When you start a business, there isn’t really a playbook that explains how to implement the human resources function or how to mitigate risk to your business. Most often than not, it is trial by fire. Sometimes we will see a business wait until they have about 75 employees before they introduce human resources practices to their company. Other times, it might be during a firestorm where they are facing litigation stemming from a termination. A common myth seems to be that the human resources function is not required in a business until it grows beyond at least 50 employees. While a small business may not require a full-time HR professional immediately, there are certainly several HR practices that can be implemented to mitigate risk for a small business.
Some common and recent HR challenges involve navigating changes to employment standards and occupational health & safety and dealing with the legalization of cannabis. As a small business, you may not be aware of the risks of operating without having employment contracts or contractor agreements in place or without some key HR policies in place.
This will be the first of our weekly blog where we talk about different HR challenges and some tips for small businesses to mitigate risk. Today, we will provide a brief overview of the importance of having employment agreements in place.
Employment agreements should be used for any level of the organization to express all relevant employment terms. Any employment terms that are missing are subject to common law precedent. It is very helpful to outline employment terms because you are communicating employee entitlements, there is less ambiguity, and the chances for any disagreements or misunderstandings is greatly reduced (which often happens on a handshake deal).
To cover off what actually should be in an employment agreement, let’s start with the basics. You should clearly state items like the employee’s position title, start date, reporting manager, base salary, hours of work, overtime status, entitlement to incentives, entitlement to benefits, and vacation pay. You can also include entitlements for any eligible allowances, such as for professional development, mobile phone, or vehicle.
It is also important to specify the length of the probation period and what happens if the employment relationship is terminated. Obligations that can be stated in an employment agreement can include the employee’s responsibility to review and sign company policies, protect confidentiality, refrain from actions that could be considered a conflict of interest, refrain from soliciting clients or employees, and protecting intellectual property. Last but not least, it is important to outline the conditions of employment. Any offer should be contingent on satisfactory completion of the background check process. These checks might include (but not limited to) references, a credit check, or a criminal check.
Keep an eye out for our blog next week, where we will discuss the distinction between employees and independent contractors, and what the risks are for the incorrect classification.