Federal labor laws, like the Fair Labor Standards Act (FLSA), and related state laws affect all businesses with employees. They govern workforce practices like overtime, minimum wage, on-call pay, employee breaks, and sick leave as well as hiring minors and preventing discrimination. Employer compliance with labor laws can help you avoid thousands of dollars in fines.
How Labor Laws Work
Federal labor laws like the FLSA provide workers with protections: minimum wage, overtime payments, and equal pay for equal work. For example, labor laws even offer protections so that a new mom can nurse or pump breast milk. They also contain enforcement and reporting requirements, including rules on how long to keep payroll records. Most labor laws prohibit retaliation against an employee who reports a concern or violation.
Who Labor Laws Impact
Labor laws are applied differently based on company size, often adding enforcement and reporting requirements for larger employers. Other laws provide exceptions for workers in certain industries like farm labor or live-in domestic employees. As examples, the minimum wage is lower for businesses whose employees earn tips. In fact, a lower minimum wage can be paid to students and those with limited productivity due to a disability like Down syndrome.
Here are examples of how federal labor laws impact business of various sizes:
- Employers with one or more employees: Must abide by the FLSA in terms of overtime pay, equal pay and employing minors as well as provide regular pay at fixed intervals
- Businesses that generate over $500,000 in annual revenue: Must abide by FLSA minimum wage, with few exceptions
- Firms with 10 or more employees: Must provide OSHA safety and incident reports
- Employers with 15 or more employees: Must abide by antidiscrimination laws, including providing reasonable accommodations for disabled employees
- Employers with 20 or more employees: Must prevent discrimination based on age and must comply with COBRA if they provide health insurance benefits
- Employers with 50 or more full-time employees (FTEs): Must offer health insurance to workers as well as making family medical leave available to qualified individuals like new parents
- Employers with 100 or more employees: Must give employees 60 days’ notice for layoffs or closure; they must also file EEO surveys showing worker demographics
- Employers with 250 or more employees: Must file ACA paperwork electronically
HR provider Zenefits furnishes this handy guide spelling out exactly what laws your firm needs to comply with based on the size of your employee base. It also offers a compliance assistant to help you ensure you don’t make costly mistakes. Contact Zenefits for a free demo.
What’s important to note as you view the list of labor laws, is that many states build upon these federal labor laws by adding their own compliance criteria. For example, the Family Medical Leave Act (FMLA) applies to employers with 50 or more workers. However, in more than 10 states, some of this leave must be made available to employees as paid time off or the FMLA may apply to smaller companies. As a business, you must comply with whichever law―state or federal―is more favorable to the employee.
Federal Labor Laws (General)
The full list of labor laws is long. Details can be found by visiting the various organizations that establish workforce and employment laws linked below. In addition, labor laws are updated regularly, making it wise to hire or partner with an HR provider, like Zenefits, that can keep you abreast of changes affecting your business.
Federal Labor Laws & Businesses They Impact
|Fair Labor Standards Act (FLSA)|
|Immigration & Nationality Act (INA)|
|Federal Income Tax Withholding (FICA)|
|Equal Pay Act|
|National Labor Relations Act (NRLB)|
|*Employee Polygraph Protection Act (EPPA)|
|*Uniformed Services Employment and Reemployment Rights Act (USERRA)|
|Occupational Safety & Health Act (OSHA)|
|Title VII of the Civil Rights Act*|
|Genetic Information Non-Discrimination Act (GINA)*|
|Americans with Disabilities Act (ADA)|
|Affordable Care Act (ACA)|
|*Age Discriminination in Employment (ADEA)|
|Family Medical Leave Act (FMLA)|
|Worker Adjustment and Retraining Notification Act (WARN)|
|Comprehensive Omnibus Budget Reconciliation Act (COBRA)|
|Health Insurance Portability and Accountability Act (HIPAA)|
|Employee Retirement Income Security Act (ERISA)|
|Fair Credit Reporting Act (FCRA)|
|Sarbanes-Oxley Act (SOX)|
Fair Labor Standards Act
The Fair Labor Standards Act (FLSA) is the overarching labor law that all businesses need to know about. Its basic principle is to ensure employees are paid fairly. This includes how much they’re paid (minimum wage), how they’re paid (regularly each pay period) and whether they are eligible to earn overtime.
