Hiring, paying, managing, and terminating employees isn't easy, and while there may be a lot of advice out there, chances are some of it isn't good. Below we identify nine pieces of advice you should ignore.
Bad advice #1: Save money and reclassify employees as independent contractors.
Fact: This may seem attractive because when a worker qualifies as an independent contractor, the employer is generally relieved of certain payroll taxes, minimum wage and overtime requirements, and benefit obligations for that individual. However, only a small fraction of workers qualify for independent contractor status and the penalties for misclassification can be significant. The presumption is that a worker is an employee, unless he or she meets certain criteria established by federal and state tests. The most commonly used test is the Internal Revenue Service (IRS) Common Law Test, which is used for federal tax purposes. This test looks at three categories:
- "Behavioral control": whether the company has the authority to direct and control the work of the service provider and whether the worker receives training and instruction from the company.
- "Financial control": whether the worker realizes a profit or loss, makes investments in tools and facilities, and has unreimbursed expenses.
- "Type of relationship": whether there is a written contract between the parties, the permanency of the relationship, and whether the worker is entitled to employee-type benefits.
Some states have adopted tests that are even more difficult to satisfy. Before you classify any worker as an independent contractor, make sure you have met all applicable tests. If you are unsure, err on the side of caution and classify your worker as an employee.
Bad advice #2: When new hires complete the I-9 Form, you should require a U.S. Passport, since it proves both identity and work authorization and is usually harder to forge than other documents.
Fact: All employers must complete and retain a Form I-9 for each employee at the time of hire to verify their identity and work authorization. The employee has the right to choose which document(s) to present, provided they are on the I-9's List of Acceptable Documents (see the last page of the form), and the employer can't dictate which specific documents the employee needs to show to verify employment eligibility.
Bad advice #3: Your employee worked unauthorized overtime? Don't pay them for it!
Fact: Under the federal Fair Labor Standards Act (FLSA), non-exempt employees must receive 1.5 times their regular rate of pay for all hours worked over 40 in a workweek (some states require overtime in additional circumstances and at a different rate). If a non-exempt employee has worked overtime, they must be paid an overtime premium, regardless of whether the overtime was pre-authorized. A policy that no overtime work is permitted unless authorized in advance doesn't relieve the employer of this requirement. Employers may subject the employee to disciplinary measures for working unauthorized overtime, but in no case may the employer withhold overtime pay.
Bad advice #4: To reduce abuse of sick leave, require a doctor's note for every sick day used.
Fact: Most leave laws allow employers to ask employees for reasonable documentation of the need for leave. However, certain laws do have restrictions. For example, some paid sick leave laws prohibit employers from requesting documentation unless the employee has taken sick leave for more than three consecutive days. Even in the absence of a restriction, consider what, if any, documentation would be reasonable to require from employees, and apply your policy consistently. Requiring employees to produce a doctor's note for every sick day may result in more employees coming to work sick because they don't want to incur the costs of a doctor's visit.
Bad advice #5: It's fair game to ask applicants whether they are pregnant or intend to get pregnant.
Fact: Federal law and many state laws prohibit employers from discriminating against individuals because of pregnancy. Some states also expressly prohibit employers from discriminating against applicants because of their marital and/or family status. Accordingly, avoid interview questions about an applicant's pregnancy, intentions regarding pregnancy, or family and marital status. During the interview, you may explain expectations related to work hours, overtime, and travel and ask the applicant whether they can meet those requirements. However, be consistent and ask these questions of all applicants, not just female applicants.
Bad advice #6: Make all new hires go through a probationary period.
Fact: Some employers use probationary or introductory periods to assess a new hire's performance, but this can lead to confusion regarding "at-will" status. At-will generally means you or the employee may end the employment relationship at any time for any reason, as long as it is a lawful one. At-will employment is recognized in all states but Montana.
When employers use probationary periods, employees sometimes think that once they successfully complete them, they are no longer at risk for termination due to performance. Or, that they can only be let go for 'good cause.' This misunderstanding can lead to an increased risk of wrongful termination complaints. They may also create a negative connotation for some new hires who mistakenly believe they are immediately placed on a disciplinary action plan or subject to more harsh scrutiny at the start of their employment. As a best practice, avoid using "probationary" or "introductory periods." Work with all new hires to set clear performance goals and make sure they have the tools they need to meet performance expectations.
Bad advice #7: To ensure departing employees return company equipment, hold their final paycheck until they do so.
Fact: Regardless of whether the employee has failed to return company property, you must meet federal and state final pay deadlines. Federal law requires final pay at the next regularly scheduled payday, but some states require final pay sooner, such as at the time of termination.
While withholding an employee's final paycheck is not allowed, there are some cases in which deductions may be permitted under federal law. For non-exempt employees (employees who are entitled to minimum wage and overtime), the FLSA permits deductions for unreturned equipment as long as it does not reduce the employee's pay below the minimum wage or cut into any overtime pay. Some states prohibit this practice or have additional requirements, so check your state law before making a deduction. Deductions for unreturned equipment are never permitted for employees classified as exempt from overtime.
Note: Under the FLSA, employers are generally required to obtain an employee's consent before making a permissible deduction. The agreement must specify the particular items for which deductions will be made (such as company uniforms, equipment, or employee theft) and how the amount of the deduction will be determined. It's a best practice to obtain the employee's authorization in writing and consult legal counsel before making this type of a deduction.
Bad advice #8: You're a small employer, so you don't need an employee handbook.
Fact: Generally, employers are not required to have an employee handbook, but some laws do require employers to communicate certain information to employees in writing. In addition, employee handbooks can help employers communicate rules, benefits, and other important information to employees. For these and other reasons, an employee handbook is considered a best practice for all employers.
Bad advice #9: When you hire a new employee, base their pay on what they earned in their previous job, even if it's significantly lower than what you are paying similar employees.
Fact: Several states and local jurisdictions have enacted laws that generally prohibit employers from asking about an applicant's salary history and/or basing pay decisions on pay history. This is because pay history may reflect discriminatory pay practices of a previous employer and then result in lower wages in the new job. Even in the absence of such a law, you need to ensure that you comply with all applicable pay equity laws. For example, some federal courts have ruled that prior pay cannot be used to justify pay differentials between men and women. Consider working with legal counsel to conduct an internal audit of pay practices to confirm that employees working in similar positions are paid equitably.
Obtain information from trusted resources and confirm your policies and practices are consistent with the law.