Starting and running a business is tough! You want to focus on building your business, not the “other stuff” that goes along with it. You may also feel you are too small to worry about certain rules and regulations in hopes you remain under the radar. However, the “I didn’t know” excuse does not get you out of paying a fine. Whether you are still in startup mode, or have your business up and running, it is important to avoid 4 mistakes small business owners often make.

  1. Misclassification of employees

Employee, independent contractor, exempt, nonexempt…what is the difference? Well really there is a big difference and yes it is very confusing. The IRS, US Department of Labor, and your state have a strong interest in how you classify your people. While operating with little cash flow and little time to worry about payroll taxes, it is very tempting to hire independent contractors instead of employees. Unfortunately, when looking at the job duties, behavior, and relationship, these independent contractors are really employees in disguise.

When classifying exempt vs nonexempt employees, it is easier to make everyone exempt and not worry about time logs and overtime costs. Unfortunately, when looking at the guidelines, some employees may be nonexempt. This will require you to pay them overtime.

The point here is to evaluate each job in order to comply with the guidelines. Don’t take the easy way out.

  1. Being too nice

There is nothing wrong with being a nice boss! You should be nice so people want to work for you. So what does it mean to be “too nice”? Being “too nice” means that you always give people what they want, tell them what they want to hear, do not hold them accountable for their actions or lack of production, and avoid having tough conversations.

First and foremost, your people are there to do the job as defined. It is not a nursery school and it is not a country club. Sure it is a place to learn and grow, but it is a place to work and produce results.

If you find yourself as being “too nice”, push yourself to have tough conversations and sometimes say “no”. Yes, it may come as a shock to your employees, but if they are taking advantage of you, it is time for a change.

  1. Lack of policies or no employee handbook

Many small businesses want to limit formalities and rules. Small business owners also tend to say “we have not had a problem yet” or “we have been lucky so far”. Well what happens when the luck runs out? As the years go by and your business grows, you run the risk of unexpected things happening.

Here is an example:

You hire an employee who loves gossip and drama. Every day it is something else between her and at least 3 others. She has been spoken to time and time again. These meetings are also undocumented because you do not have a formal disciplinary process. You are finally tired of it and terminate her employment. A few weeks later you get a notice. Yup, she filed a discrimination lawsuit because she is a female and a minority. You have no documentation of your conversations with her and it’s her word against yours. This places you in a tough situation. Especially since a male co-worker at one point was involved and there is no documentation that you took action against him.

Having a clear anti-gossip policy and a disciplinary action policy with a signed acknowledgement by the employee can help prove your actions were not discriminatory and the employee agreed to abide by these policies.

  1. Believing it is OK to claim ignorance

Yes, you may be very small. Sure, you may not be caught at the moment. But do you really want to risk losing your business over a simple regulation? Of course you don’t!

Surprisingly many business owners believe playing dumb can work for them, but this is not true. The best thing to do is conduct research on governing rules and regulations in an effort to comply.  If you feel the need, seek advice from a professional. Business Consultants, Employment Lawyers, and Human Resources Consultants can provide ample information for you to make the right decisions for your business.  



You may have found yourself guilty of some of these mistakes while reading this article. This does not mean you are a bad business owner! Recognizing and understanding these 4 mistakes is the first step to making a change. Your next task is to do the research, seek advice, and follow through with a plan.


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