How To Lose Your Small Business in 10 Days – Day 3

Categories: blog

Peach and Luigi Hire New Employees

Peach and Luigi quickly realize they cannot run the entire business on their own and are interested in hiring some additional help. But finding potential employees that understand the intricacies of plumbing and pizza dough tossing is not easy. After days of searching, they come across Yoshi, who currently works in a pizza restaurant at night, and does plumbing work during the day. Peach and Luigi are so excited to have found someone with both of these skills, they want to bring Yoshi on board as a manager immediately, so he can teach future employees the art of plumbing and pizza making.  As a result of their haste, Luigi quickly types up an “offer letter” to Yoshi indicating he will be the Manager of Plumbing & Pizza Delivery for $20.00 an hour until November 12, 2015, and Yoshi may renew his employment for an additional year, and every year after, at Yoshi’s choice for a $5.00 raise each year.

Little does Luigi know, that in just one letter he has made critical errors that can cost him and Peach their entire company. First, Luigi has bound the company to Yoshi’s contract and will be on the hook to pay Yoshi, regardless of whether or not the company succeeds or fails before November 12, 2015. Second, by allowing Yoshi to solely decide on whether or not to renew the contract, Luigi has remove his and Peach’s ability to ever negotiate with, or terminate Yoshi’s employment, especially since he failed to include some way for him or Peach to get out of the contract. Third, Luigi has guaranteed Yoshi a $5.00 per hour raise each year, despite Yoshi’s performance or the company’s financial status. Furthermore, Yoshi is a manager, therefore, he would be an exempt employee under the FLSA and not entitled to overtime, which could save the company a lot of money. However, by hiring him on an hourly basis, Peach and Luigi have bound themselves to paying Yoshi overtime, now, and for years to come. In seconds, Luigi has created a huge liability for his company, and is well on his way to losing his business.