Nonprofit and for-profit employers alike often find themselves on the slippery slope of trying to foster an employee-friendly workplace while striving to follow the law and run a tight ship. Most of the mistakes we see our nonprofit clients make stem from a well intentioned desire to be flexible and accommodate their employees. What follows is a list of the top 10 most common employer mistakes:
- Classifying All Employees As Exempt, Regardless Of Their Actual Status. This may seem attractive, as it requires less paperwork (keeping track of break/meal times, overtime, timekeeping, etc.) and less oversight, and fewer costs per employee. Don’t be fooled. The rules on designating an employee as an exempt, salaried employee instead of a nonexempt, hourly wage employee are crystal clear. Misclassification can cause serious liability. If their job description is not that of an executive level employee, or if their job involves activities done in the ordinary course of your business, be careful. Do not make the mistake of classifying an employee as “non-exempt salaried” – such a status does not exist. Back wages and penalties accrue quickly. Also, if the employee fails to pay taxes, the IRS can recover from your organization.
- “Let Them Eat…Cake!” No, No, No, Let Them Eat Lunch. Employees must be provided a 30-minute break for meals no more than five hours into their shift. Early lunches are okay, but late lunches are not, if they occur more than five hours into an employee’s shift. Failure to observe this can be costly. Your record keeping practices should include documentation of employee meal breaks before the fifth hour of work. Also take a careful look at ensuring that documentation of employee breaks is in proper order.
- Practice Makes Perfect. Train, train, and train some more. Sexual harassment, discrimination, and policies and procedures, along with other employee training, should be conducted on at least an annual basis. Such training is crucial to keeping your organization running smoothly, and is a win-win; your employee remains well informed about important policies, and your organization reaps the benefits of a well-trained workforce. Should your organization be sued over one of these issues, evidence of a strong training program will be helpful if it becomes necessary to defend the organization.
- Eeny, Meeny,….Independent Contractor or Employee – Danger Areas. Sure, it takes a good deal more paperwork and money to maintain an employee versus using an independent contractor. But it’s more than worth it to make sure you are properly categorizing an employee. “Independent Contractor” does not have a finite definition under the law. Certain liabilities also don’t apply to independent contractors, such as worker’s compensation, FMLA, paid family leave benefits, unemployment insurance, and other various potential benefits. So, it can be tempting to try to wedge a person into an independent contractor position when they actually should be classified as an employee. This temptation should be resisted. In order to determine whether someone should be classified as an employee or as an independent contractor, regulators looks at who is in control. In other words, who determines when or where a person works, who supplies the “tools” used, who determines how the work is performed, whether the work is a regular part of an employer’s business, etc. The problem arises when a complaint is filed by someone who thinks they should’ve been classified as an employee and are due back wages, or when someone hired as an independent contractor fails to pay their taxes and the tax-collecting entity comes knocking at the organization’s door. If you are unsure whether someone should be classified as an employee or an independent contractor, consult the laws of your state.
- “Workin’ For A Living”. Most employees are restricted as to how many hours they may work in a day or in a workweek. While it may seem accommodating or even harmless to allow employees to create their own schedule, this is not a good idea. If you are interested in allowing alternative work weeks, you should have specific perimeters in place as to when the employee will work. Doing so will avoid exposure to claims of overtime. Employees can request to make up time or work under certain special conditions. You will need to consult the laws of your state to determine how to accommodate the employee in the legally appropriate manner.
- Employees Have Rights Regarding Leaves Of Absence. Employees have certain rights as to protected leaves of absence, such as workers’ compensation, Family Medical Leave Act, pregnancy or military leave, disability, jury duty, and many more. Laws prevent retaliation against an employee for taking protected leave, so the employer cannot wait and fire an employee after that person returns to work. If an organization terminates an employee while that employee is on protected leave, or soon after they return, the onus will be on the organization to prove that the termination was for a legal, legitimate reason other than a reason related to the protected leave.
- “Deferring Salary”. Do not permit an executive director or other employee to defer salary until the organization can afford to pay it. Its illegal not to pay salary when due. A better solution is for the individual to volunteer to work for free until sufficient funds are available or to strike a deal to be paid only if sufficient funds are raised. Promising a full-time salary and then failing to pay it will hurt the organization in the long run. Also, do not hinge issuing a final paycheck on the return of company property. Failure to issue a final paycheck within certain time limits carries a stiff penalty. 72 hours is a common length of time given to the employer to issue the final paycheck if an employee quits without notice, but check your local laws for time limits in your state. If the employee gives notice of resignation, issue their final paycheck on their last day of work. The penalties for failure to timely issue this check will more than likely far exceed the value of any property held by an employee. An employer certainly has the right to have their property returned, but using a final paycheck as a bargaining chip is a big mistake.
- Funds Cannot Be Withheld From Paychecks To Repay Employee Loans. An employer cannot legally make a loan to an employee and repay itself via paycheck deduction. Such a deduction is illegal. If you decide to loan funds to an employee, the employee should sign a promissory note that has been reviewed by your attorney. The employee should then repay you directly pursuant to the repayment schedule set forth in the promissory note.
- Many Non-Compete Agreements Are Usually Not Enforceable As Written. Some states prohibit or strictly limit such agreements because they infringe on an employee’s ability to find other work. There are other ways to protect trade secrets or customer information. Consult the laws in your state to determine if you may use a non-compete clause or if other agreements such as confidentiality agreements may better protect your organization.
- “Use It Or Lose It” Leave Time Policies. Consult your state’s law on this issue. While it may seem unfair to cap vacation time, failure to do so can be expensive. Most states allow a reasonable cap on the amount of vacation time an employee can accrue, but once vacation leave is accrued, it cannot be taken away. Since there is usually no time limit on how far back vacation leave can be accrued and since all terminated or resigning employees are entitled to be paid for accrued leave, a reasonable cap policy is the best defense to getting caught unawares. A “reasonable” cap is usually 1 ½ to 2 times the employee’s annual accrual of vacation leave.
In short, the urge to make exceptions for employees without having a policy in place is a bad idea. It may seem to be the kind thing to do, but you must consider whether you want to create an entire new rule or policy in some cases. It is often most wise to stick