When starting a business, there are many common employment issues to consider. Join Weintraub attorneys Meagan Bainbridge and Ryan Abernethy in Part Two of their Employment Start-Up Kit for Start-Ups series for California Employment News, where they cover employee payroll, HR, and other important things for new businesses to consider to limit liability.
Listen to Part One of this Two-Part Series here.
Watch this episode on the Weintraub YouTube channel here.
Hello, everyone. Thank you for joining us for this installment of California Employment News, an informative video podcast resource offered by the Labor and Employment Group at Weintraub Tobin. My name is Meagan Bainbridge, and I’m a shareholder in the firm’s labor and employment group. And today I’m joined by my colleague Ryan Abernethy for the second episode of our two-part series regarding employment policies for startups. The first episode concentrated on the importance of properly determining employee classifications to avoid future liability. Today we’re going to focus on the nuts and bolts of employing your very first employees. Ryan, what should startups know about paying its employees?
Thanks, Meagan. The very first thing that a startup would need to do is to obtain what’s called the Employer Identification Number, or the Ein number. It’s also known as the Federal Tax Identification Number. And what an Ein does is it’s needed to pay employment taxes to hire employees, to open a bank account, to apply for business licenses and permits and all those things. It’s kind of a first step in the process here. The next step that’s highly recommended is that the startup consider retaining what’s called a payroll service company. And there’s a lot of options out there in the marketplace. But payroll service companies, they assist with payroll processing and management services, such as everything from tracking employee attendance to collecting wage and time information, calculating wages and payroll taxes, keeping electronic payroll records, setting and making direct deposits all the way to actually mailing out the tax information to the employees as well as their paychecks. A lot of things that would be very foreign to a startup that specialize in particular business but wants to be able to outsource some of these HR type work. But it’s important that the startup is aware that these service companies, they’re not your attorneys, and ultimately their problems and any issues that could be imputed to you in the form of liability.
We’ll share a quick war story here. Sometimes employers in California, they round employee time and clock in and clock out times to the nearest five-minute increment, for example. In most cases, that’s no longer lawful in California. But many payroll companies continue to list rounding as an option that they can select when they’re selecting the payroll services. And so this error alone can lead to hundreds of thousands of dollars in liability depending on the size of the company and how long it’s been in place. So again, that’s just one example of many as to why it’s still important to make sure that those errors, there are no errors at the onset and that you’re ready to go. And so it’s good to have maybe attorney review some of those things. Another thing that startups need to consider as maybe a third step, is to make sure their timekeeping system is in place. This is something that payroll services can often assist with and provide compliant meal and rest breaks. That’s a new universe for a lot of people. We have other episodes you can go back where we talk about the specific requirements. I won’t belabor this video with those, but feel free to go back and review those.
But essentially it’s a 30 minutes break for every 5 hours worked, and then ten minute rest break for every 4 hours worked, and then the minimum wage is another issue that startups need to consider quite right off the bat. When you have an employee and most people are familiar with the state and the federal minimum wage, but minimum wage can actually vary from city to city and county to county. So it’s really important that startups be aware of whatever applicable wage might be in effect. In addition, and lastly, here is, I guess, the remote workers issue. A lot of startups, we find they employ folks who are working in different states often, right? Even though they’re performing work for a California based company. It’s likely that the state’s employment laws would apply to wherever that employee is actually based. So again, that adds a wrinkle to make sure it’s ironed out at the onset when you’re starting up here. With that, Meagan’s going to share now some additional HR issues for startups to consider.
Yeah, well, if it’s within the company’s financial ability, I always encourage new employers, startups included, to engage a human resources firm or an employment attorney to help get the company’s workers off the ground. Employing individuals in the state of California is difficult, and there are numerous factors that must be considered. Getting it right from the start will go a long way in reducing liability going forward. And first, new employers have to hire people, right? Oftentimes this means an employee or a potential employee will fill out an application. There are a lot of laws in California that restrict what information can be requested in that application. For instance, the California Fair Employment Practices Act provides that no pre-employment inquiries or specifications may be made concerning a job applicant’s protected class, so their race, religion, that sort of thing. Employers are also restricted from asking questions about criminal backgrounds and employment applications should not seek information about Social Security numbers or any other inherently private information. Second, new employers should use offer letters that set in an individual’s expectations for their employment. Offer letters should include a statement that the employment relationship is at will, which means either the company or the individual can terminate the employment relationship at any time.
It should also include such information as the start date, salary benefits, that sort of thing. Third, all new employers should create an employee handbook that lays out the company expectations and policies. Topics that should be included are, again, restate. The at will employment relationship language cannot say that too many times. It should include provisions for equal opportunity employment or equal employment opportunity employee Conduct Expectations rules Regarding Performance how is a performance going to be evaluated at the company, information regarding health and safety, workplace guidelines, and possibly leaves so kind of that general information. Fourth, each employee should be given a job description that includes the essential functions of the job as well as any other incidental job duties that will help frame the employee expectations. It also serves as really valuable information for when it comes to maybe evaluating employee performance, providing accommodations and that sort of thing. Ryan what else should employers consider as their startup grows?
Yeah, so startups inherently, they start with a few and they grow and they get more employees. And as a startup gets more employees, they’ll find more employment laws start to apply to them. That’s because the applicability of most employment laws is dependent on the number of employees a business has. So a single new hire, so your 50th employee you hire, for instance, can trigger a whole new host of laws that apply to all employees. Right. So it’s critical that startups kind of are gaging this and understanding what laws apply as they grow. It’s also important for startups to really create consistent performance review programs based on objective criteria. So, as you’ve probably gathered so far, thorough documentation is very critical for all employers, and performance reviews are no different. And startups should create consistent performance reviews and a program that’s based on, again, objective, preferably, well documented criteria, and that’s the most likely to prevent lawsuits. In addition, on that theme, the importance of properly training supervisors cannot be overstated here, by giving managers and supervisors the authority to act on behalf of the company, their mistakes, their wrongful conduct is yours, it’s the company’s.
So, for instance, if a manager isn’t providing subordinates with compliant rest breaks or they’re calculating overtime incorrectly, it’s as if the company is doing it because they were endowed with that power, so to speak. And so all their liability passes through them and directly goes to the company. So you can’t point and say it’s their fault. It will be the company’s fault at the end of the day. So, again, that’s very important to make sure that managers are properly trained from the get go.
Excellent advice. Ryan and that does it for today. As we’ve seen in this series, California startups operate in a dynamic and ever evolving employment legal landscape. Staying informed on potential illegal challenges will help ensure a solid foundation for your startup success. You can continue to find California employment news on our law blog at thelelawblog.com and wherever you listen to your favorite podcasts. We’ll see you next time.