HRforSmallBusiness_cover.qxd:HRforSmallBusiness_cover.qxd 11/25/08 4:38 PM Page 1 2nd Edition One of the few [references] geared “ to the bulk of American business. —Booklist ” Employees are your greatest asset. However, the days when Absolutely employe maters were simple are gone. To kep your busines running “ successfuly, you need a guide through the many issues facing employers today. indispensable Charles Fleischer, sucesful atorney, lecturer, and author, makes this HR for complex area of the law easy to understand. His practical advice answers the FOR for anyone in questions you have, such as: business. ➧ What steps do I take in the ➧ How do I make a clean ” hiring process? termination? —Edie Fraser, President, ➧ How can I use performance ➧ How do I protect myself Public Affairs Group, Inc., evaluations as a productive against discrimination claims? Small an iVillage Company tool? ➧ What types of insurance must ➧ How can I cut overtime I carry? expenses? ➧ How long must I hold a ➧ How can I control costs position for someone and still offer attractive on maternity, military, retirement and health or other leave? insurance benefits? Business HR for Small Business is a must-have for every manager, human resources professional, or small business owner. An Essential Guide for Managers, Start building a stronger workforce today. Human Resources Professionals, and Small Business Owners Charles H. Fleischer received his law degree (with honors) from the George Washington University in Washington, DC. He has advised numerous businesses and associations on employment law issues, and he writes and speaks extensively on the topic. ➧ Interview questions ➧ Privacy and confidentiality He was coauthor of the employer’s legal briefs in the first Supreme Court case dealing with sexual harassment. He actively represents ➧ Reference checks ➧ Employment discrimination business at all levels and is a member of the law firm of Oppenheimer, Fleischer & Quiggle, P.C. The firm’s website is ➧ Benefits and taxes ➧ Sexual harassment www.OFQLaw.com. ➧ Leave policies ➧ Workers’ compensation Business/Legal Reference $16.95 U.S. ➧ Unemployment insurance ➧ Telecommuting and $ £189.99 CUAKN ISBN-103: 197-587-124-587-624980-6290-4 job-sharing FLEISCHER CHARLES H. FLEISCHER, ATTORNEY AT LAW HR SMALL BUSINESS EAN HR_Smal_Business_Final_INT.indd i 11/25/08 4:53:09 PM Copyright © 2009 by Charles H. Fleischer Cover and internal design © 2009 by Sourcebooks, Inc. Sourcebooks and the colophon are registered trademarks of Sourcebooks, Inc. All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechanical means including information storage and retrieval systems—except in the case of brief quotations embodied in criti- cal articles or reviews—without permission in writing from its publisher, Sourcebooks, Inc. While every attempt has been made to provide accurate, authoritative, and current information regarding the subject matter covered, this book is for general information only and is not intended as legal or other professional advice. The reader should consult an attorney, accountant, or other appro- priate professional regarding specific questions or problems. Neither the author nor the publisher is liable for any errors or omissions. This book contains links to third-party websites. Website addresses are sub- ject to frequent change and over time may no longer work as intended. Neither the author nor the publisher is responsible for the functioning or content of any third-party website. All brand names and product names used in this book are trademarks, reg- istered trademarks, or trade names of their respective holders. Sourcebooks, Inc., is not associated with any product or vendor in this book. Published by Sphinx Publishing, an imprint of Sourcebooks, Inc. P.O. Box 4410, Naperville, Illinois 60567-4410 (630) 961-3900 Fax: (630) 961-2168 www.sourcebooks.com Library of Congress Cataloging-in-Publication Data Fleischer, Charles H. HR for small business : an essential guide for managers, human resources professionals, and small business owners / by Charles H. Fleischer. — 2nd ed. p. cm. Includes index. (pbk. : alk. paper) 1. Personnel management. 2. Small business—Personnel management. 3. Labor laws and legislation—United States. I. Title. HF5549.17.F584 2008 658.3—dc22 2008040037 Printed and bound in the United States of America. VP 10 9 8 7 6 5 4 3 2 1 HR_Smal_Business_Final_INT.indd i 11/25/08 4:53:10 PM Contents INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix CHAPTER 1: The Employment Relationship . . . . . . . . . . . . . 1 • Employees, Independent Contractors, and Agents . . . . . . 3 • Statutory Employees and Nonemployees . . . . . . . . . . . . . 6 • The Employment At-Will Doctrine . . . . . . . . . . . . . . . . . 6 • Employment Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 8 • Arbitration Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 11 • Business Owners’ Employment Status . . . . . . . . . . . . . . 15 CHAPTER 2: The Hiring Process . . . . . . . . . . . . . . . . . . . . . . 21 • Steps in the Hiring Process . . . . . . . . . . . . . . . . . . . . . . . 