David LaGasse recently wrote a column in Employment Law 360 that highlighted some of the wage-hour issues and problems facing start-up companies. I agree with these assessments and can comment further as follows.
He mentioned the tendency to classify workers as independent contractors. On one level, this is tempting and seemingly much easier for a new employer. No taxes. No deductions. No inclusions in benefit plans. But—the IRS and many state and federal agencies are cracking down on what they perceive as a wholesale misclassification of statutory employees as independent contractors. Such people must have an independently established business, doing work for other clients and customers.
The tendency to misclassify workers as exempt or non-exempt also is a minefield for new companies. Just paying someone a salary does not automatically make someone exempt from receiving overtime. In addition to receiving the requisite salary (and it differs from the federal minimum to the minimum salary levels of various states), the employee must perform certain types of duties. The key here is an analysis of the job duties of different positions, matched up against the regulatory criteria.
Another problem, or potential problem, is to know what activity actually constitutes compensable "work time." Many employees engage in a number of preliminary and postliminary activities that may be so connected to their regular jobs that this extra time is converted or transformed into working time. One sign of the times–I have noticed an uptake in so-called "off-the-clock" lawsuits involving employees who claim their off-duty use of PDAs, blackberries and checking e-mail constitutes "work time."
The key is to have a basic understanding of wage-hour laws in the particular State(s) the new entity does business in and then have a study done of compensation policies and practices, with recommendations being made by the drafter for the best way to both comply with these laws and yet be employer-friendly.