Small Employers May Have it Easier

            I’ve been dispensing legal advice to employers for 21 years now. In all that time, I can thankfully say I’ve never been sued by an employee. I’ve never faced a gender discrimination claim, a disability problem or a termination under the Family and Medical Leave Act directed at me. No employee has ever accused me of racial harassment or complained to the EEOC about my employment practices.

            Is that because I diligently follow my own advice? Do I have the world’s greatest employee manual, does every employee get an annual written evaluation and do I use progressive discipline to give every employee an opportunity to cure a problem before it becomes a termination?

            Actually, I don’t. Why? I keep my business small. I only have one employee right now. Sometimes I bulk up to as many as three employees, but never have I needed more than that.

My mom forced me to take typing in high school, assuming from her generational context that I might need to fall back on my secretarial skills one day, even though she was dreaming that I would be a teacher, accountant or lawyer. As with so many things, I’ve now realized Mom’s advice to learn to type was solid.

I’ve been using personal computers since I started law school in 1984. Anyone remember the Apple 2e? It was tiny and slow, but it sure helped format all those footnotes that my law review articles required.

So I can type, I am very comfortable with computers and I end up doing a lot of my own work and editing as I go. I don’t need several secretaries to help keep things organized anymore. My calendar is computerized, as are my documents, my contacts, my time-keeping and my billing. Most of clients correspond by e-mail, not by snail mail, and my smart phone and my laptop let me take the office everywhere I go.

The end result is that I can afford to keep my payroll down. I don’t need a lot of letters typed and my phone doesn’t ring off the hook like it used to before e-mail became universal. The nice side effect of needing fewer employees is that is that my employee liability exposure stays down too.

If your business employs less than 15 people (based on names on the payroll, not how many hours each one works), you have lessened your exposure to employee lawsuits too.

As I have pointed out many times in this column, the federal and state laws that prohibit discrimination based on race, religion, age, gender, national origin, etc. only apply to employers with at least 15 names on the payroll. Since these kinds of discrimination claims make up the bulk of the lawsuits filed against employers by disgruntled employees, you have saved yourself a lot of legal headaches if you don’t have to be constantly diligent about the appearance of discrimination in your workplace.

If you have less than 15 employees, you only need to focus on a few major employment law issues:

·         Unemployment compensation: all employers in Texas can face an increase in their unemployment tax rate if an employee is terminated and successfully asserts an unemployment claim. For those of us with very few employees, that increase can be significant and lasts for three years. Best way to avoid unemployment claims: only fire an employee for misconduct, not for lack of work or poor performance.

·         On-the-job injuries: small employers have just as much responsibility to make the workplace reasonably safe for their employees as large employers. Best way to minimize exposure to legal actions for on the job injuries: purchase worker’s compensation insurance, which protects you from employee injury lawsuits.

·         Overtime and minimum wage issues: if your business enterprise does at least $500,000 in annual volume of business, you are required to pay overtime and minimum wage to your nonexempt employees under the Fair Labor Standards Act. The smaller your business is, the harder it is to prove any exemptions. Best advice for owners of small businesses: treat all of your employees as non-exempt and pay them hourly in an amount that at least equals the minimum wage. Also pay them overtime for every hour they work over 40 in any one workweek.

·         Immigration law compliance: It is just as illegal for small employers as large ones to hire applicants that are not eligible to work in the United States. Best advice: complete the required I-9 form on every new employee within three days of hiring.

·         Payday law requirements: Small employers sometimes fret over making payroll on time every time. This is not optional. If you have any employees in Texas, you must pay them promptly and regularly (at least twice per month) and submit their payroll taxes immediately. Best advice: don’t ever get behind on your compensation obligations to your employees or the taxing authorities.

·         Independent Contractor mistakes: Many employers think that they can call someone “contract labor” and avoid payroll taxes or other employment liability. The IRS and Texas Workforce Commission do not recognize that there is such a concept as “contract labor”. Best advice: treat all people who perform work for you as employees and go ahead and pay the required taxes.

So being a small employer has its obligations. But they pale in comparison to those employment law issues faced by an employer with 15, or 50 or 100 workers.

I am not advising that you do not grow your business and hire the people you need to get the job done. But if you have the choice to place less than 15 names on your payroll and still put out a great product or service, stay small or become more lean and efficient and save yourself some of the legal headaches.

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