Business Owners Beware: What You Don’t Know About HR Can Cost You $$$

As a business owner, you’ve got a lot on your mind. There’s planning, strategy, marketing, sales, inventory, taxes, customers, and all sorts of other business expenses. And then there are employees.  Employees can make or break a business.  The argument could be made that employees are the most important aspect of the business. That is why utilizing expert help with Human Resources is just as important as employing professional assistance with accounting, risk management, taxes and other specialty areas of business.

Here are a few things you may not know which could end up costing you a lot of time and money:

  1. Employers should beware of classifying workers as “independent contractors” without consulting expert help. Courts regularly find that so called independent contractors are, in fact, employees.  The test looks at financial control, behavior control, and the relationship between the worker and the employer. A Fact Sheet is available at:
  2. Arizona is an “Employment at Will” state. Employment at Will is derived from English “common law” and literally came over on the Mayflower. The basic premise is that either the employer or the employee may end the employment relationship at any time for any reason with or without notice. Sounds simple, but Employment at Will is actually quite complicated and limited by several things:
    • If there is an employment contract, whether written, verbal, or implied, the employer’s right to terminate the employee may be restricted by the terms of such contract.  Supervisors can unintentionally create a verbal contract with employees by telling them that as long as they do good work they will have a job at the company. Your handbook can be interpreted as a contract unless you have properly worded a disclaimer stipulating that it is not a contract.
    • The employer cannot act in violation of federal or state law and then expect to fall back on Employment at Will. There are many traps for the unwary employer when it comes to interpretation and compliance with State law as well as the federal Civil Rights Act, the Equal Pay Act, the Pregnancy Discrimination Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family & Medical Leave Act, the National Labor Relations Act, the Fair Labor Standards Act, the Occupational Safety & Health Act, and the Uniformed Services Employment and Reemployment Rights Act.
    • The employer cannot fire an employee in violation of Public Policy and then try to rely on Employment at Will as a reason. Public Policy includes such things as an employee’s right to vote, to serve on a jury, to serve in the military, to refuse to break a law or violate professional standards or ethics, to file a worker’s compensation claim, to file an EEOC complaint, and to file an OSHA complaint.
  3. All employers need an employee handbook. But pulling things randomly off the internet is not the way to do it. A great deal of what is out there is either out-of-date or just plain wrong. Much research goes into creating a customized handbook and it takes a professional to do it well. There are many requirements for handbooks, including what must be in the book and what should never be in the book. The proper language for topics such as employment at will, equal employment opportunity, and non-contract disclaimers change regularly with court decisions.  Some other things that should be in your handbook include a policy on harassment and bullying, conflicts of interest, licensing requirements, attendance policy, performance reviews, medical (non-FMLA) leave, worker’s compensation, holiday pay, jury duty, voting time, bereavement, sick time/paid time off, confidentiality, absenteeism, drug testing, data systems protection, social media, dress code, standards of conduct and prohibited conduct, and disciplinary procedures. In addition, a well written handbook acknowledgment can be an excellent defense tool against claims of unlawful termination.
  4. Many employers do not understand how to pay overtime correctly. The FLSA (Fair Labor Standards Act) is the law that dictates wage payments, overtime, rules for exempt status, child labor, and other issues related to wages and hours. The FLSA says that overtime is paid at one and one-half of the “regular rate” which may or may not be the employee’s hourly rate. Additional wages paid in the form of incentives, commissions, bonuses, and so on must be included in the calculation of weekly overtime. The penalty for failure to pay overtime correctly can be costly. In addition to back pay, employees may recover what are referred to as “liquidated damages” under the FLSA. “Liquidated damages” is a legal term used throughout statutes and in private contracts, and provides that a noncompliant party will pay a fixed sum of money. Under the FLSA, liquidated damages are an amount equal to the pay employees should have received. In other words, employees can recover double “back pay” damages for unpaid overtime.
  5. Arizona has rules about frequency of pay. Employees must be paid at least every 2 weeks and not more than 16 days apart and on the regularly scheduled payday.
  6. Arizona employers must not discriminate based on race, sex, age, religion, color, national origin or disability. Certain cities in Arizona, such as Phoenix and Tucson, prohibit discrimination based on marital status, gender identity, familial status or sexual orientation. Arizona law also protects employees from discrimination based on pregnancy, veteran status and family medical leave. Employees also have rights after making a discrimination complaint against an employer, which is known as protected activity.
  7. In Arizona, if you fire an employee, you must pay him his final wages within seven days or at the end of the next pay period, whichever comes first. Employees who quit must be paid no later than the next regular payday for the pay period in which the termination occurred.
  8. Offer letters for exempt employees should never express salary as an annual amount. Instead, use the amount the person will earn in one pay period (weekly, bi-weekly, or semi-monthly). There have been cases where an employee was able to collect an entire year of salary even though he left employment early in the year. The premise here is that if the offer is to pay someone XX dollars on a yearly basis, then it does not matter how long he works. The principle goes back to the Fair Labor Standards Act that requires employers, with a couple of exceptions, to pay exempt employees on a salary basis, without regard to hours worked or quality or quantity of work. Offer letters to hourly employees should state the hourly rate.
  9. Personnel files must be kept separate from benefit files. “Separate” means a different cabinet or at least a different drawer.
  10. There are many posters, both federal and state, that are required to be up and visible for all employees to see. Posters typically get updated annually, although it could be more often if laws change. Posters can be downloaded from government websites, but since there are so many, they will take up a lot of space on a bulletin board, get soiled, and can easily get out-of-date. Better to use a good poster service that will keep the business compliant.
  11. Arizona has a sick pay law that took effect for all Arizona employers on July 1, 2017. This law requires that all employees earn a minimum of 1 hour of sick pay for each 30 hours worked. The law is more complex than it looks. It requires notification to employees, a new poster, and record keeping. There is an excellent “Question and Answer” document located at:


Fines and penalties for violations of employment laws can include back pay, reinstatement to the job, front pay, and fines in the hundreds of thousands of dollars.

We know that all businesses require HR expertise, but many do not have the need or the resources to employ a full time HR professional. Outsourcing HR can be a great solution that allows for HR expertise on an “as needed” basis while allowing the company to concentrate on their core business. The company pays only for what is required, and there are no long-term obligations.



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