November 2013


Small Business Owners: Overlooking These Five Things Could Cost You Millions!

At a small company, people often perform roles and fulfill responsibilities they may or may not have expertise in. Just as often, everybody may be so busy with urgent matters, they are simply too bogged down to stay on top of non-urgent issues, and some things “fall off the edge of the desk.”  However, as a small business owner, there are five important matters you should NEVER overlook, no matter the size of your business.

1.     Have an Employee Handbook.

If you do not have an Employee Handbook that explains your company’s policies and is a resource for benefits, PTO, and other commonly asked questions, you may have no defense when dealing with unemployment claims, lawsuits, and Department of Labor audits. Make sure your handbook includes attendance expectations, outside employment, conflicts of interest, and compliance statements for important federal laws and regulations. 


2.     Classify Exempt and Non-Exempt Employees Appropriately.

Make sure your “exempt” employees really are exempt, and that overtime provisions do not apply. Many employers make the mistake of paying non-hourly employees (such as those paid a piece rate) without tracking hours and calculating overtime wages. Fines vary from thousands to millions of dollars per violation - average settlements increased from $4.6 million in 2011 to $4.8 million in 2012.   If you are unsure whether your employee classifications are correct or not, please contact us.


3.     Create Job Descriptions.

Job descriptions that outline essential job functions and physical requirements of each position not only help identify areas that may need a reasonable accommodation in the event an employee has a disability, they also may help you avoid a discrimination claim. Keep in mind that the average disability discrimination suit settlement in 2012 was $125,000. 


4.     Stay on Top of Employment Law.

Don’t let your knowledge of the latest employment law developments slip…fines vary from hundreds to thousands per violation! From internships to I-9 forms, from appropriate interview questions to the latest priorities of the EEOC, there’s a lot to keep track of.   Be sure you either have knowledgeable staff on hand that can ensure you are compliant with the latest in employment law, or consider outsourcing your human resources needs to a Professional Employer Organization. 


5.     Pay Workers Accurately as Employees versus “Independent Contractors.”

Many companies pay workers without assessing their degree of control over their work, misclassifying them as independent contractors when, in many cases, there is an employment relationship. Fines, penalties, and back-taxes owed vary from thousands to millions in each misclassification settlement. The federal government is cracking down because of pressure to reduce the federal deficit – so be sure to get a workers’ comp certificate and business credentials from the worker to demonstrate coverage in the event of an accident - or you will be held liable.  If you currently pay workers as independent contractors and question the legality, please double check whether they are classified correctly.


ESG specializes in keeping small businesses compliant, providing payroll administration, workers’ comp and risk management services, human resources consulting, and benefit plans and administration. For more information, please visit


Employment Pay Practices: Test Your Knowledge

Ever wondered about your employment practices, if perhaps maybe following the “industry standard” might not be legal?  In working with a number of employers that span across a variety of industries, our ESG Human Resources Consultants have heard a few basic questions repeated by multiple clients.  Test your knowledge and/or your employment practices and see if you’re in line with where the law stands.

Q: Employees who receive tips don’t have to be paid the federal $7.25/hr minimum wage, right?

A: Yes and No.  First of all, to be considered a “tipped employee” in Utah, employees must make at least $30/month in tips.  If that criterion is met, then the base minimum wage for a tipped employee is actually $2.13.  However, Utah tipped employees must make a combined amount (tips and base $2.13 wage) of at least the federal minimum wage of $7.25/hour.  If they don’t make that minimum $7.25/hour with the combined tips and base wage within a given pay period, then the employer must make up the difference. 


Q: I heard we can pay teenagers less than the federal $7.25/hr minimum wage.  Is that true?

A: Yes.  This is called the training wage.  In Utah, minors (employees under 20 years old) may be paid $4.25/hour as a training wage for the first 90 consecutive calendar days of employment.  If your community is saturated with teenagers wanting seasonal employment, you may likely find some employees willing to work for this rate.  Obviously, this won’t make you a very competitive employer and perhaps may deter the more capable workers from applying for the job, but there may be a chance of finding a star employee that just needed to get her foot in the door.


Q: I have a business license but don’t have any employees.  I have a few jobs that I’d like to pay my nephew to help me with, but do I have to pay him as an employee if he makes less than $600?

A: Yes and No.  The “$600” rule that you’re likely referring to pertains to independent contractors.  That particular rule says that if you pay a contractor less than $600, you do not need to file a 1099.  Anything more than $600 paid to a contractor, however, requires a 1099 to be filed.  Paying your nephew to do some side jobs for you would mean he’d need to become a true independent contractor, i.e. have his own FEIN, obtain his own workers’ compensation coverage (or exemption certificate), be able to take on the risk of profit/loss for his efforts, provide his own tools, market his skills to obtain additional jobs, and, of course, be responsible to pay his own tax withholdings, including Social Security and Medicare taxes.  Unless your nephew is in the process of doing all of this already to become a business owner, he should be paid as an employee with you as his employer.


Q: I pay all of my employees a salary, so I don’t need to worry about paying overtime, right?

A: No.  Being paid on a salary basis doesn’t automatically qualify you for an overtime exemption under the Federal Labor Standards Act (FLSA), regardless of your fancy job title.  To be exempt, you must a) be paid at least $23,600/year (or $455/week), b) be paid on a salary basis, and c) perform exempt job duties, as outlined under the FLSA.


Q: Do I have to pay my employees while they eat lunch?

A: No.  However, to qualify for a true non-paid lunch break, the company should have a meal-break provision that specifies that employees will have a non-paid meal break of 30 minutes or more where they’ll be completely relieved of their job duties.  Completely relieved of job duties means they CANNOT do any form of work for the company while on their lunch break, including answering phones, responding to employee requests, replying to work-related emails, etc.  An employee who eats her sandwich while checking email will not qualify for a non-paid lunch. 

Q: Can we pay our outside door-to-door salesmen as 100% commissions? 

A: Yes, but with some stipulations.  First of all, according to the Department of Labor, “the employee’s primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer.”    In addition, commission-only employees who are exempt from overtime are not office employees – i.e. they must be regularly away from the employer’s office or place of business.  You can pay office employees on a commission-only basis, but they will not receive the FLSA outside sales exemption from overtime. 


Q: Can’t we just pay our outside door-to-door salesmen as independent contractors?

A: No, not unless they are truly independent contractors.  Again, independent contractors have their own FEIN, their own workers’ compensation coverage (or exemption certificate), risk profit/loss for their efforts, provide their own tools, market their skills to obtain additional jobs (i.e. they don’t just work for your company), don’t require training specific to your job, and are typically paid when the job is completed rather than on a set pay schedule.  If you “hired” a worker to do outside sales for your company, you likely hired an employee.