22 • New Employee Procedures. . . . . . . . . . . . . . . . . . . . . . . 27 • Employee Handbooks. . . . . . . . . . . . . . . . . . . . . . . . . . . 33 • Personnel Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 CHAPTER 3: Evaluating Performance . . . . . . . . . . . . . . . . . 41 • Reasons for Evaluating . . . . . . . . . . . . . . . . . . . . . . . . . . 42 • Legal Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 • Disciplinary Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 CHAPTER 4: Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 • Exit Interviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 • Termination for Cause . . . . . . . . . . . . . . . . . . . . . . . . . . 52 • Constructive Discharge . . . . . . . . . . . . . . . . . . . . . . . . . 54 • Retaliation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 • Whistleblower Regulations. . . . . . . . . . . . . . . . . . . . . . . 56 • Abusive Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 • Defamation Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 • Intentional Infliction of Emotional Distress . . . . . . . . . . 62 • Corporate Ethics and the Sarbanes-Oxley Act . . . . . . . . 63 • Employee Due Process . . . . . . . . . . . . . . . . . . . . . . . . . . 65 • Downsizing and Mass Layoffs. . . . . . . . . . . . . . . . . . . . . 67 CHAPTER 5: Wage-and-Hour Requirements . . . . . . . . . . . . 69 • Minimum Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 • Overtime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 • Alternatives to Overtime . . . . . . . . . . . . . . . . . . . . . . . . 76 • Exemptions from Overtime Requirements. . . . . . . . . . . 79 HR_Smal_Business_Final_INT.indd i 11/25/08 4:53:10 PM • Settling FLSA Wage Disputes . . . . . . . . . . . . . . . . . . . . 84 • Other Wage Regulations . . . . . . . . . . . . . . . . . . . . . . . . 85 • Child Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 • Priority of Wages and Benefits in Bankruptcy. . . . . . . . . 87 • Antitrust Considerations . . . . . . . . . . . . . . . . . . . . . . . . 88 CHAPTER 6: Wage Attachments and Assignments . . . . . . 91 • Garnishments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 • Withholding Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 • Tax Levies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 • Debtors in Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . 96 • Department of Education Garnishments . . . . . . . . . . . . 96 • Wage Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 CHAPTER 7: Tax Considerations. . . . . . . . . . . . . . . . . . . . . . 99 • Deductibility of Wages and Benefits. . . . . . . . . . . . . . . 100 • Limitations on Deductibility . . . . . . . . . . . . . . . . . . . . 103 • Independent Contractors . . . . . . . . . . . . . . . . . . . . . . . 105 • Federal Withholding Requirements . . . . . . . . . . . . . . . 108 • Tips . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 • Other Taxable Payments . . . . . . . . . . . . . . . . . . . . . . . 114 • State Withholding Requirements . . . . . . . . . . . . . . . . . 116 • Earned Income Credit . . . . . . . . . . . . . . . . . . . . . . . . . 117 • Deposit and Reporting Requirements. . . . . . . . . . . . . . 118 CHAPTER 8: Leave Policies . . . . . . . . . . . . . . . . . . . . . . . . . 123 • Vacation and Sick Leave. . . . . . . . . . . . . . . . . . . . . . . . 124 • FMLA Coverage and Eligibility . . . . . . . . . . . . . . . . . . 126 • FMLA Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 • Military Leave . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 • Other Types of Leave. . . . . . . . . . . . . . . . . . . . . . . . . . 136 • Paid Time Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 CHAPTER 9: Deferred Compensation and ERISA . . . . . . . 139 • Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . 141 • Nonqualified Deferred Compensation . . . . . . . . . . . . . 146 • ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 • Spousal Rights to Pension Benefits . . . . . . . . . . . . . . . . 152 • Top Hat and Excess Benefit Plans . . . . . . . . . . . . . . . . 156 HR_Smal_Business_Final_INT.indd iv 11/25/08 4:53:10 PM CHAPTER 10: Group Health and Other Voluntary Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 • COBRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 • HIPAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 • Mandated Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 • Qualified Medical Child Support Orders . . . . . . . . . . . 165 • Claims Administration . . . . . . . . . . . . . . . . . . . . . . . . . 166 • Gender-Specific Coverage . . . . . . . . . . . . . . . . . . . . . . 167 • Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 • Employee Stock Ownership Plans . . . . . . . . . . . . . . . . 172 • Other Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 • Domestic Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 CHAPTER 11: Workers’ Compensation . . . . . . . . . . . . . . . 183 • Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 • Course and Scope of Employment . . . . . . . . . . . . . . . . 