This is the first part of a three-part series.
Family businesses make up the fabric of the U.S. economy. From a labor and employment law perspective, family businesses face a unique set of challenges and considerations.
Often the business begins with the owner and a handful of family members. As family members, the likelihood of someone complaining to the government about the company’s non-compliance with employment and labor laws is slim. Therefore, business owners often skip key compliance issues.
The following are a few tips for family business owners just starting out:
COMPLETION OF FORM I-9/NEW HIRE PAPERWORK
When a company begins, there is a lot of documentation that must be put in place separate and apart from entity formation. Form I-9 is used for verifying the identity and employment authorization of individuals hired. A self-employed individual does not need to complete a Form I-9. However, all employees must complete a Form I-9. The family member employees are
In many states, including New York and Connecticut, an employer is required to notify all employees at the time of hire, and in writing, of employment information such as: rate of pay; the rate per shift, day, etc.; allowances; name of the employer; physical address of the employer’s main office; pay day, company telephone number and much more. While this information may be known to the family members and other employees, the business is still required to give the notice.
REQUIRED LABOR AND EMPLOYMENT POSTERS
A family business just beginning is often run out of the owner’s home or a small office space. While it may seem silly, these locations are “workplaces” and state, federal and local laws mandate posting requirements. The Connecticut Fair Employment Practices Act applies to employers with three or more employees. If your spouse and two of your children work in the business, you meet the threshold. The Connecticut Commission on Human Rights makes posters such as “Discrimination is Illegal” and the “EEO is the Law” available on its website. New York City requires posting of a sex harassment poster for all employers with one or more employees. Every employer should obtain the full list of posters required in its state and business sector.
WAGE AND HOUR ISSUES
Family businesses routinely ask family members to pitch in a few hours here and there and pay is not discussed or expected. In fact, it may even be refused. While this is permitted under limited circumstances, unpaid work is a classic cause for family drama and legal intervention. Moreover, the family business adjusts to operations with limited payroll when a number of family members are not receiving a paycheck. This causes the company to appear more profitable than it really is. When operations begin to take off, the company hires nonfamily member labor and reality starts to hit. These new employees receive compensation and the business’ profitability is in jeopardy. If the business recognized its true profitability at the start, more effective planning and evaluation could have occurred.
ON THE JOB TRAINING
For any business to be successful, employees must understand the business and know their role. In a family business, this is often complicated when family members are placed in roles for which they have no formal training. For a business just starting out, this can be necessary but also disastrous. To the extent possible, family business leaders must take the time and expense to train family members on operations. On the job training may work, but takes time for the trainer. Alternatively, outside training may be available, at least regarding some of the basic skills not particular to your business — creating a budget, HR skills, etc. This is crucial for the long-term success of the business.
In part two, we will cover labor and employment law issues when a family business is up and running.
Katherine M. Bogard is an associate with Brody and Associates LLC in Westport. She can be reached at email@example.com. Robert G. Brody is the founder and managing member of Brody and Associates LLC. He can be reached at firstname.lastname@example.org or 203-454-0560.