What Is the FLSA & Who it Impacts
The FLSA requires you to pay overtime for certain employees, based on classifications referred to as exempt or nonexempt. At the federal level, overtime is calculated at 1.5 times the employee’s regular hourly pay rate for all hours over 40 worked in a week. The FLSA also mandates federal minimum wage with exceptions in a few industries, like agriculture, railroads, and educational institutions.
How FLSA Works + Example
FLSA requirements are the minimum. Many states and cities require businesses to pay a higher minimum wage or to calculate overtime more generously. For example, the current federal minimum wage is $7.25 per hour, yet states like California have minimum wage rates that vary by city up to $15 per hour. California also has a significant number of additional laws that protect workers by providing, for example, mandatory paid sick leave.
Let’s look at a simple example of how the FLSA affects your business:
Suzie is paid $11 per hour as a retail sales associate. She works consistently 20 hours per week. Suzie makes about $11,200 year and meets the requirements to be considered a nonexempt employee. Suzie would be eligible for overtime pay but only if she works more than 40 hours in a given week. For every hour worked after 40 hours in a week, she would earn $16.50 per hour.
Regular Pay of $11 per hour x 1.5 = $16.50 per hour for overtime pay
Common FLSA Issues
FLSA compliance issues can plague small businesses. Those include not classifying salaried and hourly employees correctly, failing to pay overtime, inconsistent pay practices such as missing paydays, or paying men and women differently for the same job. To learn more about the FLSA, consider investing in HR training for you and your management team.
Immigration and Nationality Act
The Immigration and Nationality Act (INA) ensures that your workers have the right to work in the U.S. It’s why you need to complete I-9 forms within three business days of onboarding your new employee. If you’re not using a payroll program to handle this for you, we highly recommend signing up for the E-Verify program, which is managed by the U.S. Department of Homeland Security.
What Is the INA & Who it Impacts
INA is the law that applies to foreign workers authorized for employment in the U.S. under certain nonimmigrant visa programs (H-1B, H-1B1, H-1C, H2A). Every business in the U.S. needs to comply with INA, by confirming that workers are eligible to work in the U.S. I-9 compliance is managed by U.S. Immigration and Customs Enforcement (ICE).
How it Works + Example
At the time of hire, you will ask your new employee to bring in documentation showing their eligibility to work in the U.S. For example, if Carlos starts work on Monday, he needs to bring his documentation into the office by Wednesday, or he’ll risk termination. The most common documentation is a driver’s license and a Social Security card. Here’s information on how to complete the I-9 form correctly.
Common Issues With INA
Forgetting to get employee I-9 forms completed within the three days allocated can result in problems down the line should your employees not be eligible to work in the U.S. Some employers also make the mistake of keeping I-9s in the employee’s file. They should instead be kept in a separate I-9 folder in case your business is audited by ICE.
Federal Insurance Contributions Act
The Federal Insurance Contributions Act (FICA) requires you to withhold social security and Medicare taxes from your employees’ wages, and you must also contribute a matching amount of these taxes per employee.
What Is the FICA & Who it Impacts
FICA is essentially a tax that impacts any small business with employees. Your role as an employer is to collect the employee’s share of the tax from their earnings and provide quarterly payments to the IRS. FICA does not come into play when you hire independent contractors, such as self-employed freelance or gig workers.
How FICA Works + Example
FICA works by taking a percentage of your employees’ income that you as an employer match and send to the government. For example, if Joel earns $2,000 a month, you’ll collect 6.2% of his income for Social Security and 1.45% for Medicare, match it, and send it in as a quarterly tax payment using IRS form 941.
Common FICA Issues
The most common mistakes made are missing quarterly tax payments, misclassifying employees as exempt, or calculating tax payment amounts incorrectly. All can result in penalties against your business, in addition to having to pay back pay with fines double that amount.
