By: Jordan Gerheim, CEO – Outside Chief Legal LLC
As a small business owner, you already wear enough hats without adding “accidental HR director” to the list. The truth is, most employment problems we see did not start with bad intentions; they started as shortcuts or from inexperience.
Below are five common employment mistakes we often see in growing businesses, and what you can do differently.
1. Hiring On Gut, Not On Paper
Mistake No.1: Bringing people on with a handshake and a start date, but no clear offer letter, job description, or written expectations.
Why it matters: When things go sideways, you have nothing in writing to show what the role was, how success was measured, or what the employee agreed to. That makes disputes more expensive and harder to resolve.
Example: A local owner hired a “manager” on a handshake and verbal promise of a bonus “if things go well.” Months later, the employee claimed he was promised equity. Because nothing was documented, the owner spent far more time and money fighting over “who said what” than it would have taken to use a basic offer letter.
Do this instead:
– Use a simple written offer letter for every hire (role, pay, basic policies, at‑will language where allowed).
– Attach a job description that spells out responsibilities and reporting lines.
– Have a basic onboarding checklist: handbook acknowledgment, tax forms, direct deposit, confidentiality/IP agreement, if relevant.
– Keep all signed documents organized in one secure place, not scattered across email and text threads.
2. Treating Everyone Like A Contractor
Mistake No. 2: Calling workers “1099 contractors” to keep payroll simple, even when they look and act like employees.
Why it matters: Misclassification can trigger back taxes, penalties, overtime claims, and even personal liability for the owner. If you control how, when, and where someone works, and they represent your business to the world, there’s a good chance they are legally an employee, even if they signed a contractor agreement.
Example: A growing marketing agency classified its account coordinators as contractors to “try it out for a few months.” When one left and filed for unemployment, the state looked closer, reclassified the group as employees, and assessed back payroll taxes and penalties that wiped out a quarter’s profits and savings.
Do this instead:
– List everyone who works for you and mark them “W‑2” or “1099” as you see it today.
– For each “1099,” ask: Do they work only for us? Do we set their schedule? Do we provide their tools? If yes, that’s a red flag.
– Use true contractor relationships only for people running their own business (their own clients, tools, marketing, and real independence).
– Have a lawyer or qualified HR pro review borderline roles before the state or IRS does it for you.
3. No Consistent Handbook or Policies
Mistake No. 3: Relying on “common sense” instead of putting core policies in writing (e.g. attendance, time off, overtime, anti‑harassment, social media, use of company devices).
Why it matters: Inconsistent, undocumented rules invite claims of unfair treatment and discrimination. When you cannot show what the policy was, it looks like you made it up for this particular employee or situation.
Example: Two employees asked for schedule flexibility. One got a “yes” because the owner liked them more. The other got a “no.” When the second employee later raised a discrimination claim, the lack of any written policy or consistent process made the business an easier target.
Do this instead:
– Adopt a lean, practical employee handbook that reflects how your business actually runs, not a 120‑page template no one will read.
– Cover the basics: at‑will language (where appropriate), equal opportunity and anti‑harassment, timekeeping and overtime, PTO/leave, technology use, and discipline.
– Train your managers on what the policies say and how to apply them consistently.
– Get signed acknowledgments from each employee and store them with your other core HR documents.
4. Sloppy Discipline and Terminations
Mistake No. 4: Avoiding hard conversations until you are fed up, then firing on the spot with little documentation.
Why it matters: When all the documentation lives in your head, the story on paper looks like a sudden, unexplained termination, which is exactly how a lawsuit or agency complaint often begins.
Example: A retail owner fired a long‑time employee after one tense argument, even though problems had been simmering for months. With no written warnings, the employee’s lawyer framed it as retaliation for a prior complaint about overtime – and there was nothing in the file to contradict that story.
Do this instead:
– Address performance or conduct issues early with a short, direct conversation and email summary.
– Use simple, consistent steps: verbal coaching, written warning, final warning, termination (you can move faster for serious misconduct, but keep the framework).
– Document specific behavior, dates, and expectations in the future; avoid vague phrases like “bad attitude.”
– When you do terminate, be brief, respectful, and stick to the documented reasons.
5. Ignoring Complaints and “Small” Problems
Mistake No. 5: Brushing off comments like “that made me uncomfortable” or “he keeps making jokes” because no one used the words “harassment” or “discrimination.”
Why it matters: Once you are on notice of a potential issue, you have a duty to look into it and take it seriously. Doing nothing, or worse, taking it out on the person who spoke up, is where small problems turn into big, expensive claims.
Example: A supervisor repeatedly made “jokes” about an employee’s accent. The employee mentioned it to the owner, who shrugged it off as “he’s just like that.” Months later, the employee filed a charge alleging discrimination and a toxic work environment. The owner’s earlier dismissal of the complaint became a key part of the story.
Do this instead:
– Treat any complaint about behavior, safety, or fairness as a signal to pause and investigate, even informally.
– Talk to the people involved, take notes, and decide on appropriate steps (coaching, discipline, or other changes).
– Never retaliate against someone for raising a concern, even if you ultimately disagree with them.
– Close the loop with the employee: thank them for speaking up, explain that you’ve addressed it, and remind them how to raise issues in the future.
How Outside Chief Legal Can Help
You do not need a full‑time in‑house legal department to run a clean, compliant workplace. Outside Chief Legal acts as a proactive, prevention‑focused, fractional outside general counsel for growing businesses that want ongoing employment guidance instead of one‑off crisis calls. We help clients tighten up offers and handbooks, clean up classifications, train managers, and spot blind spots before they become disputes. And if you are one of our subscribers, it is likely part of your plan already!
For many owners, a business‑checkup style legal review of their workforce is an ideal starting point. We walk through your structure, roles, policies, and problem spots, then prioritize the handful of changes that will reduce the most risk with the least friction.
Our Corporate/Business Counsel Services
Outside Chief Legal LLC is a modern, forward-thinking law firm serving as fractional chief legal officers and outside general counsel for businesses and their owners. With over 200 years of combined litigation, in-house, general counsel and administrative legal experience, the firm delivers approachable, comprehensive counsel that blends legal expertise with practical business insight to help clients navigate ownership complexities with confidence. OCL is a trusted partner for founders, business owners, and leadership teams nationwide. Learn more about our firm, meet our team, or schedule a Risk-Free Strategy Session to talk with an attorney about how we can help your company.
