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Employment Law Tips for Small Companies 

Most businesses need to hire people to work for them—whether cooks, cashiers or delivery drivers—so having a solid understanding of employee law issues is crucial. Here are some important things to know:

Correctly determining if an individual is an employee or a contractor can help you avoid costly legal consequences. This also affects whether you will have to pay minimum wage and/or overtime for each employee, if you must withhold income taxes and pay Social Security and Medicare taxes, and unemployment tax on wages paid to employees, according to the IRS. 

Employees are regular workers under your control, while independent contractors are usually paid on a part-time or freelance basis. An employee will perform duties controlled by you and only works for you, while an independent contractor only works when required and likely works for other organizations throughout the year.

The federal Fair Labor Standards Act, Service Contract Act, and Davis Bacon Act require employers to pay overtime to “non-exempt” employees who work more than 40 hours in any given workweek, unless they meet certain exceptions. However, if an employee is classified as exempt, employers are not required to pay that person overtime.

If you think your business has valuable information that you want to keep secret, it may be a good idea to have your employees sign a nondisclosure agreement. This is a contract in which the individual promises to protect the confidentiality of the information that is disclosed during his or her employment.

Are you afraid a current employee might leave your company to work for a competitor, spilling all your valuable business ideas? If this is the case, you may want to have new employees sign a non-compete clause, which is a legal contract that prohibits employees from revealing valuable information to competitors or other outsiders for a certain period after leaving the company.

A non-compete clause can also prohibit a former employee from going to work for a company that is deemed to be a competitor.

Understanding some of the most common legal issues of small businesses ahead of time can help you avoid costly lawsuits.