Occupational Safety & Health Act
Occupational Safety & Health Administration (OSHA) is both the act and the agency that governs workplace safety and health. This can range from bed bugs affecting hotel workers to printer fumes, causing respiratory concerns to heavy equipment certification requirements.
What Is OSHA & Who it Impacts
OSHA regulates safety and health conditions in the workplace. All employers have a general duty under this act to provide a safe, clean, and hazard-free workplace, which that may include establishing an emergency exit plan in an office or setting up an eyewash station near where chemicals are stored. In addition, like most federal laws, employees have the right to file complaints without fear of retaliation.
How OSHA Works + Example
If you have more than 10 employees, annual OSHA reporting is required. Employers need to report any issues to OSHA between February and April of each year. Therefore, it’s a good idea to conduct a safety check once per month on things like electrical outlets, computer wires, and other potential safety hazards. The OSHA website provides free resources. Otherwise, the only time you’re likely to get a visit from OSHA is if an employee reports a safety concern.
Common Issues With OSHA
For small businesses, most OSHA-related issues are caused by unsafe employee practices, such as employees standing on chairs, leaving desk heaters plugged in, or not wearing protective gear. Safety training can prevent these risks, and many insurance providers can help by offering training resources. However, employees may also complain about an unsafe or dirty work environment, making it important to clean and inspect your workplace regularly.
Title VII of the Civil Rights Act
Title VII prohibits discrimination in employment and hiring practices. The current list of protected classes includes race, color, biological sex, creed or religion, national origin or ancestry, genetic information, age, veteran status, citizenship, and physical or mental disabilities.
What Is Title VII & Who it Impacts
All businesses, regardless of size, should comply with antidiscrimination as a best practice. Title VII has expanded greatly through the years to be more inclusive of all Americans and their right to employment. Any business with 15 or more full-time employees must comply with Title VII.
Additionally, many states’ version of this law also includes gender identity, financial status, and sexual orientation. A few states also require that annual training be provided to all employees. It’s best to check the antidiscrimination laws in your state as they’re likely to be more inclusive.
How Title VII Works + Example
Any work practice, such as asking a candidate their age, or giving preference to a worker based on their gender is a violation of Title VII. For example, let’s say that your black female employee is expecting a baby in a few months. Even though she’s the top performing employee, you decide to give the next promotion to a white male employee because he doesn’t have a family. Your black female employee could claim discrimination based on any of several protected classifications and would likely win a lawsuit against you based on Title VII.
Common Issues With Title VII
While outright discrimination is still out there, most cases happen by accident. For example, unconscious bias may occur, causing managers to gravitate toward people who are similar to them. This extends to appearance and background. To prevent bias, consider training managers on how to avoid discrimination and use structured interviews. Training can help your team focus on work-related traits and help you create an inclusive workforce, free of discrimination. You may, in fact, want to be proactive in light of the #metoo movement and provide sexual harassment prevention training to your staff as well.
Americans with Disabilities Act
The Americans with Disabilities Act (ADA) added extra protection for people with physical and mental disabilities to Title VII when it was passed in 1990. While pregnant women are protected under a different law, pregnancy, and childbirth is also treated as a temporary disability and protected by the ADA as well.
What Is the ADA & Who it Impacts
The ADA prohibits private employers, governments, recruiting agencies and labor unions from discriminating against qualified candidates with disabilities in job application procedures, hiring, firing, advancement, compensation, job training, and other employment processes. The ADA is only enforced for employers with 15 or more employees, but we recommend that all businesses comply with it.
How ADA Works + Example
Let’s say that you decide to send your accounting team to off-site training, excluding one employee who has a hearing disability because you think the noise level will be distracting with their hearing aid. That’s discrimination under the ADA. It’s not just whether you hire disabled workers or not―it’s also how you treat them on the job.
Common Issues With ADA
Complying with the ADA includes providing reasonable accommodation to support a disabled person (or a current employee who becomes disabled). For example, if a visually impaired candidate is a perfect fit for your customer service job and needs a $150 special keyboard to input caller data, that would constitute a reasonable accommodation.
