5 Employment Law Mistakes That Can Destroy Your Small Business

Every business owner makes mistakes, sometimes costly ones. Legal mistakes are usually always costly to fix. Employment law mistakes can uniquely destroy your business. This is true for small businesses in Oakland and the East Bay Area, California, as it is throughout the state and around the country.

In this article, I outline the top 5 employment law mistakes that all small business owners need to avoid:

One of the worst employment law mistakes to make in any business is failing to budget for and pay payroll taxes. Every employer is required to pay its share of taxes on wages and deposit taxes withheld from each employee's wages on a strict time schedule. The due dates for these payments depend both on the number of employees and the amount of payroll taxes paid in previous payroll periods. Failing to meet the deadline for payment of payroll taxes results in hefty penalties that quickly add up and can easily destroy your business.

The solution: Do your homework and learn the amount of your payroll taxes and the due dates. When making payroll, be sure to include the amount of your taxes and the amount of wages withheld from the employees in the budget and promptly deposit these amounts with the appropriate federal and state agencies. If you do fall behind, catch up ASAP. It only gets worse with time.

Another common legal trap for business owners is wage and hour violations. If an employee is an hourly, non-exempt or non-salaried employee, the employee is entitled to meal and rest breaks. The law defines what those meal and rest breaks must look like - a set time and no work during that time. Neither the employer nor the employee can change what is legally required. Sometimes employees choose to work during their lunch break or forego the rest break. That works for you until it doesn't. There is nothing that protects the business when the employee decides that he or she wants to make a claim for missed meal and rest breaks.

The solution: Establish clear written guidelines for the entire workforce as to who is exempt or salaried and who is not exempt and hourly. Upon hire, have each employee acknowledge in writing his or her employment classification, and if they are entitled to breaks, agree to take the breaks as required. If you become aware that an employee is not following the policy, intervene as soon as possible to limit your liability. Document your efforts to ensure that the wage and hour policies are being followed.

Under California law, the ability to hire and pay someone as an independent contractor is limited by specific requirements. Many businesses are still unaware of these requirements and inadvertently pay their vendors as independent contractors when the person is actually working as an employee. Failure to comply with the law in this area can create huge liabilities and penalties for wages and payroll taxes that can destroy your business.

The solution: Familiarize yourself with the requirements for independent contractors and follow the guidelines. Create a record that supports your decision to pay the vendor as an independent contractor. Ask them for a copy of their business license, document their business profile (i.e., a website or an Employer Identification Number (EIN)) and maintain a record of payments made to them and the purpose of the payments.

Workers' compensation is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment. California is one of the few states that requires all employers to provide workers' compensation insurance, even if they only have one employee. Without workers compensation insurance, an employee can sue the business, and in some circumstances, the owner individually, for lost wages, medical bills and pain and suffering.

Once a business owner is notified of a potentially work-related injury or illness, they must provide the employee with a state-issued claim form within 24 hours. Failure to post a "notice to employees" poster in a conspicuous place at the work site that provides employees with information on your workers' compensation coverage and where to get medical care for work injuries is a misdemeanor that can result in a civil penalty of up to $7,000 per violation.

Failing to have workers' compensation coverage is a criminal offense. Section 3700.5 of the California Labor Code makes it a misdemeanor punishable by either a fine of not less than $10,000 or imprisonment in the county jail for up to one year, or both. Additionally, the state issues penalties of up to $100,000 against illegally uninsured employers. If the Division of Labor Standards Enforcement (State Labor Commissioner) determines an employer is operating without workers' compensation coverage, a stop order will be issued. This order prohibits the use of employee labor until coverage is obtained, and failure to comply is a misdemeanor punishable by imprisonment in the county jail for up to 60 days, or by a fine of up to $10,000, or both.

The Commissioner will also assess a penalty the greater of (1) twice the amount the employer would have paid in workers' compensation premiums during the period the employer was uninsured, or (2) $1,500 per employee employed during the period the employer was uninsured.

Additionally, if an injured worker files a workers' compensation claim that goes before the Workers' Compensation Appeals Board and a judge finds the employer did not have insurance, when the dispute is resolved, the uninsured employer may be assessed a penalty of $10,000 per employee on the payroll at the time of injury if the worker's case was found to be compensable, or $2,000 per employee on the payroll at the time of injury if the worker's case was non-compensable, up to a maximum of $100,000.

The solution: Employers must purchase workers' compensation insurance from either a licensed insurance company or through the State Compensation Insurance Fund (State Fund). Employers may also have the option to self-insure for workers' compensation.

A commercial broker-agent can assist a business with purchasing workers' compensation insurance from a licensed insurance company and can assist with information on State Fund and self-insurance. Also, information on insurance companies licensed to sell workers' compensation insurance and an online rate comparison of the top 50 workers' compensation insurers can be accessed on the California Department of Insurance (CDI) Web site at www.insurance.ca.gov.

The posting notice is available online and must be prominently displayed at each worksite. Make sure to get and keep a current certificate of insurance.

Many employers do not understand the legal complexities of a hostile work environment claim. These types of claims arise based on behavior of both supervisors, co-workers and clients or patrons of a business. Hostile work environments are also cumulative, based on a pattern of behavior that may take place over a long period of time. Failure to recognize your exposure to this type of claim can lead to a costly lawsuit and settlement or judgment against your business.

Employers are required to both prevent and address a hostile work environment. Under federal and California law, harassment in the workplace creates a hostile work environment when it is so severe or pervasive that it alters the conditions of employment and creates an abusive work environment. The harassment must be because of the employee's protected characteristics, like age, race, sex, sexual orientation, religion, disability, national origin and a host of other characteristics protected by law. It can also arise out of retaliation for a complaint about offensive or illegal behavior.

A hostile work environment can be created by:

• A supervisor who makes repeated sexual comments or advances
• Coworkers who use racial slurs or tell offensive jokes based on national origin
• Managers who mock an employee's disability or refuse to accommodate it
• Employees who regularly bully or demean another employee for being LGBTQ+
• Customers who routinely demean or make derogatory comments about an employee because of their race, gender, disability, sexual orientation, etc.

Employers that overlook illegal behavior that creates a hostile work environment are vulnerable to both workers compensation claims and civil lawsuits. Employers are strictly liable for harassment by supervisors. They will also be held liable for harassment by co-workers or third parties (like clients, patrons or vendors) if they knew or should have known about the harassment and failed to take prompt, effective remedial action.

The solution: Pay attention to what people are doing and saying in your business. If an employee complains about harassment, take it seriously. Investigate promptly and make everyone aware of your written anti-harassment policy. If you don't have one, get one fast. If it turns out that illegal harassment is occurring or has occurred, take prompt, effective corrective action and don't hide it. Make sure the complainant knows that you took action, even if you can't disclose exactly what happened. Be accountable for creating a safe work environment for everyone who works for you.

Need help with employment law compliance? Contact Pamela Y. Price, Attorney at Law, for expert legal guidance tailored to your small business needs in Oakland and the East Bay Area.