186 • Claim Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188 • Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188 • Second Injury Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 • Rights against Third Parties . . . . . . . . . . . . . . . . . . . . . 191 CHAPTER 12: Unemployment Insurance. . . . . . . . . . . . . . 195 • Employer Contributions. . . . . . . . . . . . . . . . . . . . . . . . 196 • Coverage and Eligibility . . . . . . . . . . . . . . . . . . . . . . . . 198 • Misconduct and Quitting for Cause . . . . . . . . . . . . . . . 199 • Claim Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 • Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 CHAPTER 13: Workplace Safety. . . . . . . . . . . . . . . . . . . . . 205 • Overview of OSHA . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 • Safety and Health Standards. . . . . . . . . . . . . . . . . . . . . 207 • Record-Keeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 • Inspections and Citations . . . . . . . . . . . . . . . . . . . . . . . 212 • FDA’s Food Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 • Retaliation and Refusal to Work. . . . . . . . . . . . . . . . . . 214 • State Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 • Smoking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 • Ergonomics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 HR_Smal_Business_Final_INT.indd v 11/25/08 4:53:10 PM • Violence in the Workplace . . . . . . . . . . . . . . . . . . . . . . 219 • Disaster Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 CHAPTER 14: Discrimination in General . . . . . . . . . . . . . . 225 • Title VII of the Civil Rights Act . . . . . . . . . . . . . . . . . . 226 • Covered Employers . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 • Religious Discrimination under Title VII . . . . . . . . . . . 233 • Other Antidiscrimination Laws . . . . . . . . . . . . . . . . . . 236 • State and Local Prohibitions . . . . . . . . . . . . . . . . . . . . . 238 • Professional Codes of Ethics . . . . . . . . . . . . . . . . . . . . . 238 • Discrimination Based on Genetics . . . . . . . . . . . . . . . . 238 • Contingent Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 • Record-Keeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 • Employment Practices Liability Insurance . . . . . . . . . . 242 CHAPTER 15: Gender Discrimination. . . . . . . . . . . . . . . . . 245 • Equal Pay Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 • Pregnancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 • Harassment in General . . . . . . . . . . . . . . . . . . . . . . . . . 249 • Employer Liability for Harassment. . . . . . . . . . . . . . . . 253 • Sexual Orientation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 • Other Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 CHAPTER 16: Age Discrimination . . . . . . . . . . . . . . . . . . . 261 • Covered Employers . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 • Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 • Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 • Proving Age Discrimination . . . . . . . . . . . . . . . . . . . . . 265 • Release of ADEA Claims . . . . . . . . . . . . . . . . . . . . . . . 265 CHAPTER 17: Persons with Disabilities . . . . . . . . . . . . . . . 267 • Definition of Disability . . . . . . . . . . . . . . . . . . . . . . . . . 268 • Medical Examinations . . . . . . . . . . . . . . . . . . . . . . . . . 270 • Duty of Reasonable Accommodation . . . . . . . . . . . . . . 272 • Other Prohibited Conduct . . . . . . . . . . . . . . . . . . . . . . 276 • Direct-Threat Defense . . . . . . . . . . . . . . . . . . . . . . . . . 277 HR_Smal_Business_Final_INT.indd vi 11/25/08 4:53:10 PM CHAPTER 18: Employee Privacy. . . . . . . . . . . . . . . . . . . . . 279 • Private Places . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 • Sensitive Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281 • Surveillance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283 • Electronic Monitoring. . . . . . . . . . . . . . . . . . . . . . . . . . 284 • Lie Detectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 • Drug Testing and Drug-Free Workplaces . . . . . . . . . . . 288 • Employee Mail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291 • Consumer Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 • Criminal Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 • Driving Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 • Identity Theft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 CHAPTER 19: Employee Loyalty . . . . . . . . . . . . . . . . . . . . 297 • Competing with an Employer . . . . . . . . . . . . . . . . . . . 298 • Trade Secrets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299 • Computer Fraud. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 • Loyalty by Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 • Remedies for Breach of Contract . . . . . . . . . . . . . . . . . 307 • Employee Dishonesty. . . . . . . . . . . . . . . . . . . . . . . . . . 