Top 3 Small Business HR Mistakes

So, here’s one of the things they don’t teach you in small business school:

You will make mistakes, plenty of them.

Most will be small and the kind you can learn from. But every now and then, it might be a doozy. I once had a guy sitting across from me in my old law office who hired the wrong person to be his bookkeeper. It turns out, and this is something we only discovered after she embezzled $100,000, that my client’s bookkeeper had a previous criminal record. My client hadn’t done a thorough background check before hiring her.

As I said, some mistakes are doozies, and the problem with a big mistake is that it can become a big problem.

This is especially true when it comes to HR issues. Properly hiring, firing, handling employee record-keeping and all the rest are the types of things that are easy to miss but often tough to fix.

Here then are the three of most common HR mistakes that small businesses make, and – better! – how to avoid them:

1. Conflating employees and independent contractors.

There really are two similar issues here, and both can land your business in hot water.

First, there is the issue of hiring someone and calling him an independent contractor when he really is an employee. Oh sure, I get the impulse. With a contractor, you don’t have to pay social security or workman’s comp or offer vacation time and all the rest. But that’s too bad; employees are not contractors.

How do you know the difference? Here is a two-part test:

  1. Contractors decide when, where, and how to do the work.
  2. Contractors provide their own tools to do the work and expenses are typically reimbursed.

If your “contractor” doesn’t have that sort of freedom, she is not actually a contractor, no matter what your records say.

The other issue here is the opposite – when contractors and freelancers are treated like employees. Here, even though they are supposed to be” independent,” they get bossed around like they are employees. If you are managing their work, deciding how it should be done, if the worker is given specific hours and a work schedule, or if they use business equipment to do their job, they probably are not contractors, again, no matter how you classify them.

The danger with both scenarios is that the IRS and state labor departments are watching, and mis-classification can be expensive. The rule is this, and it’s simple:

Independent contractors are independent.

(To help you understand how to handle this issue right, you might like the webinar our friends at ComplyRight offer, called Employee or independent contractor? How to get it right every time.)

2. Practicing accidental or alleged discrimination in hiring:

Most people don’t want to discriminate in their hiring, but, even so, they might. That’s a problem. Equally bad is when, even if there was no discriminatory intent, the interviewee thinks there has been discrimination.

The rule is that you cannot not hire someone because of their age, gender, race, sexual orientation, or religion. Now, of course, we all have biases, even if subconscious. But even so, you cannot let them get in the way. If the candidate can do the job, discriminatory biases better not be why she didn’t get the job.

Similarly, you need to avoid even asking questions about these potentially discriminatory issues when hiring because, even if discrimination is not the reason you didn’t hire the person, if you ask about something verboten, she can say it was.

Say that you innocently asked about the candidate’s religion but then do not hire the person. Do you see how she might think her answers your inappropriate religion question are the reason she didn’t get the job?

A judge might.

3. Not firing someone who deserves it, or firing the wrong way:

Under the broad heading of “firing,” we have two common and problematic issues here.

What happens when you have a dead-weight employee but refuse to fire the person out of fear of conflict, or due to inertia, or whatever? You bring down morale all the way around, that’s what. And, not only does it affect other employees, it can trickle-down to customers too. The whole company suffers.

The other issue is where you don’t let someone go properly. Yes, the rule generally is that you can let an employee go at any time for no reason. That is called “at-will” employment; employees in most states and circumstances work at the will of their employer.

But, that said, the better way to go is to give notice and reasons. Doing that helps you avoid the unwanted wrongful termination lawsuit.

The bottom line is that HR mistakes are easy to avoid and often difficult to fix . . . so let’s avoid them.

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