As your business grows, you realize there are only so many hours in the day, and those 24 hours simply aren’t enough for everything that needs to get done: producing your product or service, marketing the business, making sure there is enough money to keep going, growing yourself as a leader and entrepreneur, etc., etc. At some point you simply need more help.
But taking on a regular payroll expense seems daunting and payroll taxes sound confusing and expensive. (After all, if you hire someone at $10/hr, it actually costs the business more than $10/hr…thanks Uncle Sam!) Many small (and some not so small) businesses in this situation decide to hire independent contractors instead. But is that truly the way to grow your business, or is it a trap waiting to spring?
The Fair Labor Standards Act (“FLSA”) requires that virtually all employees be paid at least the federal minimum wage for hours worked, plus overtime (at time and a half the employee’s base pay) for any hours over 40 in any given work week. It is critical for small businesses to know which employees are considered “exempt” from the overtime rules and which are “non-exempt,” meaning they must be paid overtime.
Many small businesses and non-profits assume that if they pay an employee a salary, then they don’t have to worry about the overtime rules. After all, paying overtime is expensive. However, the penalties for misclassifying employees and refusing to pay overtime can be steep. And while happy employees generally don’t complain, disgruntled employees (and former employees) will suddenly demand their unpaid overtime no matter what “understanding” you thought you all had.
Before adopting a policy of simply not paying overtime (or making everyone a salaried employee), small businesses and non-profits should ask three questions:
The Fair Labor Standards Act (“FLSA”) requires that virtually all employees be paid at least the federal minimum wage for hours worked, plus overtime (at time and a half the employee’s base pay) for any hours over 40 in any given work week. On December 1, 2016, new rules for overtime pay will go into effect, making more executive, administrative and professional (“EAP”) employees and highly compensated employees (“HCEs”) eligible for overtime.
The Ban the Box Campaign is picking up steam.
For those of you who may not be aware, Ban the Box refers to the check box on an employment application, “Have you ever been convicted of a crime?” Simply put, the argument against using this pre-emptive rejection tool is that it could result in disparate impact downstream, as a disproportionate percentage of those convicted of crimes are minorities. Beginning with Hawaii in 1998, thirteen states and 70 cities and counties have enacted legislation that prohibits such questioning for public and/or private sector jobs. Likewise, mega-employers Target and Wal-Mart have eliminated the practice nationwide. If your business has not yet been compelled to change, you may be soon, so you might as well get on board.
“Additionally, small to mid-size businesses in particular risk the more direct-type employment discrimination claims as they are more likely to hire family, friends, and friends of friends (people who look like you do). By continuing to use The Box, they also run the risk of making exceptions for family and friends that you wouldn't make for a stranger applying for the same job.” - M. Nelson of Law Office of Maritza S. Nelson, LLC
Based on the reaction I have seen from my clients, the initial thought of many business owners is that this is a cataclysmic turn of events. “You mean I have to hire criminals?”