Top five personnel mistakes …

So, you’ve taken the plunge: You left corporate America to start your own business.  You’ve weathered the start-up phase and now are expanding and hiring your first employees. Regardless of your industry, personnel matters present difficulties. Fortunately, with a bit of planning, business owners can avoid common pitfalls.

Mistake No. 1: Inadequate Record-Keeping

State and federal law in Colorado require employers to keep certain basic information about employees on file and to ensure compliance with minimum wage and overtime laws. Failure to maintain records compliant with both state and federal regulations puts the company at risk for substantial fines.  Furthermore, in lawsuits over unpaid minimum wage or overtime pay, the burden is on the employer to establish the hours actually worked.  Good record-keeping practices are critical to protect your company.

Recommendations:

1. Develop a standard “personnel file” for each employee. Include job offers, IRS forms, any employment agreements, and acknowledgments.

2. Consider time clock services.  Many exist online; companies like ADP and Paychex provide comprehensive time clock and payroll services.

3. Develop a record retention system. Store records securely and regularly review them; purge outdated records.

Mistake No. 2:  Failing to Hire Employees in Accordance with Your Business Needs

Hiring employees is costly and time-consuming. Given the expense, an employer must only hire to its needs.  Failure to hire enough employees may lead to increased costs in overtime pay, employee burnout, and turnover.  Hiring too many employees may result in paying more in wages, benefits, and employment taxes than can be justified by the company’s revenue resulting in depressed profitability.

Recommendations:

1. Know your industry and assess your employee needs.  Don’t hire two employees where one suffice.  Review your needs regularly.

2. Don’t fall victim to minimum wage and overtime misconceptions. These are complicated concepts.  Misclassifying employees or using unlawful pay practices is more common than you think.  Get expert advice!

3. Consider independent contractors to fill specific needs. Be sure, however, you are using contractors appropriately to avoid liability under the FLSA.

Mistake No. 3:  Failing to Thoroughly Vet Job Applicants

Finding the right person for a job is painstaking. Most small businesses require a written application and interview.  While such practices can work fairly well, every company has horror stories about nightmare employees. A wrong hire can cost thousands in litigation, low productivity, and low morale. 

Utilizing a thorough vetting process can screen out potential problem employees and reduce a company’s exposure to frivolous lawsuits, unjustified discrimination charges, and other similar costs.

Recommendations:

1. Develop a thorough hiring practice.  Consider more than one round of interviews or pre-screening questions. Once you set an effective process, do not deviate from it.

2. Make any offers conditional upon completion of due diligence. Always check employment references and use a reputable company for background checks.

Mistake No. 4:  No Employee Handbook

Whether you’re hiring your first employee or your fiftieth, you will profit from a written set of personnel policies covering such matters as:  employee classification, pay/benefits, work hours, behavioral expectations, harassment, employee leave, and others. 

A well-crafted handbook is an invaluable tool to protect your company and saves you time and money by clarifying your expectations of your employees.

Recommendations:

1. Don’t scrimp on your handbook.  Have employment counsel review your policies to ensure legal compliance.

2. Pay attention to unique state laws. Ensure company policies are compliant with your state’s laws.  Each state is different.

3. Include the important disclaimers.  Handbooks are not contracts or guarantees employment; make sure you say so in the handbook.  Any lists or examples articulated should be clearly identified as not exclusive.   Progression through disciplinary steps should be flexible to allow some discretion.

Mistake No. 5:  Holding on to a Bad Hire

At some point, you will hire someone who simply isn’t the right fit.  Firing an employee is never pleasant, but holding on to a bad hire often costs more in turnover, low morale, and lost productivity.  Similarly, a botched termination can result in years of expensive litigation.  Recognizing a bad hire and parting ways quickly and skillfully can be essential to protecting your small business.

Recommendations:

1. Recognize a bad hire for what it is.   If you are constantly dealing with repeated bad behavior or poor performance and if remedial measures are ineffective, it may be time to reassess the employment relationship.

2. Make sure you have supporting facts.  Many lawsuits result from termination decisions made in the heat of the moment.  Resist the temptation to pull the trigger without lining up your evidence.

3. When in doubt, seek advice of counsel.  Termination of employment is the most common catalyst for lawsuits.  If you have doubts, ask your lawyer to help.

Conclusion

Owning your own business is thrilling, and the thought of calling the shots inspires many entrepreneurial spirits.  Along with the thrill comes the responsibility of dealing with the endless array of employee issues. How personnel matters are addressed can make or break a fledgling company.  Doing it the right way may not always avoid unwanted expense, but it can greatly reduce risks and position your company to flourish.