Open House Recap: HR Risks for Startups

Last Friday, June 7th, we held the first ever Groundswell Open House — a conference-style, all-day event featuring talks from HR professionals, sales and marketing mentors and recruiters on topics for startups and job-seekers alike. Didn’t make it? No problem — all of this week, we’ll be sharing our notes on the talks that we went to. Today, we’re taking Risks in HR for Startups, a topic covered by Sue Holland.

We all know that most startups fail in the first five years, but what you may not know is that in the top five reasons for failure is conflict within the team. Especially in a startup, the team is the foundation for the entire company — your team dictates the culture, steers toward the mission and contributes in a big way to your burn rate. Failure to properly manage your employees can not only result in hefty fines, it can sink your entire startup.

In her talk, Risks in HR for Startups, Sue covered a couple of key considerations for new startups and a few of the laws that she often sees small businesses miss. This is by no means a complete coverage of all HR concerns startups should be aware of, but it’s a good place to start looking at your own startup’s policies.

• Diversity is key in building your team. When thinking about who you should add to your team, consider your own strengths and weaknesses. Having a diverse team in both background and experience can lend you a different perspective on problems as well as giving you access to a different set of skills.
• Tap into the freelance market. Freelancers and contractors can be a powerful resource, especially if you don’t need specific positions filled full-time.
• Start using an HR consultancy early. While you don’t need a full-time HR professional until you have at least one hundred employees, using a consultant early-on can save you a lot of headache until you get there. A consultant can help you lay the foundation to grow your team more quickly down the road with things like annual policy reviews, HIPA-compliant filing systems and employee handbooks.
• If you have someone (like an office manager) in charge of personnel, empower them. If you’re too small for an HR professional but have someone who’s in charge of personnel decisions, make sure that they’re empowered to make the right ones. Sue suggested SHRM as a great resource for that person to build a network of professionals they can lean on.
• Most importantly, make sure that you face HR issues head-on. Compliance problems become more expensive when you ignore them.

Besides practical advice, Sue talked about some of the laws small businesses are liable for as soon as they have one employee.

• Know the difference between 1099 and W-2 employees. Sue said she’d seen a lot of smaller businesses default to 1099s because they don’t want to deal with payroll, but the IRS has been cracking down on companies failing to make the distinction. A good rule of thumb: if your company is the sole source of income for a contractor, they might not be a contractor anymore.
• Know the difference between salary and hourly employees. The U.S. Department of Labor has published requirements for employees to qualify as salary (or exempt) employees. Familiarize yourself with these before determining whether an employee should be hourly or salary. However, if an employee manages two or more people, they automatically qualify.
• Watch your policies on unpaid breaks. While Florida has no laws requiring employers to give breaks, there are requirements for unpaid breaks. For a break to be unpaid, it must be at least thirty minutes and completely interrupted. That means if you call an employee on their lunch hour or ask someone to make you a copy, you have to pay for the entire break. This seems like no big deal, but if the Department of Labor audits you, you’ll have to pay up to three years of backpay on all of your employees’ breaks.
• Plan to deal with discrimination laws (EEOC) when you hit fifteen employees.
• Until you have fifty employees in a 75 miles radius, you aren’t required to give family and medical leave (FMLA).

This seems like a lot to manage and track, but there is a silver lining. Setting things up correctly from the beginning will save you a lot of headache as you scale.

Sue Holland, SPHR, SHRM-SCP has been practicing Human Resources for over 20 years and brings a practical approach to people management. Her HR strategies have helped growing organizations make better hiring decisions, decrease turnover, improve safety incident rates, improve employee engagement, identify skill gaps and solutions to close them, and much more. You can find out more about Sue and what she does here.