Employment laws are here to protect businesses and employees alike, but sometimes they are not obvious. Are you breaking any one of these laws? Even if you’re a staunch “by the books” employer, details can sometimes slip under the radar if you don’t already know what to look for. And as they say, it’s better to be safe than sorry! These are the top ten culprits for mistakes employers make unintentionally.
Mistake #1: Classifying employees as exempt from overtime
There are specific rules as to who should be paid overtime. Just because workers are paid a “salary” doesn’t mean they don’t qualify for overtime. Many owners think if they are paid the same amount no matter how many hours they work, they don’t need to pay extra for hours over the normal 8 in a day or 40 in a week. Some think that a specific job title means an employee is also exempt. This is incorrect. While there are some jobs that are exempt, these are usually high level executives, administrative or professional employees. Non-exempt employees must also be given proper rest and meal periods as defined by law.
Mistake #2: Allowing employees to take lunch at any time they want
Employees must take a 30 minute off-duty meal period if they will work more than 5 hours that day. Some employees like to take their lunch late in their shift so most of the day is over when they return to work. Employers may feel they are being nice by allowing the employee to take their break whenever they want. However, California labor laws require that an employee take their lunch break no later than the end of the fifth hour of their shift.
Mistake #3: Allowing employees to decide which hours and how many they want to work each day
Employees may prefer to work an alternative workweek schedule, however, they can’t just decide to do so. If an employer is going to allow an alternative schedule, there are steps that must be followed to make sure overtime does not apply. Employees may request make-up time for hours to be missed if they meet certain conditions:
- The hours are made up in the same work week as the time to be missed
- They work no more than 11 hours in a day or 40 in the week
- The employer agrees
- The request is made in writing
Mistake #4: Classifying workers as independent contractors to avoid running payroll, dodge worker’s compensation insurance, and reduce payroll tax payments.
The Internal Revenue Service as well as each state have regulations for who qualifies as an independent contractor. Classifying someone as a 1099 worker who doesn’t fit the qualifications may put you at risk for interest and penalties on unpaid payroll taxes that should have been remitted to the tax agencies. Some of the determining factors are:
- Who controls the schedule?
- Whose equipment is used to complete the work?
- Who determines how the work is to be done?
- Are any benefits provided such as insurance or vacation?
This misclassification may be discovered when the “independent contractor” files for worker’s compensation, unemployment or disability. At that time, the IRS and/or tax agency may say tax is owed that should have been withheld from the worker as well as the employer’s tax due on the amount earned.
Mistake #5: Failure to provide training to managers about harassment and discrimination
Managers and supervisors need to be aware of what is considered discrimination or harassment. Failure to do so puts the company at risk of a suit by one or more employees. Policies should be in place for managers to follow when they believe a situation has occurred that can be construed as discrimination or harassment. Every effort should be made by the company and it’s supervisors to prevent any behavior which may be deemed as inappropriate.
Mistake #6: Terminating an employee for taking a leave of absence
Employees have legal protections when it comes to certain leaves of absence. Terminating an employee for taking time off can lead to serious ramifications, even if you believe the employee is not going to come back at the end of the leave. Protected leaves include (but are not limited to) worker’s compensation, disability, pregnancy, family and medical leave, military leave, jury duty, etc. The employer cannot terminate once the employee has returned to work because of the leave either. If an employer terminates the employee upon his or her return to work, it will have to be proven that the employee was terminated for a legitimate cause not related to the leave of absence.
Mistake #7: Failure to give an employee’s final paycheck timely
Labor laws state when wages must be paid to an employer. State laws may differ, so the rules stated here are for California. If an employee gives 72 hours notice or more, they must be paid their final wages at the time of quitting. If they gave no notice, all wages must be paid within 72 hours of quitting. If an employee is fired, they must be presented their final paycheck immediately.
If an employee who quit or was terminated has company property (a laptop, cell phone, etc) it is tempting to hold their last check until the items are returned. However, this is illegal in California. You must pay the wages timely and try to get the items back without the threat of unpaid wages.
Failure to pay wages timely will result in a penalty of one day’s wages for each calendar day the wages are unpaid up to 30 days.
Mistake #8: Providing loans to employees and then deducting the payment from the paycheck
Deductions from paychecks are allowed if they are authorized by law or the employee for benefits offered by the employer. Typical deductions are federal/state withholding, FICA taxes, and disability insurance. Additional deductions may be for child support, unpaid past due taxes garnished by agencies, medical insurance premiums, etc.
Loans to employees generally should not be made. If the employer does loan funds, a written agreement should be drawn up stating the amount loaned, date payments are due, and amounts to be paid.
Mistake #9: Having Employees Sign Non-Compete Agreements
Most non-compete agreements are illegal in California. You can have forms signed stating customer lists, intellectual property, etc, is property of the company, but an employee can not be prevented from working for the competition. This infringes on an employee’s ability to work and earn an income should employment with your company not work out due to either the company’s or employee’s choice.
Mistake #10: Having a Use It or Lose It Vacation Policy
Anything considered wages must be paid, and vacation hours (if offered by the company) are considered wages. If an employee has not taken all vacation at the time of their leaving, the remaining amount must be paid with the final paycheck.
To prevent the large accumulation of vacation hours, a cap may be established. Once that cap is reached, no additional hours are accrued until vacation hours have been used. – Candy M.