The Complete Guide to Employment Law
Finding your way through the hardest and most crucial part of any business begins with the messy middle --- the hiring, recruiting, and managing employees. As Houston Business Attorneys, we realize the messy middle is exhausting work for many, if not most business owners.
The middle is extraordinarily volatile --- a continual sequence of ups and downs, expansions and contractions, you make progress then you stumble. It appears that every advance you make in the middle part of your business reveals a new shortcoming. Major upsets give rise to new realizations that lead to progress or defeat. At best, you move two steps forward, one step back --- at worst, you realize you've been going the wrong direction for months if not years.
As Houston Business Attorneys, we realize it's how you navigate the messy middle. Every business is obsessed with starts and finishes. But what's in the middle? Nothing headline-worthy yet everything necessary.
Every business is going great until it isn't. The middle isn't pretty, but it is illuminating and full of essential realizations that will protect and serve your business.
We are going to show you what every business owner should know about "the messy middle" or if you would, Employment Law --- by top Houston Business Attorneys, Gregory L. Phillips and Craig M. Kaiser, both Founding Partners of Phillips | Kaiser.
Let's get started.
The Importance of Employment Law
Employment law is often viewed in the business community as another set of regulatory hurdles that must be overcome. Fines and legal actions resulting from noncompliance can sink a business that gets caught intentionally or unintentionally skirting labor laws. The expense for managing compliance is one that should be factored into a business’s budget since it impacts a company’s bottom line.
Nonetheless, employment law is still relevant and designed to protect not only the employees but the business as well.
What is Employment Law?
Employment laws are comprised of federal, state, and local laws that govern employment in the United States. More specifically, employment laws are designed to protect the rights of workers and laborers as well as certain rights of employers.
Employers hold much of the power over their workers who are expected to work to benefit their employer. In return for their labor, workers are paid, usually with money, by their employers. Employers also bear liability for the actions of their employees.
However, because of the imbalance of power in an employer-employee relationship, there is the potential for some employers to abuse their workers to increase profits. Common abuses include paying unfair wages, withholding wages that are due, forcing workers to work in dangerous conditions or extra-hours with no pay, and so on.
Employment law is intended to protect worker’s rights, and also set forth an employer’s responsibilities and obligations. In doing so, labor laws also protect the employer’s rights, provided they comply with the laws and meet their responsibilities and expectations.
Some make the mistake of looking at labor law as anti-business. This is far from the truth. The goal of employment law is to balance the employer-employee relationship upon which the market system rests.
Employment laws seek to protect employees where they are vulnerable to exploitation, as well as protect legitimate business interests such as the right to hire qualified employees and not be obligated to hire just anyone.
Labor laws provide stability and predictability, protect the rights of both employers and laborers, and allow both parties to thrive and flourish together. Employment law is a crucial component of a modern economy and society.
Why is Employment Law Important?
Employment laws protect employees as well as employers. This might come as a surprise to some. Indeed, many employment laws are designed to protect workers and employees from abuse at the hands of employers. This is only natural since, in an employer-employee relationship, the employer in the relationship holds most of the power.
However, there are plenty of employment laws explicitly designed to protect employers themselves. Some labor laws are designed to protect the rights of companies and businesses. For example, businesses have the right to hire qualified individuals as they see fit. However, they are not allowed to hire or fire based on sex, gender, nationality, race, or sexual orientation - only merit.
This is an excellent example of how employment and labor law helps to give balance to, and preserve, the employer-employee relationship between an employer and their workers wherein the two parties work harmoniously. Employers maximize productivity while workers can enjoy a fair wage, safe workplace, and unbiased hiring opportunities. Ultimately, the balance between both employers and workers translate into increased productivity, economic output, and societal stability.
Without strong employment laws, not only would workers’ rights be imperiled, employers might find their rights trampled as well. From a business perspective, employment law is helpful rather than burdensome. While compliance comes with financial costs, maintenance, and your time, employment law lays out an employer’s responsibilities and obligations.
Provided an employer or business complies, they can rest assured they are legally protected from employees or devastating fines. The clarity and stability provided by employment law help to eliminate a significant source of unpredictability and allows businesses to operate freely, provided they meet the responsibilities and obligations the government has laid out.
How Employment Law Protects Workers
Employment law protects workers by establishing rules and regulations governing an employer’s role and responsibilities in an employer-employee relationship.
Equal work opportunities
Child labor law
Protections for disabled
How Employment Law Protects Businesses
Employment law protects employers by clearly defining an employer’s responsibilities and obligations, allowing employers to focus on profitability.