308 CHAPTER 20: Alternative Work Arrangements . . . . . . . . 311 • Telecommuting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312 • Flextime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316 • Contingent Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . 317 CHAPTER 21: Foreign Workers . . . . . . . . . . . . . . . . . . . . . 323 • I-9 Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324 • Work Visas Generally. . . . . . . . . . . . . . . . . . . . . . . . . . 325 • High Tech H-1B Visas . . . . . . . . . . . . . . . . . . . . . . . . . 326 • H-2B Visas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328 • TN Visas under NAFTA. . . . . . . . . . . . . . . . . . . . . . . . 328 • Workplace Protections . . . . . . . . . . . . . . . . . . . . . . . . . 329 • Remedies Available to Undocumented Workers . . . . . 331 CHAPTER 22: Government Contractors. . . . . . . . . . . . . . . 335 • Statutory Framework . . . . . . . . . . . . . . . . . . . . . . . . . . 336 • Executive Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337 HR_Smal_Business_Final_INT.indd vi 11/25/08 4:53:11 PM • Rehabilitation Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339 • Veterans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340 • Drug-Free Workplace. . . . . . . . . . . . . . . . . . . . . . . . . . 340 • State and Local Government Contractors . . . . . . . . . . 341 CHAPTER 23: Nonprofit Organizations . . . . . . . . . . . . . . . 343 • Tax-Exempt Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . 344 • Employee Compensation and Withholding . . . . . . . . . 346 • Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . 346 • Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347 • Unemployment Insurance . . . . . . . . . . . . . . . . . . . . . . 349 • Religious Organizations . . . . . . . . . . . . . . . . . . . . . . . . 349 • Tenure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350 CHAPTER 24: Unions and Labor Relations . . . . . . . . . . . . 353 • NLRA Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354 • Concerted Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . 356 • Representation Elections . . . . . . . . . . . . . . . . . . . . . . . 359 • Duty to Bargain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362 • Other Unfair Labor Practices . . . . . . . . . . . . . . . . . . . . 367 • Union Security and the Right to Work . . . . . . . . . . . . . 369 • Strikes and Lockouts . . . . . . . . . . . . . . . . . . . . . . . . . . 371 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 APPENDIX A: Federal Statutory Thresholds. . . . . . . . . . . 377 APPENDIX B: Internet Resources. . . . . . . . . . . . . . . . . . . . 381 GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387 INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412 ABOUT THE AUTHOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420 HR_Smal_Business_Final_INT.indd vi 11/25/08 4:53:11 PM Introduction Small business owners—BEWARE! Not too many years ago, man- aging employer-employee relations was relatively simple. Little more was required than meeting payroll and remembering to de- posit withholding taxes on time. Since then, life has gotten infinitely more complicated and uncertain. Employment practices that eas- ily passed muster yesterday now expose employers to substantial risk and expense. At the same time, employees have become more knowledgeable about their rights and much less bashful about ex- ercising them. It is easy to cite examples of practices that may once have been common, but now, depending on the circumstances, could give rise to civil lawsuits and even criminal prosecutions. Do any of these things sound like good ideas? • I ’ll just call my staff independent contractors and avoid the hassles that come with having employees. • B ob worked overtime all day Saturday copying and stapling the proposal, so I’ll give him a day off next week. • N ancy quit on me in the middle of her project. There’s no way I’m going to pay her for the two weeks’ vacation she had coming. • I f I hire through a temp agency, I can tell them to send me men for the sales positions and women for the secretaries without having to worry about sexual discrimination. • B ecky in Accounting has been dating her assistant. I hear they’re having problems, but they’re just going to have to work things out. • The next person who gets his salary garnished is out of here! If any of these statements strikes a familiar chord, then this book is for you! Employment is, fundamentally, an economic relationship. The employer seeks an employee who will work competently and de- pendably in furtherance of the employer’s business. The employee seeks regular work at reasonable compensation. At the same time, the employment relationship is awash in power- ful, psychodynamic currents. Employers, having risked their personal capital to keep their businesses afloat, may have unreasonable expec- tations of loyalty and devotion from their work force. Employees, on the other hand, may feel at sea when subjected to seemingly HR_Smal_Business_Final_INT.indd ix 11/25/08 4:53:11 PM