While running a profitable small business in California may be a challenge, it is not an excuse to breaking employment laws. Although labeling an employee as an independent contractor may save money, it could lead to major expenses in the future. Business owners could be required to pay back state and federal taxes as well as additional financial penalties. Those who are unsure about whether a worker is an employer or contractor may want to talk to the IRS.
Employers may also be tempted to wrongly classify an employee to avoid paying overtime. In most cases, a salaried worker is exempt from earning overtime. However, this is not necessarily true just because a worker is salaried. If a worker is labeled exempt when he or she is not, that person could sue for back wages.
As a business owner, it is legal to provide loans to employees. What is not legal is deducting loan payments from an employee's paycheck. Typically, only taxes and benefits can be deducted from a paycheck, which means that separate payments must be made according to a promissory note signed by the employer and employee. If loan payments are deducted from a paycheck, it could create a legal situation that could take the focus of all involved off of helping the company grow.
Regardless of how large a company is, the owner is required to respect employee rights at all times. Violations could result in a variety of sanctions, and in some cases a lawsuit filed by the employee or the applicable state or federal government agency. Workers who feel that they have been mistreated may want legal assistance in pursuing the remedies that are available.