7 Employment Law Mistakes High-Growth Companies Make

While growth is a great sign business owners and investors are eager to see, it can bring about its own set of challenges. These are the growing pains businesses can experience. Things move quickly when a company is growing. That expansion often requires quick decision-making and implementation of processes aimed at keeping the business functioning at its best. However, when business owners are occupied managing the day-to-day responsibilities, other important aspects sometimes slip through the cracks.

Indeed, as things change quickly at high-growth companies, compliance with legal requirements becomes that much more important, particularly when it comes to complying with employment laws. This can also be especially challenging because employment law is made up of a patchwork of federal, state, and even local regulations. For this reason, high-growth companies should be wary of common employment law mistakes that can happen in high-growth companies. An experienced Naperville, IL business law attorney can advise high-growth companies on the employment law issues that should remain on a business owner’s radar as his or her company expands. 

What Are the Consequences of Failing to Comply with Employment Law?

A company can be vulnerable to legal exposure if it fails to comply with employment law. This can include lawsuits brought by employees. Companies that do not comply with employment laws also put themselves at risk of incurring fines from government agencies. No less important is the reputational impact of noncompliance with employment laws. A company known for disregarding employment law could quickly get a bad reputation with prospective employees, which can negatively affect the company’s ability to retain key talent. Little can be more harmful to a high-growth company than being unable to hire and retain quality personnel.

What Are the 7 Most Common Employment Law Mistakes High-Growth Companies Make?

Mistake #1: Misclassifying Employees and Independent Workers

State and federal laws separate employees from independent workers, with employees entitled to vastly different benefits. This important classification also affects employer obligations related to taxes, minimum wage pay, and overtime pay. Whether a worker should be classified as an employee or independent contractor can be a complicated question best addressed by your attorney, but the key issue is one of control. The more control you have over the work, the more likely the worker should be classified as an employee. 

High-growth companies should be wary of attempting to classify employees as independent contractors to save on immediate costs. The fines and lawsuits employers can incur for misclassifying employees can end up costing them millions of dollars. 

Mistake #2: Not Having a Good Employee Handbook 

Aside from strengthening a company’s culture, employee handbooks lay out a company’s policies and help instill corporate values of legal compliance in all of its employees. First of all, companies should spend time thinking about, formulating, and putting in writing their policies, and then communicating them in writing to employees via the employee handbook. Companies should also ensure that their employee handbooks address applicable federal and state laws. A good employee handbook should also contain an acknowledgment page for the employee to sign. Most importantly, company management should prioritize reviewing and amending employee handbooks periodically to ensure that the company’s policies (and the way these are communicated to employees) adapt and develop as the company grows. 

Mistake #3: Not Compensating Employees Properly

Wage and hour laws are a key area of employment law, and wage and hour lawsuits keep employment lawyers busy. Illinois and federal law require employers to pay a certain minimum wage. There are also overtime pay requirements, with employees entitled to time and a half pay for any work performed over forty hours, although there are exemptions. Illinois law also requires employers to provide one day of rest in every seven workdays in most cases.  Given the many laws and multiple exemptions regarding wage and hour obligations, it can be easy for high-growth companies to accidentally violate these requirements. A knowledgeable lawyer can protect companies and ensure they are in compliance.