel file” for each employee. Include job applications and offers, resumes, any employment agreements, and forms for acknowledging receipt of documents such as employee handbooks, arbitration agreements, and confidentiality/non-disclosure agreements. (Note: I-9 forms and other documents for verification of employment eligibility must be kept separately.)
- Consider time clock services. Many exist online; companies like ADP and Paychex provide comprehensive time clock and payroll services.
- Develop a record retention system and put it in writing. Store records securely and regularly review them; purge outdated records.
2. Failing to Hire Employees in Accordance with Your Business Needs. Hiring employees is costly and time-consuming. Given the expense, an employer must only hire to its needs. Failure to hire enough employees may lead to increased costs in overtime pay, employee burnout, and turnover. Hiring too many employees may result in paying more in wages, benefits, and employment taxes than can be justified by the company’s revenue, resulting in depressed profitability. Here are three suggestions:
- Know your industry and assess your employee needs. Don’t hire two employees where one suffice. Regularly review your needs.
- Don’t fall victim to minimum wage and overtime misconceptions. These are complicated concepts. Misclassifying employees or using unlawful pay practices is more common than you think. Get expert advice!
- Consider independent contractors to fill specific needs. Be sure, however, you are using contractors appropriately to avoid liability under various state and federal laws. Misclassification of workers as independent contractors rather than employees can lead to liability for substantial wages, penalties, and interest to the workers and to several different state and federal agencies.
3. Failing to Thoroughly Vet Job Applicants. Finding the right person for a job is painstaking. Most small businesses require a written application and interview. While such practices can work fairly well, every company has horror stories about nightmare employees. A wrong hire can cost thousands in low productivity, low morale, and possibly legal claims. Utilizing a thorough vetting process can screen out potential problem employees and reduce a company’s exposure to frivolous lawsuits, unjustified discrimination charges, and other similar costs. Here are two things to watch for:
- Develop a thorough hiring practice. Consider more than one round of interviews or pre-screening questions. Once you set an effective process, do not deviate from it.
- Make any offers conditional upon completion of due diligence. Always check employment references and use a reputable company for background checks.
4. Not Having an Employee Handbook. Whether you’re hiring your first employee or your 50th, you will profit from a written set of personnel policies covering such matters as employee classification, pay/benefits, work hours and breaks, behavioral expectations, harassment, disability accommodation, and employee leave. A well-crafted handbook is an invaluable tool to protect your company and saves you time and money by clarifying your expectations of your employees. Here are three suggestions:
- Don’t scrimp on your handbook. Have employment counsel review your policies to ensure legal compliance.
- Pay attention to unique state laws. Ensure company policies are compliant with your state’s laws.
- Include the important disclaimers. Handbooks are not contracts or guarantees of employment; make sure you say so in the handbook. Any lists or examples articulated should be clearly identified as not exclusive. Progression through disciplinary steps should be flexible to allow some discretion to take action without going through all of the steps.
5. Holding on to a Bad Hire: At some point, you will hire someone who simply isn’t the right fit. Firing an employee is never pleasant, but holding on to a bad hire often costs more in turnover, low morale, and lost productivity. And, firing later may prove to be more risky. Similarly, a botched termination can result in years of expensive litigation. Recognizing a bad hire and parting ways quickly and skillfully can be essential to protecting your small business. Here’s how to approach a bad hire:
- Recognize a bad hire for what it is. If you are constantly dealing with repeated bad behavior or poor performance and if remedial measures are ineffective, it may be time to reassess the employment relationship.
- Make sure you have supporting facts. Many lawsuits result from termination decisions made in the heat of the moment. Resist the temptation to pull the trigger without lining up your evidence.
- When in doubt, seek advice of counsel. Termination of employment is the most common catalyst for lawsuits. If you have doubts, ask your lawyer to help. The investment in advice up front will likely help you avoid costly claims down the road.
How personnel matters are addressed can make or break a fledgling company. Doing it the right way may not always avoid unwanted expense, but it can greatly reduce risks and position your company to flourish.
David Monks is a partner in the San Diego office of Fisher & Phillips, a national law firm focused on labor and employment law. Monks counsels employers on a wide variety of matters, including employee discipline and termination, wage and hour issues, disability accommodation protocols, family and medical leave issues, investigations of harassment and other misconduct, and independent contractor issues.
