Business Law: The Intelligent Way to Handle
Employee Benefits

By Nina L. Kaufman, Esq

Berenice had a real flair for interior design. She had created a niche for her business by working with entertainment and sports celebrities. She hired Devon 2 years ago as an office manager/project assistant. Berenice paid for 100% of his company health insurance premiums and gave him 6 weeks of vacation and personal days off. In retrospect, Berenice realized that perhaps she went a little overboard, but she wanted to "do the right thing" by Devon.

Soon, Berenice was moving to larger projects and accounts and was branching out to include feng shui and ergonomic elements in her designs and consulting. She needed additional staff to help her manage the business. Her next hires were Juanita and Shun Yee, who took over Devon's office management tasks. But the price of health insurance policies had skyrocketed to the point where Berenice nearly choked. She also learned from working with Devon that 6 weeks was just too long for one employee to be absent from work (and get paid for it, too!). So she paid for only 50% of Juanita's and Shun Yee's insurance (which Berenice learned was the industry standard) and gave them both 2 weeks of vacation. Having been so busy with client relations, Berenice had had no time to put together an employment manual. So imagine: work picks up to a furious pace; Juanita and Shun Yee (both racial minorities and both women) see that Devon (a white male) gets more benefits and paid time off; Berenice is too busy, right now, to handle their complaints and concerns.

Joke: What's faster than a speeding bullet? Answer: The amount of time it taken for an overworked (and disgruntled) employee to find out that she receives less for performing similar work. But the repercussions may not be so funny for Berenice.

Increasing your work force is something that you absolutely, definitely want to do . . . with the benefit of an attorney guiding you. Why? Because, among other reasons, it's not necessarily a far jump for an employee to morph from Not Pleased to Plaintiff. A disparity in pay or benefits to employees could provide the foundation for a discrimination claim.

The many federal, state, and (sometimes) local anti-discrimination laws on the books can be a minefield for the unwary and uninformed. There are laws prohibiting discrimination against people on the basis of their age (over 40), their race, their religion, their national origin, and their sex/gender, to name a few. Also, although certain laws have a company size threshold (that is, that you need to have a minimum number of employees before the law - and its penalties -- apply), other federal and state anti-discrimination laws apply to all employers regardless of size. Yes, there are "defenses," or "loopholes" in some of these laws. But unless your company policies and job descriptions/qualifications are well-documented in a way that protects you, they may not be enough to overcome a discrimination claim.

Furthermore, these kinds of disputes can be ugly, prolonged, and expensive. It's costly to hire attorneys; it can be costly to settle the case; and there's a time and emotional energy cost to the company (and the business owner) to defend the case - time and energy that really needs to be spent on the business itself. So whether Berenice was right or wrong, and regardless of intent, she could find herself embroiled in a race or sex discrimination suit based upon her different treatment of Juanita and Shun Yee.

The good news--there are solutions. For the entrepreneur who has reached full capacity and needs to take on staff, you can go through this process safely by following these steps:

1. Don't go it alone. Expanding your company is one of the most crucial decisions you will make as a business owner. Advisors, such as accountants, attorneys, insurance brokers, and human resources firms have the background experience to competently and confidently guide you through these decisions. Researching costs, laws, and multiple employment scenarios is too much to expect one business owner (or even two or three) to be able to handle fully - and well. So don't divert your creative energies from your core business. Put a team in place that can help you with these issues.

2. Project into the future. Before you take on a single employee, think about your goals for the company in the foreseeable future (e.g., 5 years). How large a company do you want to have? How many people will you need? What kinds of functions with they perform? Over what period of time would you phase them in? Knowing your targets will help you and your advisors create a plan that is affordable.

3. Run the numbers. Too often, small business owners take on employee responsibilities without appreciating whether they have enough money to do so. There are not only salary and benefits costs, but also employer tax obligations, among other items. Your accountant and insurance broker can help you evaluate your cash flow and benefits options to see if you can afford the employee. There are few things more harmful to company morale than to see a regular turnover of employees because of the roller-coaster financial condition of the employer.

4. Think about a variety of benefits packages. Paying for less than 100% of your employees' health insurance costs does not make you a bad employer. Look at what others in your industry are doing. It's helpful to network at trade associations or speak to colleagues who are in your industry. Offering partial payments (such as a percentage) of health insurance premiums or placing fixed caps on employer contribution amounts are a way to avoid shouldering the whole burden of a benefit if you can't comfortably afford it. A good insurance broker will be able to present you with a menu of options to choose from.

5. Ease into it. There's no law that says you have to be the Club Med® of employers, offering an all-inclusive package of benefits options beginning from Day 1 of employment. You may want to offer increases in certain benefits - such as vacation days -- over time based on longevity with the company. Or bonuses based on reaching certain employee performance targets (instead of just company revenues). An attorney can help you craft a benefits plan that can avoid discrimination bombshells.

6. Investigate "HR outsourcing" options. There are a number of companies, like Administaff and ADP that provide a wide range of options for handling employee benefits and payroll paperwork. Depending on the size of your company, you may be able to save money on the cost of benefits by becoming part of their "employer client" pool. Another perk is that you may have access to a wide range of affordable benefits as a result.

7. Consider outsourcing. Depending on the job functions required by your company, you may be able to outsource the task to an independent contractor. This would help you avoid employment taxes and other employee-related concerns altogether. Do you really need an in-house bookkeeper? Or an in-house web designer? An independent bookkeeping service or web design firm may meet your needs just as efficiently (and, overall, less expensively).

Building your business so that it's more than "just you" is an exciting, but potentially perilous step. If you think it through, instead of just rushing to fill positions, you may find that the answer to the question "what's faster than a speeding bullet?" is the speed at which your company reputation swells!

© 2004-2009 The Legal Edge LLC. Nina L. Kaufman, Esq. is an award-winning business attorney, author, and speaker. Under her Ask The Business Lawyer umbrella, Nina offers easy-to-understand business law resources that protect small businesses and save them money. To learn more, and receive our FREE "LexAppeal" ezine, visit http://www.GreatBusinessLawTips.com  or contact Contact Us. This article is for your general information only. Be sure to consult with an attorney regarding your particular situation to make sure you get the specific advice you need.

Nina Kaufman, Esq. Award Winning Business Lawyer, Author & Speaker