The Riskiest Areas of Employment Law: The Mistakes You Don't Know You're Making

Most organizations that I speak to don’t realize they could be breaching compliance. They think everything is covered until a complaint, audit, or legal issue makes it clear that it's not. The truth is, staying legally compliant often revolves around managing the small details.

Keeping your head in the sand regarding employment law is the riskiest behavior

Common Compliance Pitfalls

We see the same eight areas catching organizations off guard time and time again. Understanding these can help you avoid costly mistakes.

1. I-9 Compliance

Every person placed on your payroll as a W-2 employee needs a Form I-9 completed before they start. Some believe this only applies to foreign workers or larger organizations. It doesn't. Your verification process must be consistent for everyone. Otherwise, you risk discrimination claims and civil penalties ranging from $288 to $2,861 per violation.

What Trips People Up:

• Accepting photocopies instead of original documents

• Not completing I-9 forms for every W-2 employee

• Using expired documents from the acceptable list

• Poor record-keeping and storage

  
  

The Fix:

• Complete Form I-9 for every employee before they start work

• Only accept valid original documents from the official I-9 list

• Store forms securely for required retention periods

• Consider using E-Verify if required in your state or for your contracts

  
  

2. Offer Letters and Pay Plans

Handshake deals might feel personal, but they'll cost you if things go wrong. While there's no federal law requiring written terms on day one, having clear offer letters and pay plans is essential for setting expectations and protecting your business.

What Trips People Up:

• Relying on verbal agreements without documentation

• Not clarifying at-will employment status

• Missing key details, like start date, pay, classification, or role expectations

• Inconsistent communication of company policies

  
  

The Fix:

• Provide written offer letters and pay plans outlining role, pay, start date, and employment status

• Use employee handbooks to communicate policies clearly

• Maintain up-to-date templates for consistency

• Document all employment terms to avoid disputes

  
  

3. Minimum Wage and Overtime Compliance

Federal minimum wage is $7.25 per hour (as of September 2025), but many states and cities have higher rates that supersede federal rules. Additionally, factors like mandatory training time, uniform costs, and correctly classifying exempt versus non-exempt employees can inadvertently push someone below minimum wage.

What Trips People Up:

• Not paying for required training time

• Deducting uniform or tool costs that push pay below minimum wage

• Misclassifying salaried employees as exempt from overtime

• Not checking local minimum wage rates that exceed federal requirements

  
  

The Fix:

• Always check your local minimum wage requirements; many exceed federal rates

• Pay for any mandatory training time for non-exempt employees

• Ensure that deductions don't reduce wages below minimum wage

• Correctly classify exempt versus non-exempt employees for overtime eligibility

  
  

4. Worker Classification

Correctly classifying workers as employees or independent contractors affects taxes, benefits, and overtime rules. Many businesses mistakenly believe that salaried workers don't qualify for overtime, but that's not always true. Misclassification can lead to owing back wages plus penalties and interest.

What Trips People Up:

• Treating contractors like employees or vice versa

• Assuming all salaried workers are exempt from overtime

• Missing overtime pay for non-exempt employees working over 40 hours

• Not understanding IRS and Department of Labor guidelines

  
  

The Fix:

• Use IRS and Department of Labor guidelines to classify workers correctly

• Distinguish between exempt and non-exempt employees for overtime purposes, ensuring classification is based on FLSA guidelines

• Review current classifications to avoid back pay and penalties

• Document the reasoning behind classification decisions

  
  

5. Data Protection Essentials

Your team's personal information requires secure handling. This means locked storage, limited access, and knowing who can see what. Employees may have rights to access certain personnel records, depending on your state. If your records are scattered across different places, managing them becomes a nightmare.

What Trips People Up:

• Unsecured filing cabinets or shared drives with sensitive information

• Employee data stored on personal devices

• Sharing social security numbers or other sensitive info without proper business reasons

• Poor disposal of old personnel files

  
  

The Fix:

• Lock up physical files and password-protect digital ones

• Limit access to sensitive information like social security numbers

• Establish clear retention periods and disposal procedures

• Organize records to respond to legitimate requests efficiently

  
  

6. Anti-Discrimination and Harassment Compliance

You're responsible for ensuring that your workplace is free from discrimination and harassment based on protected characteristics, like race, sex, age, religion, and disability. It's not enough to react when someone complains; you're expected to take steps to prevent problems proactively.

What Trips People Up:

• Waiting for complaints rather than preventing issues

• Not training managers on respectful workplace behavior

• Failing to respond promptly to complaints

• Not realizing that you're liable for manager and coworker actions

  
  

The Fix:

• Have clear anti-harassment and non-discrimination policies

• Train anyone who manages people on appropriate workplace behavior

• Document complaints and actions taken consistently

• Know when to bring in HR or legal support for serious issues

  
  

7. Leave Laws

Leave laws include federal protections, such as FMLA and military leave, plus disability-related leave under the ADA.

What Trips People Up:

• Not understanding which leave laws apply to their business size

• Denying disability-related leave without exploring reasonable accommodations

• Applying leave rules inconsistently across employees

• Poor documentation of requests and decisions

  
  

The Fix:

• Understand which federal leave laws apply to your business size

• Handle disability-related leave requests under ADA requirements

• Document every leave request and decision in writing

• Communicate leave policies clearly to avoid confusion

  
  

8. Workplace Safety and OSHA Compliance

Even small businesses must maintain safe work environments that meet OSHA standards. Workplace injuries can occur anywhere, from slips and trips in a storefront to repetitive strain in an office. If someone gets hurt, you need to show you took reasonable steps to prevent it.

What Trips People Up:

• Assuming OSHA rules don't apply to small businesses

• Skipping safety training for "low-risk" roles

• Not documenting injuries or providing required equipment

• Missing required OSHA posters and notices

  
  

The Fix:

• Provide proper safety training and equipment for all roles

• Display required OSHA posters and keep training records

• Record and report workplace injuries as required by law

• Make safety checks part of your regular operations

  
  

What to Do If You're Unsure

Most compliance gaps develop as businesses grow. What seemed straightforward with your first hire becomes more complex as your team expands. It's easy to miss requirements you didn't know existed.

Some of this information you can absolutely sort yourself using free resources. Other aspects might need professional input, especially if your situation has complications.

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