Employment Laws that Apply to Your Business

Employment Laws that Apply to Your Business

Your employees can be a critical part of your business success. But hiring employees also means that you are responsible for following state and federal employment laws.

Depending on your size and type of business you’re in, you may have to comply with laws relating to taxes, workplace safety, overtime pay and discriminatory conduct. These laws provide important protections to workers, but they can mean extra paperwork and responsibility for employers. And if you violate workplace laws, you may face fines, penalties or an employment-related lawsuit.

Overtime Laws

The Fair Labor Standards Act, or FLSA, governs overtime for most employees. The FLSA covers all employees who are not specifically exempted by statute (such as agricultural workers) or covered by another federal labor law.

The FLSA defines employees as either “exempt” or “non-exempt” for overtime purposes. Non-exempt employees must be paid overtime if they work more than a 40-hour workweek. Exempt employees don’t receive overtime pay, no matter how many hours they work.

It’s important to properly classify your employees and pay overtime if it’s required. Otherwise, your business may be subject to complaints and lawsuits.

How do you know which employees are exempt? An exempt employee must make at least $455 for a 40-hour workweek, must be paid on a salary basis, and must perform exempt job duties.  Exempt job duties include:

  • Being a manager whose main responsibility is to manage, supervise or oversee at least two other employees. The manager usually must have the authority to discipline, hire and fire employees and to use his or her judgment to make business decisions.
  • Working in an administrative role that requires some independent judgment and discretion. Exempt administrative employees might work in human resources, IT, budgeting or finance.
  • Performing duties that require advanced knowledge acquired through study in a specialized area, such as law or accounting.
  • Being an outside salesperson that doesn’t work from the company’s place of business.

Employee or Independent Contractor?

Independent contractors are a popular way for small businesses to keep staff costs down. Independent contractors are not considered employees, so they aren’t eligible for company benefits or overtime pay. They must pay their own income, Social Security and Medicare taxes. 

Employees, on the other hand, may receive company benefits such as health insurance, sick pay and vacation pay. Their employer pays half of their Social Security and Medicare taxes and must pay overtime to nonexempt employees.

Small businesses may save money by using independent contractors, but the Internal Revenue Service has strict rules for who can be considered an independent contractor. If you misclassify an employee as an independent contractor, you can be liable for back taxes and penalties.

The more independently a person works, the more likely that person will be considered an independent contractor. A freelancer who works from home and is only responsible for turning in a final product may be an independent contractor. A worker who must report to your place of business at designated hours, whose work you closely supervise, and who uses your tools and equipment to do the work is likely to be classified as an employee.

If you are unsure how to classify an employee, consult a tax accountant or business lawyer.

Other Employment Laws

  • Anti-Discrimination Laws protect employees against workplace discrimination. The specific laws that apply to your business will depend on the number of employees you have.
  • The Equal Pay Act guarantees that men and women receive equal pay for equal work. All employers, regardless of size, must comply with the Equal Pay Act.
  • The Consolidated Omnibus Budget Reconciliation Act (COBRA) guarantees employees the right to continue their health insurance coverage after leaving their jobs. Businesses with 20 or more employees must comply with COBRA requirements.
  • The Family and Medical Leave Act applies to employers with 50 or more employees. It permits covered employees to take up to 12 weeks of unpaid leave for certain family and medical reasons. Employees’ jobs are protected and they can continue to receive health insurance coverage during their leave.
  • The Affordable Care Act requires employers with 50 or more employees to offer employer-sponsored health insurance or make employer shared responsibility payments.
  • The Occupational Health and Safety Act (OSHA) and related state programs regulate workplace health and safety.
  • Child Labor Laws. Under the FLSA, the minimum age for employment is 14, and employment for 14 and 15 year olds is restricted. Employment in some hazardous occupations is restricted to those aged 18 or older.
  • Minimum Wage Laws. Each state has its own minimum wage laws that you must comply with.
  • Other State and Local Laws. Your state or locality may have additional employment laws, including laws related to such things as frequency of paydays and minimum paid rest and meal periods. If your business is covered by both state and federal laws, you must comply with both.