So you’ve established a successful business!  That also means that you have been doing “ALL” the work managing and running your company. Are you are now thinking about hiring and expanding?

Whether you are planning to hire your first employee or adding to your work force, as a small business owner you may be aware that you should be doing something about “HR” in order to protect yourself and your company.  The question becomes, “What should I do?” Human Resources can be very complex but to protect your company from litigation and minimize replacement costs, there are three of the most common mistakes that small businesses should avoid.

Mistake #1: Not being aware of Employment Laws

Small businesses often incorrectly assume that laws governing employee rights do no apply to their business. Some laws apply to companies that employ one hundred or more employees and other laws apply even if a company has only one employee. Depending on the number of employees in your company, you must understand which federal and state laws apply to reduce the risk of lawsuits. Among these are:

  • Overtime and minimum wage requirements
  • Discrimination
  • Safety in the workplace
  • Employment authorization for each new employee (a completed Form I-9)
  • Age and gender discrimination
  • Disability
  • Pregnancy discrimination
  • Military leave
  • Equal pay regardless of gender
  • Family leave

Some of these laws must be communicated to the employees either by posting prominently in the workplace or providing notice in other acceptable ways.

To find out which laws apply to your company and which require notices at the federal and state level, you can contact the United States Department of Labor, Small Business Administration and your state department of labor. You can obtain free posters from these agencies and inexpensively from companies such as All In One Posters (1-800-273-0307).

Mistake #2: Not Hiring the Right People

Hiring mistakes can be costly to any business large or small. Making a “bad” hire diverts energy and time from productive work and can result in lost sales due to additional training, dealing with personality conflicts, poor morale among your work force due to the bad hire, and if the employee is let go, possible severance pay and the costs to hire a replacement.

Almost all companies make hiring mistakes, but to minimize the chances, have accurate job descriptions that clearly explain the duties, reporting relationships required and desired experience, skills, knowledge and education. Then only interview candidates who meet your base line requirements. When interviewing use a consistent interview process so all available candidates are asked the same questions so you can fairly compare and evaluate the candidates on a consistent basis.

When you have candidates who you feel are good fits for your company, conduct reference and background checks. Small businesses may feel these are costly and time-consuming but making the wrong decision will cost the company many times over.

Mistake #3: Misclassifying Employees

The Wage and Hour Division of the United States Department of Labor say “the misclassification of employees as independent contractors present one of the most  serious  problems facing affected workers, employees and the entire country.”

Misclassified employees often are denied access to benefits and protections to which they are entitled, such as the minimum wage, overtime compensation, unemployment insurance, etc. Misclassification also results in loss of tax revenue to the government as well as lower contributions to state unemployment insurance and workers’ compensation funds.

To deal with this issue, the Department of Labor, IRS and states often target small businesses in an effort to find employers who misclassify employees as “contractors”. To avoid the penalties that could result from misclassifying employees for tax and benefit reasons, familiarize yourself with the difference between an employee and a contractor. While there are gray areas, in general, a person is only considered an independent contractor if you:

  • Do not have control of their job or how they perform their job
  • Do not have written contracts, provide benefits, or vacations
  • Do not control the financial aspects of the worker’s job, such as how the worker is paid

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As businesses grow, human resources will, and should get, more complex. Handbooks that clearly state company policies, training, performance evaluations and benefit administration are among the activities that companies should be implementing, whether in-house or outsourced. But if you as a small business owner avoid these common mistakes previously discussed, you will have gone a long way towards saving your company time and money by reducing your exposure to litigation and other unnecessary costs.

Key Topics

Human Resources Basics for Small Businesses