Learning the basic employment laws applicable to your business is a wise investment for even the smallest companies.

Some startup companies are so preoccupied with marketing their new product or service, they forget to implement important Human Resources (“HR”) functions. Unfortunately, startups are particularly susceptible to HR nightmares because of their unique nature.

Startup companies often lack the employment practices and policies that are second-nature to established companies. Why? They are often run by less-experienced employees unfamiliar with the “ins and outs” of employment laws. Some even pride themselves on being radically different from those conservative, “stuffy” companies, viewing compliance with employment laws as optional, rather than mandatory. Startup companies also tend to be smaller, with fewer employees who work hard to keep the company afloat, which often results in employees working closely together for long hours. In such situations, boundaries between employees are often crossed, which may result in legal problems. Below are some important HR starting points for startup companies.

Wages
Employers must properly classify their employees under the Fair Labor Standards Act (FLSA) as either exempt or non-exempt from the FLSA. “Non-exempt” employees are just that—employees who are not exempt from the FLSA requirements of being paid minimum wage (in Illinois, currently $8.25 per hour) and compensated for overtime hours worked beyond 40 hours per week, among others. Non-exempt employees are generally paid by the hour. On the other hand, “exempt” employees are exempt from these requirements and are generally paid a salary without regard to the number of hours they work. Misclassification of employees could be a costly mistake for employers, resulting in penalties, fines and back wages assessed by the Department of Labor.

An employer cannot arbitrarily choose to classify an employee as exempt. An exempt employee is paid a minimum of $23,660 annually, and his job duties must fall within one of the FLSA exemptions. The most common exemptions are: executive, administrative or professional employees; highly compensated employees (over $100,000); computer employees; and outside sales employees, although there are several others.

Employees classified as non-exempt must be paid for all “working time.” Whether activities such as preliminary and postliminary functions (“donning and doffing” clothing), waiting time, on-call time, meal breaks, training time and commuting/travel time constitute “working time” depends on a correct interpretation of complex administrative rules, and is beyond the scope of this article. Employers are encouraged to seek advice from an accountant or attorney to ensure compliance with the FLSA and its complicated regulations related to classification of employees and working time.

Handbooks, Policies and Training
Employers must be familiar with what laws apply to their workforce and tailor their policies accordingly. The number of company employees generally dictates which of the many federal and state laws apply to an employer. For example, all employers, regardless of size, are subject to the FLSA, but only those with 15 or more employees are subject to the federal anti-discrimination laws known as Title VII, as well as the Americans with Disabilities Act (ADA).

Employers are not required by law to have handbooks, but it’s still a best practice: they ensure employees are aware of policies and allow for treatment of employees in a consistent, nondiscriminatory manner. All employers, regardless of size, should have at minimum an equal employment opportunity policy, electronic communications policy and anti-harassment policy. Other relevant topics that may require policies: Will the company drug-test its employees? Will the company prohibit conceal-carry on its premises? Will the company use progressive discipline with employees?

Handbooks and even employment applications should set out a company’s clear and conspicuous “at will” policy/statement. Generally, employment relationships are “at will,” meaning the employer and employee may terminate the employment relationship at any time, with or without cause or notice. Most employers prefer employment relationships to be “at will” because the employer maintains its ability to terminate an employee immediately without cause.

Employers should also consider training management employees on the company’s policies and the proper way to counsel and discipline employees, including properly documenting disciplinary actions.

Benefits
In the past, new companies did not have to worry about offering benefits to its employees, but that’s about to change—especially for those with 50 or more employees—as the Affordable Care Act takes effect January 1, 2015. If an employer does not offer affordable healthcare coverage that provides a minimum level of coverage to their full-time employees, the employer may be subject to an “Employer Share Responsibility Payment” if at least one of its employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges.

Hiring
Hiring presents its own pitfalls for a new employer. Be sure that an employment application does not serve as a basis for an applicant to sue in the event he or she is not selected for employment. Employers should use employment applications that avoid asking questions that tend to elicit information about an employee’s protected status (age, race, nationality, disability, age). For example, instead of asking an employee his date of birth, an employer should consider asking the individual to confirm he is of legal minimum working age.

Avoid discriminating against applicants based on criminal records. In Illinois, employers may never ask applicants about arrests or convictions that have been expunged or sealed. It is also a good practice to seek only information about convictions (not arrests) and about specific types of crimes that bear some relationship to the employment the applicant is seeking.

Federal law requires employers to ensure that employees complete proper documentation to verify their eligibility legally to work in the United States. All new employees must complete the U.S. Citizenship and Immigration Services Form I-9 and present the requisite supporting documentation within three days of being hired (unless the employee requests an extension).

Although startup companies may incur some expense to educate themselves on basic HR functions and employment laws applicable to their business, this is a wise investment for even the smallest companies, as it’s likely to save the company time, money and headaches later. iBi