Amid the excitement and uncertainty that accompany the opening of a new business, entrepreneurs often overlook basic employment law requirements that can cost them dearly. These include how they classify and treat their workers. When discovered, these mistakes can jeopardize the viability of their new business.
Some entrepreneurs seek to sidestep employment issues entirely by trying to operate without employees. They open and operate with workers misclassified as “independent contractors” (often referred to inaccurately as “1099 employees”). Only workers who operate their very own– and very separate -- businesses are truly independent contractors. Most should be treated as “employees” under the law. Such misclassifications can result in staggering penalties for the employer, including unpaid overtime costs, minimum wage deficits, Department of Labor penalties. etc.
We also frequently hear new employers say that “all our employees are paid a salary, so we do not have to pay anyone overtime.” Employees are not classified as exempt from overtime simplybecause they are paid a salary; no matter how generous that salary may be. Exemptions from overtime (e.g., for executive, administrative, professional, outside sales workers, etc.) only applyif the employee meets a very complex legal test. In other words, many employees are misclassified as exempt, when they are by law entitled to overtime. Misclassification of this type can also lead to expensive wage and hour claims, unpaid overtime lawsuits, and tax implications.
Entrepreneurs would be well-served to take a little time prior to start up to consult with a qualified employment attorney to avoid these and many other potentially disastrous mistakes.