In contrast, if a person in a wheelchair wanted to work for you, but your accounting office is located up three flights of stairs, the construction of an elevator would not be a reasonable accommodation for your small business as it could be deemed a financial burden. Perhaps, you could allow them to work from home instead.
Family and Medical Leave Act
The FMLA is a federal labor law requiring employers to offer unpaid, job-protected leave to eligible employees for the birth or adoption of a child or the serious illness of the employee or a spouse, child or parent.
What Is the FMLA and Who it Impacts
FMLA requires you to protect the job of an employee who is out on leave for up to 12 weeks. It also allows up to 26 weeks for the same protection for an injured or ill military service person or family members caring for a military service person. Any employer who has 50 or more employees must provide FMLA. However, in some states, family leave laws are more comprehensive and may apply to employers with as few as five full-time workers.
How FMLA Works + Example
Only employees who have a year of service are eligible for FMLA, and there’s typically a policy and an application process they need to use. For example, if your new hire of three months requests six weeks of FMLA for nonwork-related knee surgery, you can decline the leave request under the FMLA. Here’s information on how to develop an FMLA-compliant maternity leave policy, which is the most common situation you’ll likely face as a small employer. However, keep in mind that new dads have many of the same FMLA rights as expectant mothers.
Common Issues With FMLA
FMLA creates several challenges for small employees. One is administering it. The other is covering for the worker while they are out. In some cases, a small business can claim hardship if the person requesting FMLA is a key resource. Companies with 50 or more employees are best advised to create a leave policy with leave request forms well in advance of their first leave request. In addition, leave requests must be granted in a nondiscriminatory manner. In other words, you can’t deny dads adoption leave while providing it to moms.
Lesser-known Federal Labor Laws Enforced by the EEOC and DOL
Many additional labor laws are managed and enforced by the EEOC and the DOL. These affect employers of all sizes.
Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) allows an employer to obtain an applicant’s or employee’s consumer report for employment-related purposes if it gives the applicant or employee a written disclosure notifying them that a consumer report may be obtained and obtains written authorization from that person. Some states have similar laws for pre-employment drug testing.
Equal Pay Act
The Equal Pay Act requires that men and women be given equal pay for equal work at a business. It is the content of the job and the work responsibilities, not job titles, that determine whether jobs are roughly equal.
Uniformed Services Employment and Reemployment Rights Act
The Uniformed Services Employment and Reemployment Rights Act (USERRA) is a federal labor law from 1994 that protects military workers’ jobs. It establishes the length of time that a person may be absent from work for military duty, such as active duty or guard duty, while retaining reemployment rights. This law can protect someone for up to five years.
Consumer Credit Protection Act
The Consumer Credit Protection Act (CPPA) applies to employers who manage wage garnishments and limits the percentage amount of the workers’ pay that can be garnished from their paycheck. If you have employees with garnishments from liens, student loans, or child support, you will want to make sure you are in compliance.
Zenefits is an HR provider with a programmed human resource system that can help you manage state, federal, and local workforce requirements. They can also provide labor law posters, payroll services, and employee benefits. With all your employee data in one paperless system using preprogrammed calculations, you’re much less likely to encounter a labor law compliance issue. Visit Zenefits for a free demo.
Federal Labor Laws (If You Provide Benefits)
If you provide employee benefits or have more than 50 FTEs―requiring you to provide benefits―you will need to understand the following federal labor laws. Two are geared toward medical insurance, and the other is geared toward retirement plans. Your benefits provider should guarantee compliance with these laws, and it is good to understand how they work.
Comprehensive Omnibus Budget Reconciliation Act of 1985
The Comprehensive Omnibus Budget Reconciliation Act of 1985 (COBRA) is the law that requires the option for continuation of health insurance for employees that have been fired, laid off, or let go for any reason from a business.
What Is COBRA & Who it Impacts
Only businesses that offer employee benefits need to be concerned with COBRA. If you provide medical insurance and have 20 or more employees, you must comply with COBRA, and some states like California offer extended COBRA benefits.
