Scaling Up Safely: Legal Compliance Considerations When Growing Your Team

May 5, 2025 in Legal & Hiring

This article was written by Brooke Poling, owner of Optimal Employee Relations.

Congratulations!

Your business is booming, and you are thriving. As your business grows, you'll likely need additional help to meet the demands of your customers (and your calendar). Expanding your workforce is a sign of success, so you should feel proud.

You should also be mindful that a larger workforce brings additional legal and compliance obligations. To get you started, here is a breakdown of key considerations when expanding your workforce.

Employee Classification

Workers may be classified as either 1099 independent contractors or W-2 employees. There are significant differences between the two, and you should consider what works best for your business.

An independent contractor is self-employed and generally performs services on a contract basis. When working with an independent contractor, you do not dictate their process for performing the work, what tools or software they use, or even where they work. Consequently, you have very limited control over their work, and the control you do have is focused on the result. In essence, you can determine the scope and quality of an independent contractor's work, but you cannot control how that work is completed.

Your level of control is greater with a W-2 employee. A W-2 employee represents the traditional employer-employee relationship most people think of when they hear the word "employee." When you hire an employee, you can decide their schedule, the procedures they must use to complete tasks, the equipment they use, the uniform they wear, etc. This applies to both part-time and full-time employees.

So, what works best for your business? Be aware that with greater control comes greater responsibility. If you employ a W-2 employee, you must withhold state and federal taxes from their pay, as well as pay your portion of Social Security and Medicare taxes. You also risk liability for discrimination, harassment, and retaliation complaints (more on this below).

All things considered, if your business requires a certain service on an occasional basis, hiring an independent contractor probably makes more sense. On the flip side, if there are functions that your business needs completed frequently using a specific process, a W-2 employee is the better choice.

Legal Thresholds for Compliance  

As mentioned above, having employees can put you at risk for discrimination, harassment, and retaliation lawsuits. There are several ways to prevent these issues, including clear policies, regular training, and strong management personnel. Additionally, not all anti-discrimination laws apply to employers equally. Most anti-discrimination laws only apply if the employer has a certain number of employees (part-time or full-time). Below is a table of notable federal anti-discrimination laws and the associated employee thresholds:

Law	Employee Threshold
Title VII of the Civil Rights Act	15+ employees
Americans with Disabilities Act	15+ employees
Age Discrimination in Employment Act	15+ employees
Pregnant Workers Fairness Act	15+ employees
Family Medical Leave Act	50+ employees in 20 or more workweeks

State laws may have different employee thresholds. For example, Ohio's anti-discrimination laws apply to employers with 4 or more employees. Accordingly, even if you do not meet the federal threshold, you might meet your state's employee threshold.

Risk Management

As mentioned above, there are ways to mitigate legal risk and liability. Preventative measures include clearly defined policies, consistent application of those policies, and regular training. Policies are typically housed in an employee handbook, which should be distributed to employees upon hire and at least annually thereafter. Your handbook should include anti-discrimination, harassment, and retaliation policies, as well as procedures for handling complaints.

Note that an employee handbook is only effective if used regularly. As a business owner, it's important to create a culture that relies on your handbook. This is accomplished by making the handbook easily accessible and using it as a resource guide when questions arise.

It is also achieved by conducting annual employee and management training, using the handbook as a training tool. This allows time to review relevant policies with employees, answer questions, and provide examples of how the policies look in practice. This is also an important step in ensuring that management personnel know how to apply policies and procedures consistently. Inconsistent application can lead to resentment and discrimination claims.

Optimal Employee Relations Can Help

Considering the legal ramifications of expanding your workforce and implementing compliance measures can feel overwhelming, but Optimal Employee Relations is here to help!

Optimal Employee Relations specializes in creating custom policies and procedures for your workforce, as well as employee handbook implementation and training. At Optimal Employee Relations, we understand that an employee handbook is not one-size-fits-all and work with you to understand your business and workforce needs.

From there, Optimal Employee Relations creates a custom handbook tailored to your business. And it all starts with a free consultation! Visit optimal-employee.com for further information.