Let’s say you are an entrepreneur. You have a product or service worth buying, and maybe you’re already selling it. But now you need to build a team to help your business really take off. What legal issues do you need to keep in mind when you consider your workforce design?

Yes, I’m an employment lawyer. No, I’m not suggesting that employment laws should be the primary factor in how you organize the people in your company. But once you have employees, complying with employment laws enters the equation.

Why Should You Design Your Workforce?

What are we talking about anyway? Maybe one day you could actually design the people in your workforce, if you wanted to. They could all be robots. You could order exactly the models and styles you want.

I don’t know if employment laws will eventually apply to robots. I kind of doubt it, and hope not, I think. (Then again, that would help keep people like me relevant despite a robot revolution . . . but I digress.)

If you want you business to work and grow, you want the right people involved. And even if you have the right people, they need some direction and scope of responsibilities. We’re not going to get into titles and job descriptions here. Those really aren’t all that critical to the employment law issues I have in mind. Still, if your employees don’t have some direction, then you’ll have chaos.

Okay, perhaps chaos works for you. But it doesn’t work for most businesses. And it doesn’t avoid the obligation to comply with employment laws. (If you’re interested in the type of chaos that includes disregard of employment laws, then what can I say? Good luck. But here’s a list of government websites you ought to at least know about.)

So, I assume those who are still reading want some structure. Each person reports to someone else. People will have some physical space to work in (though it may not be on company premises). There have to be some rules about what employees can and can’t do. (You’re not going to give everyone access to the bank accounts, right?) You’ll need to address compensation, including guarantees, expectations, and logistics.

That’s probably just the tip of the iceberg in most cases. But it’s enough to get us started here.

How Do You Design Your Workforce?

WARNING: This isn’t intended to be a blueprint. Any good workforce design needs to focus specifically on your business. We can’t tackle that in the abstract. But I think some examples will be helpful.

How much can you spend?

Suppose you’ve spent six months working by yourself to launch your business. Good news: It’s working! You decide that you can afford to spend $150,000 on a staff over the next year. You’ll re-evaluate after that (or, more likely, earlier, but let’s keep this relatively simple!).

Well, now you have to decide how to spend that $150,000.

First, remember that not all of the $150,000 will end up the hands of your employees. Most likely you will at least have to get a workers’ compensation insurance policy. In New York, and a few others states, you’ll also have to have disability benefits insurance. And there’s unemployment insurance. Plus, of course, taxes: FICA, FUTA, income tax withholdings. Oh, and did you want to offer your employees health insurance, life insurance, etc.?

You could try to avoid some of those items by hiring independent contractors, but then you’re taking a risk of misclassification. Many workers treated as independent contractors are really employees under relevant laws. That means you may expose yourself to additional penalties for not providing/deducting all the items in the previous paragraph. That’s not to say you should never use independent contractors–I don’t assume you’ll have a full-time plumber/electrician on staff–but for now we’ll stick with direct employees.

How many employees do you want?

Just to keep the numbers round, we’ll say you’ll end up with $100,000 in real after tax cash (which you’ll pay by check or direct deposit, but you get the point) to offer workers over the next year. How do you want to spread that around? Give it all to one person? Rotate through 10 low-paid part-timers?

Believe it or not, employment laws may have a significant role in this key workforce design decision. Minimum wage and overtime are obvious factors. There’s also the fact that some legal obligations depend on the number of employees you have.

To move things along, let’s go with an initial workforce of 3 employees. We’ll have one full-time employee and two part-timers.

There are still many workforce design questions to answer, such as:

What do full- and part-time mean? How will they be paid? When will they work? Where will they work? What will they do? What will they use?

Workforce Design Meets Employment Law

Let’s take each of the specific questions above and look at how employment law may influence your workforce design decisions.

1. What do full- and part-time mean?

The law doesn’t directly dictate this. Typically, full-time is 40+ hours. But sometimes it’s 35 or 37.5 hours, depending on the length of an unpaid lunch period. And those are only some possibilities.

However, there are laws that apply differently depending on whether an employee is full- or part-time, as defined by the law in question.

The federal workforce reduction law (the WARN Act), for example, uses 20 hours per week as the cutoff for part-time workers. So does the New York Paid Family Leave Benefits Law.

Under the Affordable Care Act (ACA), a worker is full-time if they work 30+ hours per week.

Just looking at those examples, the WARN Act and ACA generally don’t apply to businesses with only 3 employees (referencing our scenario above). But the New York Paid Family Leave Benefits Law does, even if only 1 of the 3 employees works in New York! If you’re trying to structure your New York workforce such that employees won’t be eligible to take paid family leave, then you would need to considerably limit their days and hours worked.