How COBRA Works + Example
When an employee is terminated and will lose their employer-sponsored healthcare coverage COBRA kicks in to provide them continued health insurance coverage they can pay for themselves. In fact, if you offer employee benefits, the COBRA paperwork should come automatically from your provider or benefits system. Some businesses reimburse employee COBRA premiums as part of severance pay.
Common Issues With COBRA
The paperwork for COBRA needs to go out in a timely manner. We recommend you create an offboarding procedure to ensure that COBRA documents are ready to send via email as soon as an employee gives notice or is terminated. Don’t forget to keep copies in your files.
Health Insurance Portability and Accountability Act
The Health Insurance Portability and Accountability Act (HIPAA), pronounced hip-uh (and sometimes misspelled as HIPPA), is a health insurance and medical privacy law that protects employee’s privacy regarding any health information. It often requires you to train workers who handle sensitive employee data.
What Is HIPAA & Who it Impacts
HIPAA’s rules cover everything from medical information privacy to the coverage you need to provide and the timeframe you need to provide it in―if you offer health insurance. A benefits provider, like Zenefits, will help ensure HIPAA compliance. In addition, they may provide HIPAA training for you as the business owner and any members of your staff who have access to confidential employee data.
How HIPAA Works + Example
If you provide benefits, you need to comply with HIPAA, no matter what your employee base size is. In addition to that, if an employee discloses personal medical information to you or your managers, it’s important you safeguard that private information. For example, an employee may overshare that they need to take a few days off to manage a medical issue. It’s a good idea to suggest that you don’t need details. To protect the employee’s privacy, it’s best not to require a doctor’s note.
Common Issues With HIPAA
Not having locked employee files and office gossip are two common issues. Make sure your personnel files and medical insurance information is password protected or kept in a locked cabinet. Train managers to keep employee personal information private. Even something as simple as a manager publicly discussing information shared in a doctor’s note can put your business at risk of a HIPAA violation.
Employee Retirement Income Security Act
This jargon-ridden law from 1970 covers retirement plans. The Employee Retirement Income Security Act (ERISA) provides rules for employers offering pension, retirement, or welfare benefit plans for their employees, such as a 401(k). The law regulates qualified versus unqualified retirement plans, the conditions behind them, when you can make pre-tax payments, and more.
What Is ERISA & Who it Impacts
If you provide a 401(k) or other type of retirement plan, including a Health Savings Account (HSA), you will need to comply with ERISA regardless of your company size or contribution amount. This is why using a provider like Zenefits to help you manage your retirement plans makes sense, as their providers can ensure ERISA compliance.
How ERISA Works + Example
ERISA is one of the most complicated pieces of legislation to read if you desire to do so. For example, if you want to offer a 401(k) plan, you will need a plan administrator, will need to provide plan documents and need to ensure fiduciary requirements. You also need to retain document records. For example, if you decide to offer a 401(k) to your employees, it’s best to work with an expert in benefits who can help you set up the plan and explain it to your workers.
Common Issues With ERISA
Providing the right paperwork and knowing when to provide it can be the biggest ERISA issue. Working with a strong provider will help guide you when you need to provide and track 401(k) and retirement information for employees.
Zenefits provides a solid all-in-one employee management solution with payroll and benefits options that comply with federal and state labor laws. In addition, Zenefits partners with experts in retirement planning and 401(k), keeping all your employee data in one cloud-based paperless software system. Get your free Zenefits demo.
As you review the federal labor laws above, be aware that your state may have more restrictive rules, offer greater protection for employees, or have enacted local laws with which your small business must also comply.
State Employment Laws
Nearly every U.S. state has labor laws that affect businesses that employ workers in that state. Companies located in just one state can typically learn about these laws by searching the government website listed below for that state, or by attending a local HR or labor law seminar.
However, multistate employers may find it nearly impossible to keep up with state-by-state rules. In that case, we recommend working with a payroll service that uses software programmed to include all federal and state labor laws.