Protection from costly legal suits (provided the employer has met the legal responsibilities and obligations)
Promotes organizational integrity
Dictates employee behavior and expectations
Lays out the employer's duties and obligations
Allows businesses to operate freely within a known and defined legal framework
Preserves the right of the employer to profit
How Employment Law Benefits Society
Employment law benefits society by providing clear legal frameworks for both employers and employees to engage with each other and more easily facilitate the transaction of labor and wages.
Promotes societal stability
Prserves and reinforces societal values (i.e., child labor laws)
Increases economic activity (fair wages allow employees to participate in the economy as consumers)
Preserves the relationship between employers and employees upon which the market system is built
5 Common Labor Laws Your Company Might Be Breaking (And How To Avoid Getting Fined)
Each year many employers are hit with employment-related lawsuits. And it’s not just the corporations and multi-nationals that have to deal with employment-related legal action coming their way. Businesses of all sizes can be vulnerable to legal issues and lawsuits.
According to Insurance Journal, 12 percent of medium-sized businesses must deal with an employment-related lawsuit at some point in time. That’s over 1 in 10 medium-sized businesses. All these employment-related lawsuits cost businesses $2.72 billion in 2017 alone, and nearly $1 billion more than just the year prior in 2016.
Perhaps more disturbing, many businesses are sued with legitimate employment lawsuits where they weren't even aware they were violating various labor laws in the first place.
"1 in 10 medium-sized businesses will deal with an employment-related lawsuit."
--- GREGORY L. PHILLIPS, HOUSTON BUSINESS ATTORNEY
Following are five common labor laws your company might be out of compliance with and how to avoid getting yourself into a lawsuit.
5 Labor Laws Your Company Might Be Breaking
1. Worker misclassification
Some companies knowingly or accidentally misclassify their workers as salaried professionals rather than hourly workers or independent contractors. This is a big mistake that can cause major problems down the line. Not only can misclassifying workers deny them the legal work protections they are entitled to by law, including minimum wage, overtime pay, and family leave, misclassification can also result in hefty legal fines.
If the misclassification was ruled to be unintentional, employers may face a $50 fine per unfiled W2 form. They will also be required to pay FICA taxes that should have been paid in the first place as well as 40% of the wages that were not withheld. Additionally, they will also have to pay an additional penalty of 1.5% of the wages not withheld.
Worker Misclassification Fines & Penalties
Should the IRS deem the misclassification of workers as deliberate fraud, additional fines and penalties are often imposed. Commonly the IRS will penalize companies suspected of misconduct with an additional $1,000 fine per worker as well as the possibility of up to a year in prison. The person responsible for withholding taxes could also be held liable for any and all missing tax money.
Avoiding Worker Misclassification
To avoid misclassifying employees, companies should refer to the IRS Employer’s Supplemental Tax Guide. In particular, they should pay attention to how the IRS differentiates an independent contractor from a salaried worker. In general, companies can tell an independent contractor the scope of what to do, but not how to do it. The IRS will employ a so-called “right-to-control” test that looks at the degree of control a company has over its workers. Specifically, they will look for evidence that points towards behavioral control, financial control, and the exact nature of an employee’s relationship with his or her company.
Worker Misclassification Remedy
To play it safe, if a company isn’t sure whether to classify workers as independent contractors or regular employees, they should file a Form SS-8 for clarification from the IRS. While awaiting a formal answer, they should continue to classify and treat the workers in question as regular employees.
2. Skirting Wage and Hour Rules
When an employee's expectations of certain compensation are not met, costly lawsuits are often the result. Many of these lawsuits have to do with what is known as wage and hour laws. These are federal, state, or local laws that govern everything from overtime pay to the minimum wage.
Wage disputes related to employee compensation constitute the greatest number of employment-related class action lawsuits. According to a recent study on workplace litigation, employee benefits and wage and hour claims were among the top actions. Chief among these claims are lawsuits accusing employers of skirting minimum wage laws.
Employers must not only keep in mind the federal minimum wage as set forth in the Wages and the Fair Labor Standards Act (FLSA), they must also comply with state and local wage laws.
Check out this map to see the minimum wage required in each state. For Texas, see Minimum Wage in Texas below.
Minimum Wage in Texas
What is the minimum wage in Texas? The Basic Minimum Rate according to the U.S. Department of Labor is $7.25 per hour.
The minimum wage in texas law does not contain current dollar minimums. Instead, the State adopts the federal minimum wage rate by reference.