2. How will they be paid?

What if you don’t want to have to pay overtime? Then you basically have two options. One is not to let anyone work over 40 hours per week. The other is to qualify your employees for an exemption to overtime requirements.

Not everyone can be properly classified as exempt. It depends, in part, on what someone actually does in their job. But for most exemptions, the employee also has to be paid on a salary basis. The federal salary threshold is in flux. So, let’s look at state law.

In 2018, an employer with less than 10 or fewer employees, will have to pay a New York City-based employee at least $900/week to satisfy the most typical exemptions. If you’re going to pay that much so you don’t have to pay overtime when they work 50 hours in a week, are you willing to let them have weeks where they only work 30 hours? Or do you need 50 hours of work each week to justify the salary.

And look. If you have around $100,000 to pay 3 people. You can’t afford to have all 3 of them be exempt if they work in New York City. But if they work somewhere with a lower exemption salary requirement, then maybe you could, if their job duties qualify.

3. When will they work?

This ties back into the last problem. You can’t just say work whenever. Sure, you might have employees that don’t work enough. But the bigger problem, especially if you hired hard workers, is that they’ll work too much. Then you’ll be stuck paying overtime you can’t afford.

Some states have laws about working on Sundays, ranging from prohibiting it in certain industries to requiring premium pay. States also have laws that require meal periods. They may prohibit you from having an employee work when you otherwise would like them to. (See, for example, my Primer on the New York Meal Period Requirements.)

In some industries, such as truck driving, there are also specific requirements for how long an employee can work.

4. Where will they work?

Do you have space for them in your office or facility? Can they work at home? Will they need to travel? Who will pay for that?

Remember, especially for non-exempt employees, you have to track time worked. The traditional time clock may be a helpful tool.

Time can be harder to track for employees who are offsite. But there are plenty of technology-based solutions to monitor time. This could range from an email where the employee self-reports time worked on a periodic basis to software that records when the employee logs into and out of their computer. Which methods will you use?

There are also overtime rules that apply in determining whether you have to pay employees for time spent travelling related to work.

And don’t forget access issues. If employees will be working in your facility when you aren’t there, how will they get in? Do they need to lock up when they leave?

5. What will they do?

Sure, job descriptions are nice. You can write those up front, before you hire. Or you can bring on the right people and figure out how they fit best.  Whether written down or not, the scope of an employee’s job matters for employment law purposes.

First, there are the overtime exemptions mentioned above. They almost always depend, in part, on what the employee does. It’s not enough to call someone the Vice President of Sales and assume they’re exempt. If this employee really only enters customer data into a spreadsheet, they’re probably not going to qualify for an exemption.

Next, if you have enough employees to be subject to disability discrimination laws (15 or more under the ADA, often less under state laws), you may end up having to determine the “essential functions” of a person’s job. The ADA protects employees who can perform the essential functions of their job with or without reasonable accommodations.

What if an employee’s disability prevents him from driving? Suppose you want your employees to be able to drive to visit customers, run errands, etc. If that’s only incidental to their primary responsibilities, however, you couldn’t just get rid of the employee who can’t drive due to disability.

There can even be union-related considerations in workforce design. Maybe you don’t want a union (read here). But what if your new employees do. Even at just 3 employees, they could try to unionize. However, if you’re a private employee subject to the National Labor Relations Act, a bona fide “supervisor” isn’t eligible to be in a union. NLRA’s other protections don’t apply to supervisors either. But, again, just calling someone a supervisor doesn’t make it so in the eyes of the law. It will depend on what they actually do in the course of their job.

6. What will they use?

Maybe you have a residential lawn care company. If so, you may only entrust employees to use a push mower and hedge clippers. No big deal.

But, if you’re in a technology field, medicine, or consulting, the stakes may be higher. Are you providing a computer? Access to proprietary databases?

In these situations, you’ll want to consider how to protect your assets, and those of your clients, even from your own employees. Confidentiality agreements and even non-competes may be appropriate.

And you have to keep employees safe too. If you run a factory, for example, you’ll need to implement safety measures consistent with OSHA requirements.

No Shortcuts to Workforce Design

Most entrepreneurs won’t sit down and think through every possible legal issue related to bringing on a workforce. There are plenty of limitations on time and resources when confronting workforce design. But, employment law compliance shouldn’t be an afterthought either.

Larger, more established companies may have more resources and experience with having employees. But that’s not a complete advantage. That means they also have inertia going against them. In many ways its easier to design your workforce from scratch rather than reorganizing an existing staff.

Nevertheless, it’s unlikely that any business will get workforce design exactly right the first time, or any time. You will learn from what works and what doesn’t and adjust accordingly. For better or worse, you will also gain more and more experience with how the various employment laws may affect you. Learn from that too.

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