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Employment-Law Mistakes Can Doom a Small Business

One of two small businesses won’t make it to its fourth year, according to statistics compiled by the U.S. Small Business Administration.

With that in mind, a Chicago-based group has outlined 10 common mistakes that small-business owners should be aware of, and avoid, if they want to keep their doors open.

American Chamber of Commerce Resources (ACCR), a publisher of employment-law manuals and online content, says the list was created to alert small-business owners to the potential penalties they can face if they fail to comply with state and federal employment laws.

The most common mistake made by small-business owners is failing to post required notices. In Illinois, for example, at least 10 state and federal posters are required, ranging from the federal minimum wage to OSHA’s Job Safety and Health Protection.

Owners should be aware that storing medical records in personnel files is a definite no-no. If an employee provides a doctor’s note for an excused absence from work, says the ACCR, a notation can be made in the personnel file; however, the supporting documentation must be stored elsewhere.

Business owners must also report any newly hired employees. As of 1997, Illinois employers are required to report all new hires to the state’s Department of Employment Security within 20 days of hire. The Illinois law follows on the heels of the federal Personal Responsibility and Work Opportunity Reconciliation Act.

“These laws,” says ACCR, “were enacted to help state and federal officials track ‘deadbeat’ parents who were not meeting child-support obligations.”

Employers should state that employees are hired “at will,” a term that means either the employer or the employee can terminate the employment relationship at any time for any lawful reason. Employers should also be aware of the language contained in their job advertisements.

“Only job-related functions should be listed on a job advertisement. Even seemingly innocent phrases like ‘young and energetic’ can be grounds for a discrimination suit,” says the publisher. “Employers should avoid phrases that imply characteristics of age, gender, national origin, race, etc.  Also, ads should state that the employer is an ‘equal opportunity employer.’ ”

Employers should be careful in interviews to avoid potentially discriminatory questions, such as inquiring about an applicant’s age. In addition, once the person is hired, the hiree should be provided with a copy of an employee handbook.

ACCR says a poorly drafted or inconsistently enforced handbook leaves employers open to liability.

“Small businesses might not know that they can be liable for the actions of an employee...they reasonably should have known had the potential to harm others,” says ACCR about the eighth most common mistake owners make. “So, make sure to do a thorough background check of all new hires within the parameters of applicable law.”

The final two mistakes are linked to compensation. Employers should be careful when they classify employees as independent contractors or interns; if they choose to, be certain that they are being provided with the pay and benefits owed to them, ACCR warns.

In addition, employees must be compensated for the hours that they work. Illinois has requirements for meal and rest periods, on-call time and travel time. For example, if a nonexempt employee fields a business-related phone call on a lunch break, the worker may need to be compensated for that time.

“Many employers think because they are so small, that the laws don’t apply to them,” ACCR says. However, the penalties for failing to comply with employment laws "can stop a small business in its tracks.”
American Chamber of Commerce Resources has more than 50 federal and state employment-law manuals available. For a list of available publications, visit   

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