For example, some states ban employers from asking about salary history or criminal backgrounds. Antidiscrimination laws in other places extend to sexual identity and sexual orientation. More than a few states have added mandatory paid sick leave as well as paid family leave laws.
Here are a few examples of recent (2019) updates to state employment laws:
- Oregon requires employers to post an Equal Pay poster
- Ohio and a dozen other states ban salary history questions on applications or interviews
- More than 10 states require employers to provide paid family leave
- Many states now require the use of E-Verify in addition to requiring an I-9 form
- New York state requires lactation rooms for new moms while the city of New York requires employers to provide commuter benefits
- Delaware and New York require antiharassment training
- New Jersey has now banned the use of nondisclosure agreements (NDA)
- Most states now prohibit you from terminating an employee based on their recreational use of CBD or cannabis
State by State Labor & Employment Law Websites
Zenefits is an example of HR information system (HRIS) software that provides federal and state compliance across all U.S. locales, including county rules in places like New York and San Francisco that require employers to provide commuter benefits. In addition, it eliminates much of the HR back office work by providing employees with access to an HR portal, direct deposit, and paperless onboarding. Zenefits provides three ways that you can demo its software, including a free 14-day trial.
Labor Law Compliance Costs
Labor law compliance comes with a cost that may benefit your business in terms of recruitment and retention. Employees prefer to work for companies that play by the rules. Therefore, it’s useful to think of labor law compliance as an investment in your business health rather than a cost.
Here are costs you might incur to ensure compliance with federal and state labor laws:
- Software: HR and payroll software ranges in price from a few dollars a month per employee to thousands of dollars a year. HR software manages all workforce compliance needs affecting recruiting, hiring, compensation, training, benefits, and termination procedures.
- HR consulting: HR consultants provide a variety of services from developing an employee handbook to conducting an annual HR compliance audit. Prices start as low as $99 per month with services like Bambee.
- Staffing: Some small businesses choose to hire a full-time HR manager, which can cost about $75,000 a year or more.
- Training: Compliance training, such as how to avoid workplace harassment or how to conduct interviews often costs hundreds of dollars per topic. Some states like California and New York mandate “preventing sexual harassment” training, for example.
- Posters: Labor law posters are available free on government websites and from HR/payroll providers like Gusto. You can also opt for a service that provides color/laminated posters and charges by the number of locations and states in which your business operates
- Legal services: A labor law attorney can help you create policies, review documents, and prevent unlawful termination lawsuits. Attorneys are expensive, but online services like LegalZoom and Rocket Lawyer are often helpful, costing only $5 to $100, for example, to review a document.
Labor law compliance can be as easy as signing up with an HR consulting service like Bambee that can complete an audit of your HR practices and answer your compliance questions. Bambee provides unlimited consulting services with prices that start at $99 per month. That’s truly an investment in your business. Contact Bambee today.
Labor Law Compliance Providers
As a business owner, you have many options when it comes to labor law compliance, the most expensive likely being doing nothing as that will typically get you fined. Instead, consider hiring an HR expert either as an employee or a consultant or use online software. In fact, many HR and payroll software firms provide HR and compliance consulting services as well.
1. Use HR Software
HR software is best for small employers―less than 50 employees―with a do-it-yourself mindset. HR software can keep your small business on the right track with labor law-compliant onboarding and electronic employee records. Most HR software like Zenefits also provides add-on consulting services as well as resources like employee handbooks, job descriptions, and policy templates.
2. Implement Payroll Software That Includes HR Consulting Services
Payroll software is best for employers that don’t want to risk making mistakes on payroll tax filings, state new hire reporting, or obscure labor laws that affect employee payroll, overtime, or pay stubs. Most cloud-based payroll software is affordable at less than $10 per month, per employee, with some like Gusto, including consulting at this price while others charge extra.
3. Hire an HR Consulting Service
HR consultants provide all manner of small business support and HR outsourcing services, from helping you set up your hiring process to conducting audits of your personnel files. HR consulting services like Bambee start as low as $99 per month. Others charge between about $60 and $120 or more an hour.
