5 Common Employment Law Mistakes Small Businesses Can Avoid
In 2024, the Equal Employment Opportunity Commission (EEOC) helped more than 21,000 individuals reclaim around $700 million in settlements for workplace discrimination charges. Within that same year, the commission received 88,531 new charges of discrimination—a 9% increase from the previous year.
If you run a small business, the last thing you want is to have your brand among these numbers. Not only can it lead to significant financial losses, but there’s also the potential damage to your reputation.
You can avoid these possibilities by staying compliant with employment regulations. In this blog post, we provide five employment law mistakes that small businesses make in the US and how you can avoid them:
1. Ignoring the Employee Handbook
As a small business still finding its feet, it’s easy to think some things aren’t essential. For instance, since the brand is barely a couple of years old and has one or two workers, what’s the point of an employee handbook? Your staff should be able to remember the few policies that guide the business.
But without proper documentation, you’re leaving too much room for guesswork. Plus, when disputes happen with employees over office practices, you have no tangible evidence to support your side of the argument.
Let’s not forget that employment laws change regularly, and your company policies should follow as they do. However, when there’s no handbook, tracking what needs to be reviewed is hard.
How to avoid it:
- Create a detailed company handbook explaining company policy, employee roles, compensation, etc.
- Review your handbook periodically and make changes based on new state and federal regulations.
- Ensure employees know the new changes and receive an updated handbook version.
2. Refusing to Adhere to Overtime Laws
Overtime pay is essential to the Fair Labor Standards Act (FLSA). Based on the regulations, non-exempt staff are entitled to overtime wages if they work beyond the standard 40 hours in a week.
However, some businesses fail to comply with these regulations, denying staff their due compensation and putting themselves at risk of lawsuits, fines, and reputational damage.
How to avoid it:
- Consult an expert attorney regarding federal and state wage laws, especially overtime.
- Classify exempt and non-exempt employees correctly.
- Invest in reliable time-tracking systems to monitor employee hours and ensure you pay overtime when due.
3. Failing to Stay Informed About Regulatory Changes
As a business owner, there’s so much to keep track of—industry trends, customer purchasing behavior, competitors, etc. Amid these factors, you must also pay attention to federal and state employment laws.
However, some business owners can focus on everything else and ignore regulatory changes. But, while skipping industry trends might not have you tangled in a legal battle, failing to monitor local and federal employment laws will.
How to avoid it:
- Stay informed on labor laws across all states where your company operates and at the federal level.
- Partner with an expert legal team for legal advice and to regularly review company policies to ensure they adhere to current regulations.
4. Handling Discrimination Cases and Other Disputes Poorly
Statistics show that more than 52% of US employees have experienced inappropriate behaviors in the workplace. At a global level, the number of workers who have experienced harassment is 23%, almost 750 million individuals.
Most companies often fail to handle these cases properly, dismissing them and forcing victims to seek justice through long-drawn lawsuits.
How to avoid it:
- Develop detailed anti-discrimination and harassment policies for your business.
- Educate all employees, including senior staff members, on these policies and the behaviors that foster a respectful workplace environment.
- Handle claims promptly and adequately per company policies, beginning with extensive investigations.
5. Neglecting Employee Contracts
It’s often the case that small businesses hire workers without employment contracts or offer letters. In such scenarios, word of mouth doesn’t carry as much evidential weight as proper documentation when disputes happen.
Without written documents, you cannot support specific actions, like terminating an individual’s employment over disciplinary issues.
How to avoid it:
- Draft detailed employee contracts, with clear information on roles, wages, work hours, overtime pay, and possible termination.
- Ensure contract records are adequately preserved, primarily through secure digital means.
- Train staff members on accurate record keeping for contracts and company documents.
Final Thoughts
One misstep regarding US employment laws can lead to a lengthy lawsuit, financial penalties, and reputational harm. That’s why your business should take steps to comply with labor regulations and avoid costly mistakes.
Partnering with an expert law firm for legal counsel is the safest bet to keep your company within the boundaries of state and federal laws. At the Law Office of Sheri Oluyemi, we possess an extensive understanding of US employment regulations.
As your legal partner, we’ll review your company’s policies and practices to ensure they adhere to the existing laws and offer expert advice to protect you from any missteps with your employees. Reach out to us today for a free consultation.
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