Laws Startup Employers Should Know Before Hiring Employees
Starting a new company is a very exciting time in an individual’s life. It is often filled with thousands of details and decisions that can impact future success. For those that find a niche market that demands immediate expansion, it’s important to know key laws regarding the employment of additional staff that could ultimately affect the bottom line. Here are five key areas to consider.
1. Employees versus Independent Contractors
The most expensive components of adding staff to a new or existing business are the benefits package and legally mandated wage requirements. The difference between adding independent contractors rather than employees may benefit a startup company initially but, may not be the best decision long-term. It is important, therefore to understand the difference between the classifications.
* There must be a clear distinction between the owner’s business and that of the independent contractor. For example, a company that specializes in arranging transportation of goods is in a different business than a truck driver delivering said goods.
* The individual will use their own tools and supplies to see that the work is completed as requested.
* The individual is solely responsible for their own schedule deciding if, when, where, and how they want to complete the assigned task.
* Specific skills in the individual’s area of expertise is required.
* The company has the right to tell the employee if, when, where, and how the work is to be completed.
* The employer provides all tools and supplies required to complete the task.
* The employee is paid according to a preexisting pay scale whether it be by the hour, day, month, etc.
* The employer determines when the employee no longer meets the needs of the company and can terminate the employee when it is deemed appropriate.
2. Protect Trade Secrets
Startup companies often develop programs, devices, techniques, methods, processes, formulas, and patterns that are unique to the business started. These factors alone have economic value because they are not things that are generally known by the public. They are called trade secrets and must be protected.
Customer lists, business plans, ways of doing business, and techniques and methods used in the running of a business can be protected as trade secrets as long as a reasonable effort is made to maintain secrecy. Password protecting files, preventing public access to sensitive information, and disclosing details only when absolutely necessary are examples of reasonable efforts. Legally these are all easily proved should litigation arise that demands such evidence.
One way to legally ensure protection is to have employees sign a confidentiality agreement. The document should outline exactly what trade secrets are being protected. It also mandates that employees not disclose such information to anyone whether family, friends, and/or other persons they may come into contact with.
3. Exempt Employees
Exempt employees are those that are not bound by laws that usually apply to hourly employees. Qualifying employees would include those classified as full-time, but who make a minimum monthly salary that equates to no less than two times the minimum wage paid to hourly employees. As a startup company begins to grow, those that qualify would include executives, other professionals, and those working in specific fields. The latter group would include individuals specializing in fields such as software development, graphic art, and outside sales. One way to determine whether an employee may be exempt is to outline job descriptions where classifications are clearly discernible.
As a side-note, this employment law piece was written to educate and protect small to mid-sized businesses from labor violations. Having employees requires quality labor law protection. If you’re based in Alachua County, consider one of these labor law posters for total employer compliance. Their compliance posters are always up to date.
4. Policies and Procedures
Although it will take time away from doing things that seem more important, establishing policies and procedures that provide direction to new employees could save time and problems later on. Access, use, and content appropriate when using computers, the internet, and emails are pitfalls that can result in litigation. Outlining what constitutes employee abuse (such as limitations related to internet use and violating confidentiality) let employees know that computer use is for work-related purposes only and that use will be monitored regularly.
5. Employment Practices Liability (EPL) Insurance
United States laws that deal with sexual harassment, wrongful termination, discrimination (whether based on age, gender, national origin, etc.), false imprisonment, emotional distress, invasion of privacy, breach of contract, and wage and hour law violations fall under the purview of Employment Practices Liability (AKA professional liability). Evaluating the need for and type of coverage required to prevent litigation is key to protecting a company’s profitability. As a company grows the type of coverage needed may also change.
Starting a new company involves more than coming up with a great idea. Preventing litigation should be a key consideration during the initial planning stages. The aforementioned legal considerations are examples of pitfalls that can be avoided with a solid business plan.