4. Download a Time & Attendance App
You can find free time and attendance software like Homebase that can track employee time worked, leave requests, and state-compliant overtime calculations. Most can pass data to your payroll system, reducing errors that are likely to occur when you add up timecard data manually.
5. Outsource HR to a Professional Employer Organization
Small business owners with no desire to manage HR compliance are best partnered with a co-employer like a professional employer organization (PEO). A PEO essentially hires your employees and manages them from onboarding through termination, including running payroll, managing benefits, and providing employees with a self-service HR portal. The best PEOs for small business start at about $39 month per employee and can run up to thousands of dollars a year. Most have an application process to ensure you’re the kind of low-risk employer they’d like to work with.
6. Retain the Services of a Labor & Employment Law Expert
Some small businesses that have an established attorney may defer their labor law compliance to that expert. However, it’s an expensive option if you consider the hourly rate of a lawyer between $150 to $500 or more. Online legal services offer a less expensive option, often pricing based on documents reviewed. However, you, as the business owner, retain all the employment risk regardless of the issue.
7. Hire a Certified HR Professional
Companies that want to do more than remain compliant often invest in a part- or full-time HR professional to manage everything from hiring to employee paperwork. Certified HR staff are trained in all aspects of HR-compliance and can provide strategic HR support as your business grows, in addition to ensuring your company isn’t inadvertently violating any labor laws. Hiring a certified HR professional may cost $16 to $38 per hour, whereas hiring a full-time HR manager costs closer to $75,000 a year.
Pros & Cons of Federal & State Employment Law Compliance
It may seem obvious that your business needs to comply with labor laws. However, in case you’re thinking about skirting the rules by paying employees “under the table,” or maintaining discriminatory hiring practices, here are some pros and cons to consider:
Pros of Labor Law Compliance
The primary benefits of complying with federal, state, and local labor laws include:
- Risk mitigation: Reducing the risk of labor law audits, fines, and penalties alone are the best reason to stay compliant with federal, state, and local labor laws. Fines are often based on the number of workers affected multiplied by the number of days your business is out of compliance. It doesn’t take many fines and penalties to bankrupt a small business.
- Employment brand: It’s common for current and former employees to leave reviews about your company online. Job seekers read those reviews and aren’t likely to want to work for a company that breaks the law. Compliance helps you remain an employer of choice.
- Reputation: Consumers are often aware of how employers treat their workers, and many won’t do business with firms that practice illegal and discriminatory behaviors.
- Turnover: By complying with labor laws, you’ll likely increase employee retention and reduce turnover. That can save you thousands of dollars a year per retained employee.
Cons of the Labor Law Compliance
Labor law compliance isn’t easy or cheap. Here are the downsides:
- Training and documentation: Maintaining compliance requires that you educate yourself and managers about labor laws while establishing policies that need to be maintained and enforced.
- Cost of compliance: Whether you choose to manage HR on your own with software or hire consultants or legal advisors, there are costs involved in complying with labor laws.
- Audits: Labor laws change regularly at federal, state, and local levels. Annual HR compliance audits take time and are necessary to identify and rectify problems proactively. Nonetheless, you’ll want to do your own audits to find issues well before a federal or state agency shows up to do their own audit of your employment practices.
Tips for Complying With Federal Labor Laws
Some businesses frankly choose not to hire employees at all due to the myriad of labor laws. If what you need is work done, and you don’t necessarily need full-time employees on site, you might consider alternative outsourcing options: virtual assistants, independent contractors, or temporary employees.
Get Work Done Through a Virtual Assistant Firm
Virtual assistant firms are available worldwide to do administrative, project, information technology (IT), marketing, and website work for your company. You let the virtual assistant (VA) firm know what work you need done. They assign their employees to complete the tasks, billing you for work completed. Read our best VA firms buyer’s guide for more information.
Hire Freelancers as Independent Contractors
Freelancers and gig workers (1099 contract employees) often make themselves available to do short-term projects or provide full-time help off-site as self-employed workers. They can serve as project managers, search engine optimization (SEO) marketers or graphic designers, and the rates vary based on what you and the freelancer negotiate. However, there are rules as to what constitutes a freelancer, and you’ll want to ensure they aren’t managed like an employee or misclassified for tax purposes.