Companies with employees in a state that does not have an explicit minimum wage must still comply with federal minimum wage rules. Minimum wage laws are, for the most part, fairly straightforward, simple, and easy to comply with.
Where companies trip up is in the specifics of each state law and when it comes to exceptions such as in the case of student workers, apprentices, and tipped workers.
Minnesota, for example, has two different minimum wage rates for companies depending on a company’s overall size. “Large employers”, or companies with over $500,000 in sales, must pay $9.68 per hour in wages to their workers. Companies with less than $500,000 in sales pay only $8.04. Likewise, full-time students may legally only be paid 85% of the minimum wage if certain criteria are met.
To avoid running afoul of minimum wage rules, companies should pay close attention to DOL regulations and guidelines on the minimum wage. In general, companies should endeavor to pay workers a fair wage in accordance with the rules and regulations set forth at the federal, state, and local levels, whichever is most stringent.
3. Inadequate Workplace Safety Measures
According to the Bureau of Labor Statistics (BLS), which tracks working conditions, there were a whopping 3,475,900 recorded cases of workplace injuries in 2017 alone. This number does not even include the millions of workplace injuries that go unrecorded and uncounted. Clearly, workplace safety is a huge concern for most employers for whom an accident at the workplace can be very costly. Not only must employers pay for an injured employee’s direct expenses, including medical and healthcare costs, they may also be subjected to fines from state and federal agencies. OSHA violations in 2019, for example, could cost a company as much as $129,336.
While it may seem obvious that a safe work environment is critically important, the actual details of what constitutes a safe workplace and what constitutes neglect of workplace safety can sometimes be difficult to decipher. It is obvious, for example, that a construction company must ensure that its workers follow appropriate safety measures such as wearing hardhats and safety glasses. However, did you know that poor ventilation, poor lighting, or even a cluttered office space can also be OSHA violations?
Not only must employers ensure a safe workplace, but they are also required to train and educate their employees about potential hazards. OSHA standards apply to all businesses, even those that take place in the relative safety of an office environment.
To avoid unwittingly violating OSHA standards, companies must install an employee safety program that includes an employee training component. This is crucial. Furthermore, companies must make sure that all employees, including new hires and even temporary workers, receive workplace safety training. It is important to remember that labor regulations, including OSHA, are constantly changing and being updated. Keeping up to date is important as complying with old standards, even recently outdated ones are still considered noncompliance by regulators.
4. Unpaid Overtime
Since December of 2016, any employee making less than $47,476 is entitled to overtime pay whether they are salaried or not. The FLSA requires that so-called covered, nonexempt workers be paid time and one-half the employee’s normal rate for any and all time worked over 40 hours in a workweek.
The law is clear, companies must pay covered, nonexempt workers for working overtime. The FLSA overtime pay protections cover 143 million workers in the United States. Employees of companies that have an annual dollar volume of sales of $500,000 or more are covered as are all workers involved in interstate commerce. Even domestic service workers such as housekeepers, private cook, and nannies are covered under this law.
While the law is clear, many companies today are still falling short. Most may not even know it. According to T-Sheets, 63 percent of full-time, salaried employees admit that they would work overtime, even if working overtime is explicitly against company policy. The pressures of the modern workplace often unintentionally encourage employees to work overtime. Unfortunately, the law also requires employers to pay those employees for every single second worked past regular hours. Technically speaking, an employer that does not pay covered, non-exempt employees for overtime worked, even unauthorized overtime, is in violation of FLSA labor laws.
5. Principles, Policies, & Procedures
These are the “Three P’s” of compliance. Companies must understand the principles of the laws, create and enforce policies to address those principles, and develop procedures to implement those policies.
A clear and strong understanding of the legal principles and laws at play is absolutely crucial. Companies can’t address or anticipate what they don’t know or what they aren’t aware of. Using their knowledge of the rules, they must then craft company policies to address those rules. Policies must be comprehensive and adhere closely to federal, state, and local labor laws. It is important to ensure that policies aren’t just created, but implemented, and enforced as well. That’s where standard procedures come in.
Workplace Safety + Employee Safety Program
Smart procedures, such as mandatory employee safety program or training for every new hire, may cost a little time and money; however, they help keep your workers safe and protect your company from potentially devastating lawsuits down the line.
Neglect any one of these crucial components of compliance and you open to door to costly lawsuits or regulatory actions. However, if you pay attention to all three, you and your company will likely safely navigate the choppy waters of labor laws and regulations.