Common HR Mistakes Small Business Owners Make

HR for startups and entrepreneurs can be a simple as creating a job posting for your first employee, or as in depth as creating an employee handbook to protect your business.

54% of small businesses handle employment matters themselves to save money and 70% of businesses with 5 to 49 employees add HR onto the workload of employees with little to no experience in workforce issues.

But CEOs at these businesses often realize they’d be better off devoting their time to sales, technology and other functions. In the end, many of the employees who take on HR duties simply aren’t prepared. This opens up compliance risks for small business owners. Read more for some of the most common HR mistakes we see small businesses make.

Hiring and firing talent based on “gut feelings”

Employees discharged on a whim can sue for being fired without just cause or file a claim of discrimination if they are in a protected class. Employment-related lawsuits can be costly.

• Documentation is critical
• Draft Job Descriptions, require Employee Sign Off
• Legal review or have a consultant draft them
• Performance Improvement Plans
• Regularly Scheduled Evaluations

Small employers tend to think that if they do not document an employee relations situation, liability will be reduced as there will be nothing for the employee to use against them, Documentation of employee relations situations allows the employer to prove that proper action was taken, the involved employees were informed of the need to correct the behaviors, and warning of the potential for additional disciplinary action up to termination was provided.

Unaware of relevant labor laws

Applicable Federal Labor Laws change with a company’s employee count.  Oftentimes, small business owners are unaware and are out of compliance.

1+ Employee

FLSA:  Establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments.

OSHA:  Ensure safe and healthful working conditions for working men and women by setting and enforcing standards and by providing training, outreach, education and assistance.

NLRA: Guarantees the right of private sector employees to organize into trade unions, engage in collective bargaining, and take collective action such as strike

HIPAA: National standards for the protection of individually identifiable health information by three types of covered entities: health plans, health care clearinghouses, and health care providers

& more…

Labor Law Postings

Mandated state and federal employment law notices that employers with at least one employee or more are required to conspicuously post in an area frequented by all employees.

Mishandling Employee Files

Many employers do not realize is that you must have several separate files that will contain different types of employee information.

What a lot of employers do not realize is that you must have several separate files that will contain different types of employee information. Let’s break down organization best practices into a few categories. Here is the organization system that we recommend:

I-9 File: Keep all Form I-9s in a separate master file. Must not be stored inside an employee’s personnel file. If so, there will be a fine if audited by a government agency.

Medical File: Must be stored outside of the personnel file. Cannot legally base personnel decisions on an individual’s medical history.

• Various privacy laws and the ADA
• Contains everything related to an employee’s medical history, including health insurance enrollment forms.

Personnel File: Items that were a factor in the employee’s hiring and employment in addition to items that will have any impact on their employment in the future.

• Includes performance reviews and corrective action records.

Payroll File: Contains the employee’s W-4 and any other payroll-related documents containing the employee’s SSN or other protected information, including garnishments.

The retention periods will depend on the type of record. These files should be kept in a secure location that is only accessible to those in the HR function or with a legitimate need to review the information—for instance, in locked cabinets in a locked HR office. This information can be stored electronically if that makes more sense for your business. Just ensure that it’s backed up to prevent data loss, and well-secured.

Misclassifying Employees & Independent Contractors

If you are a business owner hiring or contracting with other individuals to provide services, you must determine whether the individuals providing services are employees or independent contractors. The misclassification of independent contractors isn’t a problem just during tax season, it also impacts state unemployment compensation and workers’ compensation.

• Degree of control and independence must be considered.
• Does the company control or have the right to control what the worker does and how the worker does his or her job?
• Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Outdated or Un-Enforced Handbook

An Employee Handbook lays the groundwork for a company’s culture and influences how the organization functions on a day-to-day basis. Plus, it can form the first line of defense in an employment lawsuit or investigation

• Only include what you plan to enforce. Listing policies you do not enforce can be more dangerous than having no policies at all.
  • Paid Time Off, Performance, Attendance
  • Clarity and consistency is key
• Update consistently as your business grows.

Required and Commonly Seen Policies

• At-Will Statement, Employment Agreement
• EEOC Statement
• Conduct Statement
• Sexual/Unlawful Harassment Policies
• PTO, Benefits, Leave Policies
• Health and Safety Section
• Absenteeism and Tardiness Policy
• Compensation Statement, Additional Benefits

Looking for more HR help? Our team of Certified HR Professionals can help. Contact us to learn more.