Hire Temporary or Fractional Employees Through a Staffing Agency
Staffing agencies exist to provide businesses with temporary employees or fractional workers. They may work a full-time schedule while the staffing agency, similar to a VA, bills you a fixed rate―typically about 30% on top of the worker’s hourly wage. Fractional employment firms can also provide stand-in executives, certified staff, and professional managers if you’re in a pinch. However, if you decide you later want to hire one of these workers, you’ll likely pay a premium “finder’s fee” to the staffing firm and are often 30% to 40% of the employee’s first-year salary.
Frequently Asked Questions (FAQs) About Federal Labor Laws
Government websites are the best place to find up-to-date answers on individual labor laws managed by federal agencies. However, a few of the more common FAQs are listed below.
Where can I learn about new federal laws & state requirements?
The Department of Labor has recently added a website called employer.gov with a free service that you can sign up for to receive updates via email. The DOL also has an elaws website with more detail on each labor law.
In addition, state tax websites offer similar information as do HR providers, payroll software companies, and consulting firms like Bambee. You might also join an industry website like HR.com or SHRM.org for a few hundred dollars a year to keep you in the know.
Is there a good place to get labor law posters?
Some of the statutes and regulations enforced that are federal labor laws require that notices be provided to employees and/or posted in the workplace. The DOL provides free electronic and printed copies of these required posters, as do popular payroll services like Gusto, ADP and Paychex.
Be aware that there are third-party labor poster services out there—but a few of them are scams. If you receive calls and fake-looking bills from one of those and don’t remember signing up—you probably didn’t. When looking for a poster compliance service, do an internet search and check online reviews before providing your credit card number or signing up for an expensive subscription service.
What do labor and employment law fines cost?
We asked an HR consultant this very question, and here’s what she said:
“As employment laws expand and change, there are so many areas in which employers incur fines for noncompliance. The list is exhaustive. One of the most common, unintentional, compliance violations I’ve witnessed are companies failing to post the correct unemployment law posters. Organizations get fined anywhere from $200 to more than $20,000 in penalties, depending on the number of employees and locations. Another common area of noncompliance that will incur fees that add up quickly is incorrect or missing Form I-9s. Failing to correctly fill out the form, even down to the incorrect data format, can result in hundreds of dollars in penalties per error.
“I recently visited a blue collar company in the healthcare industry with approximately 100 employees to quote HR outsourcing services. I discovered they had just incurred initial fines of $85,000 in OSHA violations. Those also tend to add up quickly.”
―Stella Terry, PHR, SHRM-CP, Director of Strategic Accounts, Tandem HR
Are there rules on when an employee should get a W-2 vs a 1099?
Employees are paid in such a way that you, the business, withhold their taxes and provide them a W-2 at year end, typically with the help of a payroll provider. A 1099-MISC, in contrast, is provided to independent contract workers that earn more than $600 in a given year. Contractors are often paid using accounting software like QuickBooks, as employment taxes don’t need to be withheld. Contractors pay their own taxes.
Does the FLSA require me to pay a premium to employees who work weekends and holidays?
The short answer is no. In addition, there is no federal law that requires you to pay employees holiday pay or sick leave. Even breaks aren’t required. Those rules, where they exist, are established at the state level.
Can younger workers like teenagers be paid less than minimum wage?
At the federal level, yes, but only during their training period, which is usually the first 90 days. The rules allow you to pay workers age 20 and younger as low as $4.25 per hour. In addition, student employees enrolled in vocational programs like shop classes can be paid 75% of minimum wage. However, check your state rules to see if your state allows these lower rates.
Federal labor laws are the broad term for the laws that U.S. businesses with employees must follow. Enforcement of these laws varies by company size, such as those with 15 employees or more. However, it is recommended that small business owners do their best to comply with these laws to be supportive of employees and maintain a strong reputation as a business owner.