Hiring and onboarding new employees is a must for many small businesses. Unfortunately, plenty of entrepreneurs may inadvertently violate some regulations, from misclassifying employment status to not properly posting employees’ rights. Jaime Lizette, an HR Manager at ComplyRight, Inc., advises us on how to comply with HR rules and avoid common mistakes.

Independent Contractor vs. Employee

Some small business owners may not need someone daily to handle certain duties or don’t want to deal with the administrative tasks of hiring an employee. This is why they work with independent contractors. Independent contractors are paid with no taxes taken out of their check by the hiring party and are not considered employees of the business owner – at least they are not supposed to be. 

“Most small businesses don’t realize that there is a difference between an independent contractor and an employee, and that is the biggest problem,” says Jaime. In fact, 30% of businesses misclassify independent contractors. One way to avoid this is by signing an independent contractor agreement. This document will outline the expectations of the independent contractor. This includes the scope of the work for which he or she is hired and due dates when the work should be turned in. You should in no way manage the independent contractor the way you would manage an employee. You may suggest changes in work submitted but may not regulate things like when s/he starts work or takes breaks. Also, if the contractor primarily uses equipment owned by the employer, that may be a red flag signaling that s/he may need to be classified as an employee, not an independent contractor.

Don’t Discriminate, Not Even Accidentally

One thing you do not want to do is practice accidental discrimination. For example, this may occur when you interview someone during the hiring process and rely on a gut feeling when deciding whether to bring them on board, although there’s no concrete data to back that feeling. You may or may not be right about that person, but as Jaime puts it, “These types of decisions do not hold up in court, especially if there’s a case of potential discrimination, and you have no validated reason for not hiring that individual.”

Accidental discrimination may also occur when your advertisement doesn’t clearly outline the qualifications necessary to perform the job. This can lead to a subjective hiring process if the candidates have similar qualifications, but the ones that are necessary aren’t communicated. For instance, if the candidate needs to have a certain skill to perform the job but it isn’t stated, someone with that skill but who isn’t hired may have been discriminated against if the person hired doesn’t possess that skill. Avoid such scenarios by clearly outlining the necessary skills required for the job, and by asking the same interview questions to every candidate to level the playing field.

Classify Correctly

You’d be surprised by how many small business owners fill out the Employment Eligibility Verification, or Form I-9, incorrectly, or misclassify employees in terms of payment method. Filling out the I-9 may be confusing, but it’s still necessary. So is determining if your employee should be salaried or paid per hour. Make sure an I-9 is filled out for every employee hired and only retain the paperwork required to verify eligibility for employment. Discard any unnecessary paperwork. 

When determining how an employee should be paid, you must first learn if they meet the pay rate metric and fit the job description requirement. According to the Fair Labor Standards Act, the threshold for salaried payments is $455 per week or $23,660 per year. While this may be easy to determine, the job description condition isn’t quite as simple. As a matter of fact, “it is estimated that 70% - 90% of employers do not classify their employees correctly,” according to Jaime. This may be because of the difficulty in determining if the job requirement dictates the employee be salaried or paid hourly. One key is to classify employees by job duties and not titles. If the employee is given a title that suggests a salaried role, but the actual duties are those of an hourly employee, you may be in violation. To be on the safe side, pay your employees hourly with overtime if necessary until you are certain that they may be classified as salaried employees.

Make Sure Employees Know Their Rights

Employees are entitled to know their rights. You need to post notices that describe those workplace rights in a place visible to all employees. Employers are in violation if they are not displaying these posters. Make sure you have at least eight posters, both federal and state, where employees can easily see them, such as in a break room or common area. Also make sure the notices are up to date. “If you have any posters in your company that still have the federal wage from 2007, those are outdated, so you are not in compliance,” says Jaime. Having fewer than eight posters may be a red flag that you are not meeting regulatory standards. Consider using a poster service if you feel it is too time-consuming to constantly update the notices. Be sure the service you use is aware of all compliance regulations and is able to maintain them.

Go to our webinar “The 5 Biggest HR Mistakes Small Businesses Make and How to Fix Them” presented by Jaime Lizette, HR Solutions Manager for ComplyRight, Inc., for more advice on your HR matters.